-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Aj+JmN+uJjhPYuQ0Sx4hpw+MTz6sSoLB9Zxj1xJVMK9ZoniQFds0Y2vAn/vgiVen kf56gg7wdHQR8J+Kx/KhdQ== 0000820027-01-500411.txt : 20010905 0000820027-01-500411.hdr.sgml : 20010905 ACCESSION NUMBER: 0000820027-01-500411 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010904 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP CALIFORNIA TAX-EXEMPT TRUST CENTRAL INDEX KEY: 0000792717 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04646 FILM NUMBER: 1730429 BUSINESS ADDRESS: STREET 1: IDS TOWER 10 STREET 2: T33/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55440 BUSINESS PHONE: 6123722772 MAIL ADDRESS: STREET 1: 80 SOUTH 8TH STREET STREET 2: T33/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55440 FORMER COMPANY: FORMER CONFORMED NAME: IDS CALIFORNIA TAX EXEMPT TRUST DATE OF NAME CHANGE: 19920703 N-30D 1 s6328.txt AXP CALIFORNIA TAX-EXEMPT TRUST AXP(R) State Tax-Exempt Funds 2001 ANNUAL REPORT (PROSPECTUS ENCLOSED) American Express(R) Funds (icon of) lock Tax-exempt funds from the following states: California Massachusetts Michigan Minnesota New York Ohio Each Fund seeks to provide shareholders with a high level of income generally exempt from federal income tax as well as from the respective state and local income tax. (This annual report includes a prospectus that describes in detail the Fund's objective, investment strategy, risks, sales charges, fees and other matters of interest. Please read the prospectus carefully before you invest or send money.) Twice the Tax Relief Many people who want to reduce their tax burden favor municipal bonds because the interest they pay is generally free from federal tax. If you want to eliminate state tax, too, you can invest in municipal bonds in the state in which you reside. This double tax-exemption makes this one of the best tax-advantaged investments still available to individuals. What's more, the money you invest is typically used by municipalities to fund projects such as schools and highways. So, with this investment, the benefits reach well beyond your pocketbook. Table of Contents 2001 ANNUAL REPORT The purpose of this annual report is to tell investors how the Fund performed. From the Chairman 3 From the Portfolio Manager 3 Fund Facts 4 California Tax-Exempt Fund 10 The 10 Largest Holdings 10 The Fund's Long-term Performance 11 Massachusetts Tax-Exempt Fund 12 The 10 Largest Holdings 12 The Fund's Long-term Performance 13 Michigan Tax-Exempt Fund 14 The 10 Largest Holdings 14 The Fund's Long-term Performance 15 Minnesota Tax-Exempt Fund 16 The 10 Largest Holdings 16 The Fund's Long-term Performance 17 New York Tax-Exempt Fund 18 The 10 Largest Holdings 18 The Fund's Long-term Performance 19 Ohio Tax-Exempt Fund 20 The 10 Largest Holdings 20 The Fund's Long-term Performance 21 Making the Most of the Fund 22 Board Members and Officers 23 Independent Auditors' Report 25 Financial Statements 26 Notes to Financial Statements 33 Investments in Securities 50 Federal Income Tax Information 71 - -------------------------------------------------------------------------------- 2 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT (picture of) Arne H. Carlson Arne H. Carlson Chairman of the board From the Chairman First, I want to thank you for being a shareholder in American Express funds. While we strongly believe in the virtues of investment, we also are very sensitive to the fluctuations of the financial markets. That is why we want to re-emphasize the importance of making certain that you frequently review your investments and regularly meet with your financial advisor. By doing so, you can take advantage of shifts in the markets to position your portfolio relative to expected market volatility and, possibly, achieve better overall performance. Second, I strongly advise that you keep a focus on the long-term. Reviewing past performance is helpful, but it should not be viewed as a leading indicator of the future. One constant is the necessity to have a financial plan based on appropriate asset allocation. Make sure that the plan provides what you need and expect. Our job, as a Board, is to monitor and confirm that the Fund complies with its investment objective and that its management style stays on target. We want the Fund to be able to deliver to you, the shareholder, the type of performance you expect and the best results that can be obtained. Toward that end, American Express has made significant changes, and will continue to make changes as it strives to provide a consistent standard of excellence. On behalf of the Board, Arne H. Carlson (picture of) Paul B. Hylle Paul B. Hylle Portfolio manager From the Portfolio Manager A highly positive environment for municipal bonds led to rising prices during the past 12 months. The trend drove up AXP State Tax-Exempt Funds' net asset values, boosting total returns for the fiscal year -- July 2000 through June 2001. Municipal bonds had a number of things going for them over the period. Most important, interest rates came down, as investors became convinced that economic growth was slowing down. That, they reasoned, would take upward pressure off inflation and persuade the Federal Reserve to reduce short-term interest rates, which it began doing in early January. (Falling interest rates boost bond prices.) `MUNIS' GET A BOOST Among other favorable factors, with the stock market on shaky ground, investors shifted more money into higher-quality, less-risky investments, including municipal bonds and mutual funds that invest in them. "Muni" funds, in fact, experienced their first period of positive cash flows in several years. Another positive was that the supply/demand situation for munis turned quite favorable, as the supply of new bonds declined while demand from individuals and institutions remained robust, lending support to the muni market. As a result of all those factors, municipal bond prices rose for much of the period, enhancing the value of the Funds' holdings and, therefore, their net asset values. Looking at the Funds' income component, because of the downturn in interest rates, newly issued bonds offered correspondingly lower interest. That, in turn, led to a slight decline in the Funds' monthly dividends. To mitigate the trend, I continued a long-standing strategy of not selling older, higher-yielding issues, as well as adding some slightly lower quality bonds to the portfolios. That allowed the Funds' dividends to hold up relatively well. Moving on to developments in the six states, healthy financial conditions led to credit-quality upgrades in all but California, which was downgraded slightly because of a reduction in its budget surplus caused by increased spending on energy. However, thanks to extremely strong demand, California bonds experienced the most price appreciation early in the fiscal year, before tailing off over the final months in the face of the energy crisis and a downturn in the technology sector. In Ohio, a shorter average maturity in the portfolio led to a somewhat lower total return compared with the other Funds. As for what the new fiscal year might hold, I think the series of cuts in short-term interest rates by the Federal Reserve, along with income-tax rebates, will lead to a stronger economy before the end of 2001. As the muni bond market begins to anticipate that likelihood, yields are likely to rise somewhat, putting downward pressure on prices. In light of that outlook, I have shortened the Funds' durations in an effort to preserve investors' capital. (Duration, a function of the average maturity of the bond holdings, affects the sensitivity of a mutual fund's net asset value to changes in interest rates. In general, the longer the duration, the greater the sensitivity.) Concurrently, I plan to focus on enhancing each Fund's level of income and, consequently, its dividend payouts to shareholders. Paul B. Hylle - -------------------------------------------------------------------------------- 3 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT Fund Facts AXP California Tax-Exempt Fund Class A -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2001 $5.18 June 30, 2000 $5.03 Increase $0.15 Distributions -- July 1, 2000 - June 30, 2001 From income $0.25 From long-term capital gains $ -- Total distributions $0.25 Total return* +8.00% Class B -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2001 $5.17 June 30, 2000 $5.03 Increase $0.14 Distributions -- July 1, 2000 - June 30, 2001 From income $0.21 From long-term capital gains $ -- Total distributions $0.21 Total return* +6.98% Class C -- 12 month performance (All figures per share) Net asset value (NAV) June 30, 2001 $5.18 June 30, 2000 $5.03 Increase $0.15 Distributions -- July 1, 2000 - June 30, 2001 From income $0.21 From long-term capital gains $ -- Total distributions $0.21 Total return* +7.20% * The total return is a hypothetical investment in the Fund with all distributions reinvested. Returns do not include sales load. The prospectus discusses the effect of sales charges, if any, on the various classes. - -------------------------------------------------------------------------------- 4 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Massachusetts Tax-Exempt Fund Class A -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2001 $5.28 June 30, 2000 $5.11 Increase $0.17 Distributions -- July 1, 2000 - June 30, 2001 From income $0.27 From long-term capital gains $ -- Total distributions $0.27 Total return* +8.64% Class B -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2001 $5.28 June 30, 2000 $5.11 Increase $0.17 Distributions -- July 1, 2000 - June 30, 2001 From income $0.23 From long-term capital gains $ -- Total distributions $0.23 Total return* +7.83% Class C -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2001 $5.28 June 30, 2000 $5.11 Increase $0.17 Distributions -- July 1, 2000 - June 30, 2001 From income $0.23 From long-term capital gains $ -- Total distributions $0.23 Total return* +7.84% * The total return is a hypothetical investment in the Fund with all distributions reinvested. Returns do not include sales load. The prospectus discusses the effect of sales charges, if any, on the various classes. - -------------------------------------------------------------------------------- 5 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Michigan Tax-Exempt Fund Class A -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2001 $5.27 June 30, 2000 $5.09 Increase $0.18 Distributions -- July 1, 2000 - June 30, 2001 From income $0.27 From long-term capital gains $ -- Total distributions $0.27 Total return* +8.90% Class B -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2001 $5.27 June 30, 2000 $5.09 Increase $0.18 Distributions -- July 1, 2000 - June 30, 2001 From income $0.23 From long-term capital gains $ -- Total distributions $0.23 Total return* +8.09% Class C -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2001 $5.27 June 30, 2000 $5.09 Increase $0.18 Distributions -- July 1, 2000 - June 30, 2001 From income $0.22 From long-term capital gains $ -- Total distributions $0.22 Total return* +8.02% * The total return is a hypothetical investment in the Fund with all distributions reinvested. Returns do not include sales load. The prospectus discusses the effect of sales charges, if any, on the various classes. - -------------------------------------------------------------------------------- 6 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Minnesota Tax-Exempt Fund Class A -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2001 $5.14 June 30, 2000 $5.00 Increase $0.14 Distributions -- July 1, 2000 - June 30, 2001 From income $0.28 From long-term capital gains $ -- Total distributions $0.28 Total return* +8.53% Class B -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2001 $5.14 June 30, 2000 $5.00 Increase $0.14 Distributions -- July 1, 2000 - June 30, 2001 From income $0.24 From long-term capital gains $ -- Total distributions $0.24 Total return* +7.72% Class C -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2001 $5.14 June 30, 2000 $5.00 Increase $0.14 Distributions -- July 1, 2000 - June 30, 2001 From income $0.24 From long-term capital gains $ -- Total distributions $0.24 Total return* +7.75% * The total return is a hypothetical investment in the Fund with all distributions reinvested. Returns do not include sales load. The prospectus discusses the effect of sales charges, if any, on the various classes. - -------------------------------------------------------------------------------- 7 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP New York Tax-Exempt Fund Class A -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2001 $5.12 June 30, 2000 $4.92 Increase $0.20 Distributions -- July 1, 2000 - June 30, 2001 From income $0.25 From long-term capital gains $ -- Total distributions $0.25 Total return* +9.28% Class B -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2001 $5.12 June 30, 2000 $4.92 Increase $0.20 Distributions -- July 1, 2000 - June 30, 2001 From income $0.21 From long-term capital gains $ -- Total distributions $0.21 Total return* +8.47% Class C -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2001 $5.11 June 30, 2000 $4.92 Increase $0.19 Distributions -- July 1, 2000 - June 30, 2001 From income $0.21 From long-term capital gains $ -- Total distributions $0.21 Total return* +8.26% * The total return is a hypothetical investment in the Fund with all distributions reinvested. Returns do not include sales load. The prospectus discusses the effect of sales charges, if any, on the various classes. - -------------------------------------------------------------------------------- 8 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Ohio Tax-Exempt Fund Class A -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2001 $5.27 June 30, 2000 $5.13 Increase $0.14 Distributions -- July 1, 2000 - June 30, 2001 From income $0.27 From long-term capital gains $ -- Total distributions $0.27 Total return* +7.95% Class B -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2001 $5.27 June 30, 2000 $5.13 Increase $0.14 Distributions -- July 1, 2000 - June 30, 2001 From income $0.23 From long-term capital gains $ -- Total distributions $0.23 Total return* +7.15% Class C -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2001 $5.28 June 30, 2000 $5.13 Increase $0.15 Distributions -- July 1, 2000 - June 30, 2001 From income $0.22 From long-term capital gains $ -- Total distributions $0.22 Total return* +7.27% * The total return is a hypothetical investment in the Fund with all distributions reinvested. Returns do not include sales load. The prospectus discusses the effect of sales charges, if any, on the various classes. - -------------------------------------------------------------------------------- 9 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT The 10 Largest Holdings AXP California Tax-Exempt Fund
Percent Value (of net assets) (as of June 30, 2001) Anaheim Public Finance Authority Revenue Bonds Electric Utilities San Juan 2nd Series 1993 5.75% 2022 4.43% $11,357,965 Statewide Community Development Authority Revenue Certificate of Participation St. Joseph Health System Group Series 1994 6.50% 2015 2.39 6,122,875 Community Development Authority Health Facilities Unihealth America Certificate of Participation Series 1993 Inverse Floater 7.63% 2011 2.31 5,906,250 San Diego County Water Authority Revenue Bonds Certificates of Participation Series 1998A 4.50% 2024 2.24 5,736,721 Northern California Transmission Select Auction Variable Rate Security & Residual Interest Revenue Bonds Series 1993 5.50% 2024 1.79 4,591,530 Fontana Redevelopment Agency Refunding Certificate of Participation Police Facility Series 1993 5.63% 2016 1.78 4,567,140 Redding Redevelopment Agency Tax Allocation Refunding Bonds Canby Hilltop Cypress Series 1993D 5.00% 2023 1.78 4,558,765 Rancho Mirage Joint Powers Finance Authority Certificate of Participation Eisenhower Memorial Hospital Series 1992 7.00% 2022 1.74 4,457,443 Fontana Unified School District San Bernardino County General Obligation Convertible Capital Appreciation Bonds Series 1995C 6.15% 2020 1.46 3,749,196 San Diego County Capital Asset Lease Certificate of Participation Series 1993 Inverse Floater 7.47% 2007 1.44 3,692,000
Note: Investment income from certain securities may be subject to the Alternative Minimum Tax (A.M.T.). For further detail about these holdings, please refer to the section entitled "Investments in Securities." (icon of) pie chart The 10 holdings listed here make up 21.36% of net assets - -------------------------------------------------------------------------------- 10 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT The Fund's Long-term Performance AXP California Tax-Exempt Fund How your $10,000 has grown in AXP California Tax-Exempt Fund (line chart) $30,000 Lehman Brothers Municipal Bond Index Lipper California Municipal Debt Funds Index $20,000 $17,407 AXP California Tax-Exempt Fund Class A $9,525 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 Average Annual Total Returns (as of June 30, 2001) 1 year 5 years 10 years Since inception Class A +2.86% +4.46% +5.70% N/A Class B +2.98% +4.48% N/A +4.63%* Class C +6.20% N/A N/A +7.41%** * Inception date was March 20, 1995. ** Inception date was June 26, 2000. Assumes: Holding period from 7/1/91 to 6/30/01. Returns do not reflect taxes payable on distributions. Reinvestment of all income and capital gain distributions for the Fund has a value of $7,779. Also see "Past Performance" in the Fund's current prospectus. On the graph above you can see how the Fund's total return compared to two widely cited performance indexes, the Lehman Brothers Municipal Bond Index and the Lipper California Municipal Debt Funds Index. In comparing AXP California Tax-Exempt Fund (Class A) to these indexes, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indexes. Your investment and return values fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. Average annual total return figures reflect the impact of the maximum applicable sales charge. This was a period of widely fluctuating security prices. Past performance is no guarantee of future results. 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. Lipper California Municipal Debt Funds Index, an unmanaged index published by Lipper Inc., includes the 30 largest funds that are generally similar to the Fund, although some funds in the index may have somewhat different investment policies or objectives. - -------------------------------------------------------------------------------- 11 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT The 10 Largest Holdings AXP Massachusetts Tax-Exempt Fund
Percent Value (of net assets) (as of June 30, 2001) Boston City Hospital Refunding Revenue Bonds Series 1993B 5.75% 2023 3.58% $3,008,520 Health & Educational Facilities Authority Revenue Bonds Suffolk University Series 1992B 6.35% 2022 3.07 2,576,537 Health & Educational Facilities Authority Revenue Bonds Cape Cod Health System Series 1993A 5.25% 2021 2.94 2,469,050 Industrial Finance Agency Pollution Control Refunding Revenue Bonds Eastern Edison Series 1993 5.88% 2008 2.47 2,075,400 State Health & Education Facilities Authority Pre-refunded Revenue Bonds Boston College Series 1991J 6.63% 2021 2.36 1,979,207 State Turnpike Authority Metro Highway System Senior Lien Revenue Bonds Toll Road Series 1997A 5.00% 2037 2.19 1,838,840 State Health & Education Facilities Authority College Revenue Bonds Brandeis University Series 1998I 4.75% 2028 2.17 1,824,200 Health & Educational Facilities Authority Pre-refunded Revenue Bonds Charlton Memorial Hospital Series 1991B 7.25% 2013 2.13 1,785,420 Municipal Wholesale Electric Power Supply System Refunding Revenue Bonds Series 1994B 4.75% 2011 2.11 1,774,885 Bay Transportation Authority General Transportation System Refunding Revenue Bonds Series 1992B 6.20% 2016 2.05 1,719,240
Note: Investment income from certain securities may be subject to the Alternative Minimum Tax (A.M.T.). For further details about these holdings, please refer to the section entitled "Investments in Securities." (icon of) pie chart The 10 holdings listed here make up 25.07% of net assets - -------------------------------------------------------------------------------- 12 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT The Fund's Long-term Performance AXP Massachusetts Tax-Exempt Fund How your $10,000 has grown in AXP Massachusetts Tax-Exempt Fund (line chart) $30,000 Lehman Brothers Municipal Bond Index Lipper Massachusetts Municipal Debt Funds Index $20,000 $17,374 AXP Massachusetts Tax-Exempt Fund Class A $9,525 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 Average Annual Total Returns (as of June 30, 2001) 1 year 5 years 10 years Since inception Class A +3.47% +4.22% +5.68% N/A Class B +3.83% +4.28% N/A +4.50%* Class C +6.84% N/A N/A +8.06%** * Inception date was March 20, 1995. ** Inception date was June 26, 2000. Assumes: Holding period from 7/1/91 to 6/30/01. Returns do not reflect taxes payable on distributions. Reinvestment of all income and capital gain distributions for the Fund has a value of $7,594. Also see "Past Performance" in the Fund's current prospectus. On the graph above you can see how the Fund's total return compared to two widely cited performance indexes, the Lehman Brothers Municipal Bond Index and the Lipper Massachusetts Municipal Debt Funds Index. In comparing AXP Massachusetts Tax-Exempt Fund (Class A) to these indexes, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indexes. Your investment and return values fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. Average annual total return figures reflect the impact of the maximum applicable sales charge. This was a period of widely fluctuating security prices. Past performance is no guarantee of future results. 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. Lipper Massachusetts Municipal Debt Funds Index, an unmanaged 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. - -------------------------------------------------------------------------------- 13 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT The 10 Largest Holdings AXP Michigan Tax-Exempt Fund
Percent Value (of net assets) (as of June 30, 2001) Romulus Township School District Unlimited Tax General Obligation Refunding Bonds Series 1993 5.75% 2022 3.47% $2,557,549 State Building Authority Refunding Revenue Bonds Series 1991I 6.25% 2020 3.07 2,263,469 Grand Ledge Public Schools Unlimited Tax General Obligation Refunding Bonds Eaton, Clinton & Ionia Counties Series 1995 5.38% 2024 2.73 2,009,279 State Strategic Fund Limited Tax Obligation Refunding Revenue Bonds Ford Motor Series 1991A 7.10% 2006 2.51 1,849,947 State Hospital Finance Authority Hospital Pre-refunded Revenue Bonds McLaren Obligated Group Series 1991A 7.50% 2021 2.45 1,802,185 Detroit Sewer Disposal Pre-refunded Revenue Bonds Series 1993 5.70% 2023 2.30 1,696,480 Troy City Downtown Development Authority County of Oakland Development Bonds Series 1995A 6.38% 2018 2.17 1,599,885 Farmington Hills Hospital Finance Authority Revenue Bonds Botsford General Hospital Series 1992A 6.50% 2022 2.12 1,564,980 State Strategic Fund Limited Tax Obligation Refunding Revenue Bonds Detroit Edison Series 1992BB 6.50% 2016 2.11 1,557,555 Detroit Water Supply System Second Lien Revenue Bonds Series 1995A 5.50% 2025 2.05 1,512,375
Note: Investment income from certain securities may be subject to the Alternative Minimum Tax (A.M.T.). For further detail about these holdings, please refer to the section entitled "Investments in Securities." (icon of) pie chart The 10 holdings listed here make up 24.98% of net assets - -------------------------------------------------------------------------------- 14 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT The Fund's Long-term Performance AXP Michigan Tax-Exempt Fund How your $10,000 has grown in AXP Michigan Tax-Exempt Fund (line chart) $30,000 Lehman Brothers Municipal Bond Index Lipper Michigan Municipal Debt Funds Index $20,000 $17,446 AXP Michigan Tax-Exempt Fund Class A $9,525 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 Average Annual Total Returns (as of June 30, 2001) 1 year 5 years 10 years Since inception Class A +3.73% +4.04% +5.72% N/A Class B +4.09% +4.10% N/A +4.39%* Class C +7.02% N/A N/A +8.21%** * Inception date was March 20, 1995. ** Inception date was June 26, 2000. Assumes: Holding period from 7/1/91 to 6/30/01. Returns do not reflect taxes payable on distributions. Reinvestment of all income and capital gain distributions for the Fund has a value of $7,859. Also see "Past Performance" in the Fund's current prospectus. On the graph above you can see how the Fund's total return compared to two widely cited performance indexes, the Lehman Brothers Municipal Bond Index and the Lipper Michigan Municipal Debt Funds Index. In comparing AXP Michigan Tax-Exempt Fund (Class A) to these indexes, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indexes. Your investment and return values fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. Average annual total return figures reflect the impact of the maximum applicable sales charge. This was a period of widely fluctuating security prices. Past performance is no guarantee of future results. 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. Lipper Michigan Municipal Debt Funds Index, an unmanaged 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. - -------------------------------------------------------------------------------- 15 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT The 10 Largest Holdings AXP Minnesota Tax-Exempt Fund
Percent Value (of net assets) (as of June 30, 2001) State University Board of Regents General Obligation Bonds Series 1996A 5.50% 2021 3.21% $13,219,374 Minneapolis & St. Paul Housing & Redevelopment Authority Health Care System Revenue Bonds Healthspan Series 1993A 4.75% 2018 3.06 12,619,124 Minneapolis & St. Paul Housing & Redevelopment Authority Health Care System Revenue Bonds Group Health Plan Series 1992 6.75% 2013 2.60 10,695,299 Southern Minnesota Municipal Power Agency Revenue Bonds Series 1993A 4.75% 2016 2.15 8,848,073 St. Paul Housing & Redevelopment Authority Sales Tax Revenue Bonds Civic Center Escrowed to Maturity Series 1993 5.55% 2023 1.88 7,732,274 Southern Minnesota Municipal Power Agency Power Supply System Revenue Bonds Zero Coupon Series 1994A 6.67% 2019 1.87 7,725,119 Hennepin County Lease Pre-refunded Revenue Certificates of Participation Series 1991A 6.80% 2017 1.79 7,361,360 Faribault Rice & Goodhue Counties Independent School District #656 General Obligation School Building Bonds Series 1995 5.75% 2015 1.78 7,323,522 St. Louis Park Health Care Facilities Revenue Bonds Healthsystem Minnesota Obligated Group Series 1994 Inverse Floater 6.67% 2013 1.71 7,043,750 Edina Multi-family Housing Pre-refunded Revenue Bonds Walker Assisted Living Series 1991 9.00% 2031 1.66 6,833,260
Note: Investment income from certain securities may be subject to the Alternative Minimum Tax (A.M.T.). For further detail about these holdings, please refer to the section entitled "Investments in Securities." (icon of) pie chart The 10 holdings listed here make up 21.71% of net assets - -------------------------------------------------------------------------------- 16 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT The Fund's Long-term Performance AXP Minnesota Tax-Exempt Fund How your $10,000 has grown in AXP Minnesota Tax-Exempt Fund (line chart) $30,000 Lehman Brothers Municipal Bond Index Lipper Minnesota Municipal Debt Funds Index $20,000 $17,382 AXP Minnesota Tax-Exempt Fund Class A $9,525 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 Average Annual Total Returns (as of June 30, 2001) 1 year 5 years 10 years Since inception Class A +3.38% +4.50% +5.68% N/A Class B +3.72% +4.56% N/A +4.74%* Class C +6.75% N/A N/A +7.95%** * Inception date was March 20, 1995. ** Inception date was June 26, 2000. Assumes: Holding period from 7/1/91 to 6/30/01. Returns do not reflect taxes payable on distributions. Reinvestment of all income and capital gain distributions for the Fund has a value of $7,998. Also see "Past Performance" in the Fund's current prospectus. On the graph above you can see how the Fund's total return compared to two widely cited performance indexes, the Lehman Brothers Municipal Bond Index and the Lipper Minnesota Municipal Debt Funds Index. In comparing AXP Minnesota Tax-Exempt Fund (Class A) to these indexes, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indexes. Your investment and return values fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. Average annual total return figures reflect the impact of the maximum applicable sales charge. This was a period of widely fluctuating security prices. Past performance is no guarantee of future results. 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. Lipper Minnesota Municipal Debt Funds Index, an unmanaged 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. - -------------------------------------------------------------------------------- 17 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT The 10 Largest Holdings AXP New York Tax-Exempt Fund
Percent Value (of net assets) (as of June 30, 2001) United Nations Development Senior Lien Pre-refunded Revenue Bonds Series 1992A 6.00% 2026 4.62% $4,847,489 State Dormitory Authority College Revenue Bonds Consolidated City University System Series 1993A 5.75% 2013 3.18 3,336,059 State Mortgage Agency Homeowner Mortgage Revenue Bonds 27th Series 1992 6.90% 2015 2.96 3,105,390 State Environmental Facilities State Water Revolving Fund Pollution Control Revenue Bonds Series 1990A 7.50% 2012 2.94 3,089,250 State Energy Research & Development Authority Solid Waste Disposal Revenue Bonds State Electric & Gas Company Series 1993A A.M.T. 5.70% 2028 2.91 3,056,670 State Energy Research & Development Authority Pollution Control Refunding Revenue Bonds Rochester Gas & Electric Series 1992B A.M.T. 6.50% 2032 2.45 2,576,300 State Urban Development Capital Correctional Facilities Refunding Lease Revenue Bonds Series 1994A 5.25% 2021 2.39 2,503,950 New York City Municipal Water Finance Authority Water & Sewer System Revenue Bonds Series 1993 6.73% 2009 2.05 2,147,500 State Dormitory Authority State University Educational Facilities Refunding Revenue Bonds Series 1993A 5.50% 2019 2.03 2,131,840 New York City Industrial Development Agency Civic Facilities Revenue Bonds Rockefeller Foundation Series 1993 5.38% 2023 1.93 2,026,920
Note: Investment income from certain securities may be subject to the Alternative Minimum Tax (A.M.T.). For further detail about these holdings, please refer to the section entitled "Investments in Securities." (icon of) pie chart The 10 holdings listed here make up 27.46% of net assets - -------------------------------------------------------------------------------- 18 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT The Fund's Long-term Performance AXP New York Tax-Exempt Fund How your $10,000 has grown in AXP New York Tax-Exempt Fund (line chart) $30,000 Lehman Brothers Municipal Bond Index Lipper New York Municipal Debt Funds Index $20,000 $17,388 AXP New York Tax-Exempt Fund Class A $9,525 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 Average Annual Total Returns (as of June 30, 2001) 1 year 5 years 10 years Since inception Class A +4.09% +4.54% +5.69% N/A Class B +4.47% +4.60% N/A +4.55%* Class C +7.26% N/A N/A +8.47%** * Inception date was March 20, 1995. ** Inception date was June 26, 2000. Assumes: Holding period from 7/1/91 to 6/30/01. Returns do not reflect taxes payable on distributions. Reinvestment of all income and capital gain distributions for the Fund has a value of $7,724. Also see "Past Performance" in the Fund's current prospectus. On the graph above you can see how the Fund's total return compared to two widely cited performance indexes, the Lehman Brothers Municipal Bond Index and the Lipper New York Municipal Debt Funds Index. In comparing AXP New York Tax-Exempt Fund (Class A) to these indexes, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indexes. Your investment and return values fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. Average annual total return figures reflect the impact of the maximum applicable sales charge. This was a period of widely fluctuating security prices. Past performance is no guarantee of future results. 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. Lipper New York Municipal Debt Funds Index, an unmanaged index published by Lipper Inc., includes the 30 largest funds that are generally similar to the Fund, although some funds in the index may have somewhat different investment policies or objectives. - -------------------------------------------------------------------------------- 19 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT The 10 Largest Holdings AXP Ohio Tax-Exempt Fund
Percent Value (of net assets) (as of June 30, 2001) Lakota Local School District Unlimited Tax Improvement General Obligation Bonds Series 1994 6.25% 2014 2.93% $2,216,539 State Air Quality Development Authority Refunding Revenue Bonds JMG Funding Limited Partnership Series 1994 A.M.T. 6.38% 2029 2.78 2,103,800 Erie County Hospital Improvement Refunding Revenue Bonds Firelands Community Hospital Series 1992 6.75% 2015 2.71 2,052,620 Lorain County Hospital Facilities Refunding Revenue Bonds EMH Regional Medical Center Series 1995 5.38% 2021 2.65 2,009,980 State Valley School District School Improvement Unlimited Tax General Obligation Bonds Counties of Adams & Highland Series 1995 5.25% 2021 2.65 2,007,480 State Municipal Electric Generation Agency Revenue Bonds Joint Venture #5 Series 1993 5.38% 2024 2.65 2,004,760 Butler County Hospital Facility Improvement Refunding Revenue Bonds Fort Hamilton-Hughes Memorial Center Series 1991 7.50% 2010 2.41 1,823,605 Cuyahoga County Hospital Refunding Revenue Bonds Cleveland Clinic Foundation Series 1992C 5.50% 2011 2.04 1,547,385 State Housing Finance Agency Mortgage Revenue Bonds Aristocrat South Board & Care Series 1991A A.M.T. 7.30% 2031 2.04 1,546,095 North Olmstead County General Obligation Bonds Series 1996 5.00% 2016 1.99 1,504,035
Note: Investment income from certain securities may be subject to the Alternative Minimum Tax (A.M.T.). For further detail about these holdings, please refer to the section entitled "Investments in Securities." (icon of) pie chart The 10 holdings listed here make up 24.85% of net assets - -------------------------------------------------------------------------------- 20 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT The Fund's Long-term Performance AXP Ohio Tax-Exempt Fund How your $10,000 has grown in AXP Ohio Tax-Exempt Fund (line chart) $30,000 Lehman Brothers Municipal Bond Index Lipper Ohio Municipal Debt Funds Index $20,000 $17,282 AXP Ohio Tax-Exempt Fund Class A $9,525 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 Average Annual Total Returns (as of June 30, 2001) 1 year 5 years 10 years Since inception Class A +2.82% +4.27% +5.62% N/A Class B +3.15% +4.34% N/A +4.45%* Class C +6.27% N/A N/A +7.49%** * Inception date was March 20, 1995. ** Inception date was June 26, 2000. Assumes: Holding period from 7/1/91 to 6/30/01. Returns do not reflect taxes payable on distributions. Reinvestment of all income and capital gain distributions for the Fund has a value of $7,624. Also see "Past Performance" in the Fund's current prospectus. On the graph above you can see how the Fund's total return compared to two widely cited performance indexes, the Lehman Brothers Municipal Bond Index and the Lipper Ohio Municipal Debt Funds Index. In comparing AXP Ohio Tax-Exempt Fund (Class A) to these indexes, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indexes. Your investment and return values fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. Average annual total return figures reflect the impact of the maximum applicable sales charge. This was a period of widely fluctuating security prices. Past performance is no guarantee of future results. 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. Lipper Ohio Municipal Debt Funds Index, an unmanaged 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. - -------------------------------------------------------------------------------- 21 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT Making the Most of the Fund BUILD YOUR ASSETS SYSTEMATICALLY One of the best ways to invest in the Fund is by dollar-cost averaging -- a time-tested strategy that can make market fluctuations work for you. To dollar-cost average, simply invest a fixed amount of money regularly. You'll automatically buy more shares when the Fund's share price is low, fewer shares when it is high. The chart below shows how dollar-cost averaging works. In these three hypothetical scenarios, you will see six months of share price fluctuations. This strategy does not ensure a profit or avoid a loss if the market declines. But, if you can continue to invest regularly through changing market conditions even when the price of your shares falls or the market declines, it can be an effective way to accumulate shares to meet your long-term goals. How dollar-cost averaging works Jan Feb Mar Apr May Jun $15 $16 $18 $20 $10 $10 $12 $14 $ 5 Accumulated shares* Average market Your average price per share cost per share 42.25 $15 $14.20 - ------------------------------------------------------------------------------- Jan Feb Mar Apr May Jun $15 $10 $10 $10 $ 5 $8 $5 $5 $8 Accumulated shares* Average market Your average price per share cost per share 85.0 $7.66 $7.05 - ------------------------------------------------------------------------------- Jan Feb Mar Apr May Jun $15 $10 $10 $ 5 $8 $6 $4 $4 $7 Accumulated shares* Average market Your average price per share cost per share 103.5 $6.50 $5.80 - ------------------------------------------------------------------------------- $100 invested per month. Total invested: $600. * Shares purchased is determined by dividing the amount invested per month by the current share price. THREE WAYS TO BENEFIT FROM A MUTUAL FUND: o your shares increase in value when the Fund's investments do well o you receive capital gains when the gains on investments sold by the Fund exceed losses o you receive income when the Fund's stock dividends, interest and short-term gains exceed its expenses. All three make up your total return. You potentially can increase your investment if, like most investors, you reinvest your dividends and capital gain distributions to buy additional shares of the Fund or another fund. - -------------------------------------------------------------------------------- 22 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT Board Members and Officers Shareholders elect a board that oversees the Fund's operations. The board appoints officers who are responsible for day-to-day business decisions based on policies set by the board. The following is a list of the Fund's board members. Each member oversees 15 Master Trust portfolios and 68 American Express mutual funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the board.
Independent Board Members - ------------------------------- ----------------------- --------------------- --------------------- --------------------- Name, Position held Principal Other Committee address, with Registrant occupations directorships memberships age and length of during past service 5 years - ------------------------------- ----------------------- --------------------- --------------------- --------------------- - ------------------------------- ----------------------- --------------------- --------------------- --------------------- H. Brewster Atwater, Jr. Board member since Retired chairman Merck & Co., Inc. Board 4900 IDS Tower 1996 and chief executive (pharmaceuticals) Effectiveness, Minneapolis, MN 55402 officer, General Investment Review Born in 1931 Mills, Inc. (consumer foods) - ------------------------------- ----------------------- --------------------- --------------------- --------------------- - ------------------------------- ----------------------- --------------------- --------------------- --------------------- Arne H. Carlson Chair of the Board Chairman, Board Contracts, 901 S. Marquette Ave. since 1999 Services Executive, Minneapolis, MN 55402 Corporation Investment Review, Born in 1934 (provides Board Effectiveness administrative services to boards) Former Governor of Minnesota - ------------------------------- ----------------------- --------------------- --------------------- --------------------- - ------------------------------- ----------------------- --------------------- --------------------- --------------------- Lynne V. Cheney Board member since Distinguished The Reader's Digest Joint Audit, American Enterprise 1994 Fellow, AEI Association Inc. Contracts Institute for Public Policy Research (AEI) 1150 17th St., N.W. Washington, D.C. 20036 Born in 1941 - ------------------------------- ----------------------- --------------------- --------------------- --------------------- - ------------------------------- ----------------------- --------------------- --------------------- --------------------- Livio D. DeSimone Board member since Retired chair of Cargill, Joint Audit, 30 Seventh Street 2001 the board and chief Incorporated Contracts St. Paul, MN 55101-4901 executive officer, (commodity Born in 1936 Minnesota Mining merchants and and Manufacturing processors), Target (3M) Corporation (department stores), General Mills, Inc. (consumer foods) and Vulcan Materials Company (construction materials/ chemicals) - ------------------------------- ----------------------- --------------------- --------------------- --------------------- - ------------------------------- ----------------------- --------------------- --------------------- --------------------- Ira D. Hall Board member since Treasurer, Texaco Joint Audit, Texaco, Inc. 2001 Inc. since 1998. Investment Review 2000 Westchester Avenue Prior to that, White Plains, NY 10650 director, Born in 1944. International Operations IBM Corp. - ------------------------------- ----------------------- --------------------- --------------------- --------------------- - ------------------------------- ----------------------- --------------------- --------------------- --------------------- Heinz F. Hutter Board member since Retired president Board P.O. Box 2187 1994 and chief operating Effectiveness, Minneapolis, MN 55402 officer, Cargill, Investment Review Born in 1929 Incorporated (commodity merchants and processors) - ------------------------------- ----------------------- --------------------- --------------------- --------------------- - ------------------------------- ----------------------- --------------------- --------------------- --------------------- Anne P. Jones Board member since Attorney and Motorola, Inc. Joint Audit, Board 5716 Bent Branch Rd. 1985 telecommunications (electronics) Effectiveness Bethesda, MD 20816 consultant Born in 1935 - ------------------------------- ----------------------- --------------------- --------------------- --------------------- - ------------------------------- ----------------------- --------------------- --------------------- --------------------- William R. Pearce Board member since RII Weyerhaeuser Executive, 2050 One Financial Plaza 1980 World Timberfund, Investment Review, Minneapolis, MN 55402 L.P. (develops Board Effectiveness Born in 1927 timber resources) -- management committee; Former chair, American Express Funds - ------------------------------- ----------------------- --------------------- --------------------- --------------------- - ------------------------------- ----------------------- --------------------- --------------------- --------------------- Alan K. Simpson Board member since Former three-term Biogen, Inc. Joint Audit, 1201 Sunshine Ave. 1997 United States (bio-pharmaceuticals) Contracts Cody, WY 82414 Senator for Wyoming Born in 1931 - ------------------------------- ----------------------- --------------------- --------------------- --------------------- - ------------------------------- ----------------------- --------------------- --------------------- --------------------- C. Angus Wurtele Board member since Retired chair of The Valspar Contracts, Suite 1700 Foshay Tower 1994 the board and chief Corporation Investment Review Minneapolis, MN 55402 executive officer, (paints), Bemis Born in 1934 The Valspar Corporation Corporation (packaging) - ------------------------------- ----------------------- --------------------- --------------------- ---------------------
- -------------------------------------------------------------------------------- 23 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT
Board Members Affiliated with American Express Financial Corporation (AEFC) - ------------------------------- ----------------------- --------------------- --------------------- --------------------- Name, Position held Principal Other Committee address, with Registrant occupations directorships Memberships age and length of during past service 5 years - ------------------------------- ----------------------- --------------------- --------------------- --------------------- - ------------------------------- ----------------------- --------------------- --------------------- --------------------- David R. Hubers Board member since Retired chief Chronimed Inc. 50643 AXP Financial Center 1993 executive officer, (specialty Minneapolis, MN 55474 director and chair pharmaceutical Born in 1943 of the board of AEFC distribution), RTW Inc. (manages worker's compensation programs), Lawson Software, Inc. (technology based business applications) - ------------------------------- ----------------------- --------------------- --------------------- --------------------- - ------------------------------- ----------------------- --------------------- --------------------- --------------------- John R. Thomas Board member since Senior vice Executive, 50652 AXP Financial Center 1987, president since president - Investment Review Minneapolis, MN 55474 1997 information and Born in 1937 technology of AEFC - ------------------------------- ----------------------- --------------------- --------------------- --------------------- The board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the board. In addition to Mr. Thomas, who is president, the Fund's other officers are: Other Officers - ------------------------------- ----------------------- --------------------- --------------------- --------------------- Name, Position held Principal Other Committee address, with Registrant occupations directorships memberships age and length of during past service 5 years - ------------------------------- ----------------------- --------------------- --------------------- --------------------- - ------------------------------- ----------------------- --------------------- --------------------- --------------------- John M. Knight Treasurer since 1999 Vice president - 50005 AXP Financial Center investment Minneapolis, MN 55474 accounting of AEFC Born in 1952 - ------------------------------- ----------------------- --------------------- --------------------- --------------------- - ------------------------------- ----------------------- --------------------- --------------------- --------------------- Leslie L. Ogg Vice president, President of Board 901 S. Marquette Ave. general counsel, and Services Corporation Minneapolis, MN 55402 secretary since 1978 Born in 1938 - ------------------------------- ----------------------- --------------------- --------------------- --------------------- - ------------------------------- ----------------------- --------------------- --------------------- --------------------- Frederick C. Quirsfeld Vice president since Senior vice 53609 AXP Financial Center 1998 president - fixed Minneapolis, MN 55474 income of AEFC Born in 1947 - ------------------------------- ----------------------- --------------------- --------------------- ---------------------
- -------------------------------------------------------------------------------- 24 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT Independent Auditors' Report THE BOARD AND SHAREHOLDERS AXP CALIFORNIA TAX-EXEMPT TRUST AXP SPECIAL TAX-EXEMPT SERIES TRUST We have audited the accompanying statements of assets and liabilities, including the schedules of investments in securities, of AXP California Tax-Exempt Fund (a fund within AXP California Tax-Exempt Trust) and AXP Massachusetts Tax-Exempt Fund, AXP Michigan Tax-Exempt Fund, AXP Minnesota Tax-Exempt Fund, AXP New York Tax-Exempt Fund and AXP Ohio Tax-Exempt Fund (funds within AXP Special Tax-Exempt Series Trust) as of June 30, 2001, the related statements of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period ended June 30, 2001, and the financial highlights for each of the years in the five-year period ended June 30, 2001. These financial statements and the financial highlights are the responsibility of fund management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 2001, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AXP California Tax-Exempt Fund, AXP Massachusetts Tax-Exempt Fund, AXP Michigan Tax-Exempt Fund, AXP Minnesota Tax-Exempt Fund, AXP New York Tax-Exempt Fund and AXP Ohio Tax-Exempt Fund as of June 30, 2001, and the results of its operations, changes in its net assets and the financial highlights for each of the periods stated in the first paragraph above, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Minneapolis, Minnesota August 3, 2001 - -------------------------------------------------------------------------------- 26 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT
Financial Statements Statements of assets and liabilities AXP California Tax-Exempt Trust AXP Special Tax-Exempt Series Trust California Massachusetts Michigan Tax-Exempt Tax-Exempt Tax-Exempt June 30, 2001 Fund Fund Fund Assets Investments in securities, at value (Note 1) (identified cost $232,904,178, $80,369,995 and $68,933,571) $248,420,782 $82,359,714 $72,675,394 Cash in bank on demand deposit 69,691 22,510 6,977 Accrued interest receivable 3,531,434 1,657,950 1,062,437 Receivable for investment securities sold 4,317,187 -- -- --------- --- --- Total assets 256,339,094 84,040,174 73,744,808 ----------- ---------- ---------- Liabilities Dividends payable to shareholders 88,268 27,532 24,725 Accrued investment management services fee 3,299 1,083 948 Accrued distribution fee 2,270 972 642 Accrued transfer agency fee 263 132 94 Accrued administrative services fee 280 92 81 Other accrued expenses 28,811 26,913 36,381 ------ ------ ------ Total liabilities 123,191 56,724 62,871 ------- ------ ------ Net assets applicable to outstanding shares $256,215,903 $83,983,450 $73,681,937 ============ =========== =========== Represented by Shares of beneficial interest -- $.01 par value (Note 1) $ 494,987 $ 158,962 $ 139,741 Additional paid-in capital 248,712,602 83,258,171 72,229,875 Undistributed (excess of distributions over) net investment income 10,398 (2) 15 Accumulated net realized gain (loss) (Note 6) (8,646,889) (1,423,400) (2,429,517) Unrealized appreciation (depreciation) on investments (Note 5) 15,644,805 1,989,719 3,741,823 ---------- --------- --------- Total -- representing net assets applicable to outstanding shares $256,215,903 $83,983,450 $73,681,937 ============ =========== =========== Net assets applicable to outstanding shares: Class A $231,307,621 $64,752,672 $66,982,257 Class B $ 23,816,952 $18,490,629 $ 6,480,055 Class C $ 1,091,330 $ 740,149 $ 219,625 Outstanding shares of beneficial interest: Class A shares 44,685,006 12,256,160 12,703,629 Class B shares 4,602,988 3,499,925 1,228,832 Class C shares 210,695 140,089 41,645 Net asset value per share: Class A $ 5.18 $ 5.28 $ 5.27 Class B $ 5.17 $ 5.28 $ 5.27 Class C $ 5.18 $ 5.28 $ 5.27 ------------ ----------- -----------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 26 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT
Statements of assets and liabilities AXP California Tax-Exempt Trust AXP Special Tax-Exempt Series Trust Minnesota New York Ohio Tax-Exempt Tax-Exempt Tax-Exempt June 30, 2001 Fund Fund Fund Assets Investments in securities, at value (Note 1) (identified cost $395,770,324, $98,104,546 and $71,701,373) $405,095,984 $103,704,963 $74,687,367 Cash in bank on demand deposit 197,323 26,095 144,881 Accrued interest receivable 6,701,739 1,632,532 940,752 Receivable for investment securities sold 338,521 12,575 6,094 Total assets 412,333,567 105,376,165 75,779,094 ----------- ----------- ---------- Liabilities Dividends payable to shareholders 178,845 35,132 21,825 Payable for investment securities purchased -- 338,759 -- Accrued investment management services fee 5,196 1,353 975 Accrued distribution fee 3,953 1,059 699 Accrued transfer agency fee 592 151 98 Accrued administrative services fee 429 115 83 Other accrued expenses 45,339 17,766 25,914 ------ ------ ------ Total liabilities 234,354 394,335 49,594 ------- ------- ------ Net assets applicable to outstanding shares $412,099,213 $104,981,830 $75,729,500 ============ ============ =========== Represented by Shares of beneficial interest -- $.01 par value (Note 1) $ 801,397 $ 205,184 $ 143,604 Additional paid-in capital 412,973,934 101,635,979 74,579,623 Undistributed (excess of distributions over) net investment income 100,093 (16) (1) Accumulated net realized gain (loss) (Note 6) (11,179,933) (2,467,112) (1,987,098) Unrealized appreciation (depreciation) on investments (Note 5) 9,403,722 5,607,795 2,993,372 --------- --------- --------- Total -- representing net assets applicable to outstanding shares $412,099,213 $104,981,830 $75,729,500 ============ ============ =========== Net assets applicable to outstanding shares: Class A $357,171,329 $ 88,469,657 $66,944,092 Class B $ 53,194,945 $ 16,140,120 $ 8,091,928 Class C $ 1,732,939 $ 372,053 $ 693,480 Outstanding shares of beneficial interest: Class A shares 69,458,878 17,291,139 12,694,446 Class B shares 10,343,954 3,154,544 1,534,487 Class C shares 336,830 72,754 131,454 Net asset value per share: Class A $ 5.14 $ 5.12 $ 5.27 Class B $ 5.14 $ 5.12 $ 5.27 Class C $ 5.14 $ 5.11 $ 5.28 ------------ ------------ -----------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 27 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT
Statements of operations AXP California Tax-Exempt Trust AXP Special Tax-Exempt Series Trust California Massachusetts Michigan Tax-Exempt Tax-Exempt Tax-Exempt Year ended June 30, 2001 Fund Fund Fund Investment income Income: Interest $13,906,342 $4,695,182 $4,310,730 ----------- ---------- ---------- Expenses (Note 2): Investment management services fee 1,162,687 369,827 336,169 Distribution fee Class A 562,308 154,135 163,461 Class B 221,970 164,467 60,565 Class C 4,017 5,846 832 Transfer agency fee 84,154 41,575 30,817 Incremental transfer agency fee Class A 8,404 3,796 3,171 Class B 1,764 1,414 512 Class C 45 13 10 Administrative services fees and expenses 110,418 32,247 29,317 Compensation of board members 8,519 8,519 8,519 Custodian fees 17,522 9,200 8,006 Printing and postage 25,293 8,085 5,878 Registration fees 44,011 53,901 56,360 Audit fees 17,500 16,000 16,000 Other 3,973 8,875 7,697 ----- ----- ----- Total expenses 2,272,585 877,900 727,314 Earnings credits on cash balances (Note 2) (47,014) (22,831) (16,786) ------- ------- ------- Total net expenses 2,225,571 855,069 710,528 --------- ------- ------- Investment income (loss) -- net 11,680,771 3,840,113 3,600,202 ---------- --------- --------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) 712,448 124,201 191,171 Futures contracts (2,543,196) -- -- ---------- --- --- Net realized gain (loss) on investments (1,830,748) 124,201 191,171 Net change in unrealized appreciation (depreciation) on investments 8,710,217 2,441,440 2,276,366 --------- --------- --------- Net gain (loss) on investments 6,879,469 2,565,641 2,467,537 --------- --------- --------- Net increase (decrease) in net assets resulting from operations $18,560,240 $6,405,754 $6,067,739 =========== ========== ==========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 28 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT
Statements of operations AXP California Tax-Exempt Trust AXP Special Tax-Exempt Series Trust Minnesota New York Ohio Tax-Exempt Tax-Exempt Tax-Exempt Year ended June 30, 2001 Fund Fund Fund Investment income Income: Interest $24,675,815 $5,814,438 $4,177,028 ----------- ---------- ---------- Expenses (Note 2): Investment management services fee 1,809,270 470,866 332,912 Distribution fee Class A 861,815 214,968 158,858 Class B 471,780 140,599 71,754 Class C 6,846 1,357 1,126 Transfer agency fee 190,640 48,174 30,915 Incremental transfer agency fee Class A 18,803 4,670 3,092 Class B 4,382 1,218 647 Class C 74 26 9 Administrative services fees and expenses 141,349 41,153 28,999 Compensation of board members 8,519 8,519 8,519 Custodian fees 27,121 11,014 8,010 Printing and postage 44,718 1,728 8,193 Registration fees 63,120 48,198 42,561 Audit fees 19,000 17,500 16,000 Other 8,380 5,200 2,551 ----- ----- ----- Total expenses 3,675,817 1,015,190 714,146 Earnings credits on cash balances (Note 2) (52,343) (10,567) (15,569) ------- ------- ------- Total net expenses 3,623,474 1,004,623 698,577 --------- --------- ------- Investment income (loss) -- net 21,052,341 4,809,815 3,478,451 ---------- --------- --------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) (335,119) 633,995 45,155 Futures contracts (1,608,857) (72,163) (162,879) ---------- ------- -------- Net realized gain (loss) on investments (1,943,976) 561,832 (117,724) Net change in unrealized appreciation (depreciation) on investments 12,884,312 3,325,987 1,999,088 ---------- --------- --------- Net gain (loss) on investments 10,940,336 3,887,819 1,881,364 ---------- --------- --------- Net increase (decrease) in net assets resulting from operations $31,992,677 $8,697,634 $5,359,815 =========== ========== ==========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 29 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT
Statements of changes in net assets AXP California Tax-Exempt Trust AXP Special Tax-Exempt Series Trust California Tax-Exempt Fund Massachusetts Tax-Exempt Fund Year ended June 30, 2001 2000 2001 2000 Operations and distributions Investment income (loss) -- net $ 11,680,771 $ 12,519,505 $ 3,840,113 $ 4,137,360 Net realized gain (loss) on investments (1,830,748) (1,375,667) 124,201 (595,611) Net change in unrealized appreciation (depreciation) on investments 8,710,217 (7,129,128) 2,441,440 (3,933,993) --------- ---------- --------- ---------- Net increase (decrease) in net assets resulting from operations 18,560,240 4,014,710 6,405,754 (392,244) ---------- --------- --------- -------- Distributions to shareholders from: Net investment income Class A (10,760,792) (11,607,146) (3,110,622) (3,435,437) Class B (893,383) (912,358) (705,659) (743,470) Class C (16,198) -- (25,202) -- Net realized gain Class A -- -- -- (507) Class B -- -- -- (130) Class C -- -- -- -- --- --- --- --- Total distributions (11,670,373) (12,519,504) (3,841,483) (4,179,544) ----------- ----------- ---------- ---------- Share transactions (Note 4) Proceeds from sales Class A shares (Note 2) 39,718,956 32,986,509 10,931,282 10,282,330 Class B shares 6,533,410 5,768,913 3,986,974 3,974,341 Class C shares 1,283,535 2,000 401,630 302,203 Reinvestment of distributions at net asset value Class A shares 7,119,547 7,691,981 2,494,457 2,684,138 Class B shares 682,053 698,334 547,285 598,328 Class C shares 12,648 -- 25,164 -- Payments for redemptions Class A shares (35,050,333) (65,575,795) (10,097,344) (20,313,022) Class B shares (Note 2) (4,535,825) (6,199,583) (2,202,984) (4,979,083) Class C shares (Note 2) (199,923) -- (7,584) -- -------- --- ------ --- Increase (decrease) in net assets from share transactions 15,564,068 (24,627,641) 6,078,880 (7,450,765) ---------- ----------- --------- ---------- Total increase (decrease) in net assets 22,453,935 (33,132,435) 8,643,151 (12,022,553) Net assets at beginning of year 233,761,968 266,894,403 75,340,299 87,362,852 ----------- ----------- ---------- ---------- Net assets at end of year $256,215,903 $233,761,968 $ 83,983,450 $ 75,340,299 ============ ============ ============ ============ Undistributed (excess of distributions over) net investment income $ 10,398 $ -- $ (2) $ 1,368 ------------ ------------ ------------ ------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 30 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT
Statements of changes in net assets AXP California Tax-Exempt Trust AXP Special Tax-Exempt Series Trust Michigan Tax-Exempt Fund Minnesota Tax-Exempt Fund Year ended June 30, 2001 2000 2001 2000 Operations and distributions Investment income (loss) -- net $ 3,600,202 $ 4,040,334 $ 21,052,341 $ 23,150,982 Net realized gain (loss) on investments 191,171 (1,385,947) (1,943,976) (1,007,388) Net change in unrealized appreciation (depreciation) on investments 2,276,366 (3,025,369) 12,884,312 (21,736,643) Net increase (decrease) in net assets resulting from operations 6,067,739 (370,982) 31,992,677 406,951 --------- -------- ---------- ------- Distributions to shareholders from: Net investment income Class A (3,327,020) (3,751,726) (18,810,469) (20,827,151) Class B (262,535) (295,567) (2,219,057) (2,212,248) Class C (3,631) -- (32,460) -- Net realized gain Class A -- (4,302) -- -- Class B -- (409) -- -- --- ---- --- --- Total distributions (3,593,186) (4,052,004) (21,061,986) (23,039,399) ---------- ---------- ----------- ----------- Share transactions (Note 4) Proceeds from sales Class A shares (Note 2) 8,519,696 9,682,669 72,638,585 64,411,374 Class B shares 1,208,719 1,357,740 12,617,886 12,060,209 Class C shares 216,679 2,000 1,721,901 2,000 Reinvestment of distributions at net asset value Class A shares 2,517,943 2,736,240 14,979,095 16,104,962 Class B shares 198,272 222,111 1,846,453 1,823,682 Class C shares 1,174 -- 28,344 -- Payments for redemptions Class A shares (11,731,757) (19,584,407) (79,888,353) (126,213,915) Class B shares (Note 2) (1,047,810) (1,871,092) (7,009,477) (12,684,696) Class C shares (Note 2) -- -- (29,028) -- --- --- ------- --- Increase (decrease) in net assets from share transactions (117,084) (7,454,739) 16,905,406 (44,496,384) -------- ---------- ---------- ----------- Total increase (decrease) in net assets 2,357,469 (11,877,725) 27,836,097 (67,128,832) Net assets at beginning of year 71,324,468 83,202,193 384,263,116 451,391,948 ---------- ---------- ----------- ----------- Net assets at end of year $ 73,681,937 $ 71,324,468 $412,099,213 $ 384,263,116 ============ ============ ============ ============= Undistributed (excess of distributions over) net investment income $ 15 $ (7,001) $ 100,093 $ 109,738 ------------ ------------ ------------ -------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 31 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT
Statements of changes in net assets AXP California Tax-Exempt Trust AXP Special Tax-Exempt Series Trust New York Tax-Exempt Fund Ohio Tax-Exempt Fund Year ended June 30, 2001 2000 2001 2000 Operations and distributions Investment income (loss) -- net $ 4,809,815 $ 5,485,609 $ 3,478,451 $ 3,689,250 Net realized gain (loss) on investments 561,832 (812,443) (117,724) (716,775) Net change in unrealized appreciation (depreciation) on investments 3,325,987 (4,393,371) 1,999,088 (2,615,074) --------- ---------- --------- ---------- Net increase (decrease) in net assets resulting from operations 8,697,634 279,795 5,359,815 357,401 --------- ------- --------- ------- Distributions to shareholders from: Net investment income Class A (4,229,578) (4,864,876) (3,170,105) (3,370,300) Class B (585,710) (609,708) (303,547) (319,979) Class C (5,568) -- (4,799) -- ------ --- ------ --- Total distributions (4,820,856) (5,474,584) (3,478,451) (3,690,279) ---------- ---------- ---------- ---------- Share transactions (Note 4) Proceeds from sales Class A shares (Note 2) 10,426,775 11,946,734 13,023,386 11,263,709 Class B shares 4,013,030 4,440,284 2,015,019 1,346,434 Class C shares 357,049 69,000 686,081 2,000 Reinvestment of distributions at net asset value Class A shares 3,190,608 3,542,377 2,420,796 2,342,776 Class B shares 433,889 483,551 231,940 244,089 Class C shares 3,471 -- 4,639 -- Payments for redemptions Class A shares (13,763,371) (28,059,049) (10,236,659) (19,406,820) Class B shares (Note 2) (2,300,461) (4,369,115) (937,170) (2,438,407) Class C shares (Note 2) (61,242) -- -- -- ------- --- --- --- Increase (decrease) in net assets from share transactions 2,299,748 (11,946,218) 7,208,032 (6,646,219) --------- ----------- --------- ---------- Total increase (decrease) in net assets 6,176,526 (17,141,007) 9,089,396 (9,979,097) Net assets at beginning of year 98,805,304 115,946,311 66,640,104 76,619,201 ---------- ----------- ---------- ---------- Net assets at end of year $104,981,830 $ 98,805,304 $ 75,729,500 $ 66,640,104 ============ ============ ============ ============ Undistributed (excess of distributions over) net investment income $ (16) $ 11,025 $ (1) $ (1) ------------ ------------ ------------ ------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 32 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT Notes to Financial Statements AXP California Tax-Exempt Trust AXP Special Tax-Exempt Series Trust 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AXP California Tax-Exempt Trust and AXP Special Tax-Exempt Series Trust were organized as Massachusetts business trusts. AXP California Tax-Exempt Trust includes only AXP California Tax-Exempt Fund. AXP Special Tax-Exempt Series Trust is a "series fund" that is currently composed of individual state tax-exempt funds and one insured national tax-exempt fund, including AXP Massachusetts Tax-Exempt Fund, AXP Michigan Tax-Exempt Fund, AXP Minnesota Tax-Exempt Fund, AXP New York Tax-Exempt Fund and AXP Ohio Tax-Exempt Fund (the Funds). The Funds are non-diversified, open-end management investment companies as defined in the Investment Company Act of 1940 (as amended). Each Fund has unlimited authorized shares of beneficial interest. Class C shares of the Funds were offered to the public on June 26, 2000. Prior to this date, American Express Financial Corporation (AEFC) purchased the following shares of capital stock, which represented the following initial capital in each Fund's Class C shares: Fund Number of shares Initial capital per share California Tax-Exempt Fund 398 $5.03 Massachusetts Tax-Exempt Fund 391 5.11 Michigan Tax-Exempt Fund 393 5.09 Minnesota Tax-Exempt Fund 400 5.00 New York Tax-Exempt Fund 407 4.92 Ohio Tax-Exempt Fund 390 5.13 Each Fund's goal is to provide a high level of income generally exempt from federal income tax as well as from the respective state and local income tax. A portion of each Fund's assets may be invested in bonds whose interest is subject to the alternative minimum tax computation. The Funds concentrate their investments in a single state and therefore may have more credit risk related to the economic conditions of the respective state than funds that have a broader geographical diversification. Each Fund offers Class A, Class B and Class C shares. o Class A shares are sold with a front-end sales charge. o Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth calendar year of ownership. o Class C shares may be subject to a CDSC. All classes of shares have identical voting, dividend and liquidation rights. The distribution fee and incremental transfer agency 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. Each 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 sale price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. Securities for which market quotations are not readily available are valued at fair value according to methods selected in good faith by the board. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost. Option transactions To produce incremental earnings, protect gains and facilitate buying and selling of securities for investments, the Funds may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Funds give up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Funds may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Funds pay a premium whether or not the option is exercised. The Funds also have the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. The Funds also may write over-the-counter options where completing the obligation depends upon the credit standing of the other party. - -------------------------------------------------------------------------------- 33 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Funds will realize a gain or loss when the option transaction expires or closes. When options on debt securities or futures are exercised, the Funds will realize a gain or loss. When other options are exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of the premium received or paid. Futures transactions To gain exposure to or protect itself from market changes, the Funds may buy and sell financial futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Funds are required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Funds each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Funds recognize a realized gain or loss when the contract is closed or expires. Securities purchased on a when-issued basis Delivery and payment for securities that have been purchased by the Funds on a forward-commitment or when-issued basis can take place one month or more after the transaction date. During this period, such securities are subject to market fluctuation, and they may affect each Fund's net assets the same as owned securities. The Funds designate cash or liquid securities at least equal to the amount of its commitment. As of June 30, 2001, AXP New York Tax-Exempt Fund had entered into outstanding when-issued or forward-commitments of $338,759. Federal taxes Each Fund's policy 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. Each Fund is treated as a separate entity for federal income tax purposes. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of deferred losses on certain futures contracts and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Funds. Dividends to shareholders Dividends from net investment income, declared daily and paid monthly, are reinvested in additional shares of each Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the last income dividend of the calendar year. Other Security transactions are accounted for on the date securities are purchased or sold. Interest income, including level-yield amortization of premium and discount, is accrued daily. - -------------------------------------------------------------------------------- 34 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT 2. EXPENSES AND SALES CHARGES Each Fund has agreements 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 each Fund's average daily net assets in reducing percentages from 0.47% to 0.38% annually. Under an Administrative Services Agreement, each Fund pays AEFC a fee for administration and accounting services at a percentage of each 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 Funds are consultants' fees and fund office expenses. Under this agreement, the Funds also pay taxes, audit and certain legal fees, registration fees for shares, compensation of board members, corporate filing fees and any other expenses properly payable by the Funds and approved by the board. Under a separate Transfer Agency Agreement, American Express Client Service Corporation (AECSC) maintains shareholder accounts and records. Each 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 Each Fund has agreements with American Express Financial Advisors Inc. (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution, each Fund pays a distribution fee at an annual rate up to 0.25% of each Fund's average daily net assets attributable to Class A shares and up to 1.00% for Class B and Class C shares. Sales charges received by the Distributor for distributing the Funds' shares for the year ended June 30, 2001, are as follows: Fund Class A Class B Class C California Tax-Exempt Fund $346,450 $26,001 $1,569 Massachusetts Tax-Exempt Fund 124,831 19,367 75 Michigan Tax-Exempt Fund 89,967 8,755 -- Minnesota Tax-Exempt Fund 520,061 42,182 28 New York Tax-Exempt Fund 102,023 22,653 242 Ohio Tax-Exempt Fund 93,914 9,791 -- During the year ended June 30, 2001, the Funds' custodian and transfer agency fees were reduced as a result of earnings credits from overnight cash balances as follows: Fund Reduction California Tax-Exempt Fund $47,014 Massachusetts Tax-Exempt Fund 22,831 Michigan Tax-Exempt Fund 16,786 Minnesota Tax-Exempt Fund 52,343 New York Tax-Exempt Fund 10,567 Ohio Tax-Exempt Fund 15,569 3. SECURITIES TRANSACTIONS For the year ended June 30, 2001, cost of purchases and proceeds from sales (other than short-term obligations) aggregated for each Fund are as follows: Fund Purchases Proceeds California Tax-Exempt Fund $25,209,739 $32,816,943 Massachusetts Tax-Exempt Fund 3,274,618 4,495,486 Michigan Tax-Exempt Fund 3,009,165 6,513,167 Minnesota Tax-Exempt Fund 16,002,014 32,047,636 New York Tax-Exempt Fund 12,132,602 18,510,085 Ohio Tax-Exempt Fund 4,890,507 2,225,845 Realized gains and losses are determined on an identified cost basis. - -------------------------------------------------------------------------------- 35 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT 4. SHARE TRANSACTIONS Transactions in shares of each Fund for the years indicated are as follows: California Tax-Exempt Fund Year ended June 30, 2001 Class A Class B Class C Sold 7,659,300 1,263,236 246,520 Issued for reinvested distributions 1,376,078 131,813 2,434 Redeemed (6,761,420) (879,873) (38,657) ---------- -------- ------- Net increase (decrease) 2,273,958 515,176 210,297 --------- ------- ------- Year ended June 30, 2000 Class A Class B Class C* Sold 6,630,939 1,156,809 398 Issued for reinvested distributions 1,545,163 140,357 -- Redeemed (13,199,838) (1,249,749) -- ----------- ---------- --- Net increase (decrease) (5,023,736) 47,417 398 ---------- ------ --- Massachusetts Tax-Exempt Fund Year ended June 30, 2001 Class A Class B Class C Sold 2,084,519 761,081 77,464 Issued for reinvested distributions 476,839 104,628 4,807 Redeemed (1,929,278) (422,594) (1,437) ---------- -------- ------ Net increase (decrease) 632,080 443,115 80,834 ------- ------- ------ Year ended June 30, 2000 Class A Class B Class C* Sold 1,990,307 767,970 59,255 Issued for reinvested distributions 522,475 116,483 -- Redeemed (3,959,643) (966,813) -- ---------- -------- ------ Net increase (decrease) (1,446,861) (82,360) 59,255 ---------- ------- ------ Michigan Tax-Exempt Fund Year ended June 30, 2001 Class A Class B Class C Sold 1,627,887 230,545 41,029 Issued for reinvested distributions 483,154 38,031 223 Redeemed (2,251,346) (201,446) -- ---------- -------- ------ Net increase (decrease) (140,305) 67,130 41,252 -------- ------ ------ Year ended June 30, 2000 Class A Class B Class C* Sold 1,885,978 262,272 393 Issued for reinvested distributions 533,379 43,272 -- Redeemed (3,824,914) (366,568) -- ---------- -------- --- Net increase (decrease) (1,405,557) (61,024) 393 ---------- ------- --- Minnesota Tax-Exempt Fund Year ended June 30, 2001 Class A Class B Class C Sold 14,211,979 2,466,687 336,562 Issued for reinvested distributions 2,933,370 361,533 5,526 Redeemed (15,653,720) (1,377,164) (5,658) ----------- ---------- ------ Net increase (decrease) 1,491,629 1,451,056 336,430 --------- --------- ------- Year ended June 30, 2000 Class A Class B Class C* Sold 12,812,025 2,393,608 400 Issued for reinvested distributions 3,206,595 363,460 -- Redeemed (25,180,705) (2,538,499) -- ----------- ---------- --- Net increase (decrease) (9,162,085) 218,569 400 ---------- ------- --- * Inception date was June 26, 2000. - -------------------------------------------------------------------------------- 36 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT New York Tax-Exempt Fund Year ended June 30, 2001 Class A Class B Class C Sold 2,061,413 789,717 70,172 Issued for reinvested distributions 631,197 85,801 680 Redeemed (2,729,151) (456,854) (12,150) ---------- -------- ------- Net increase (decrease) (36,541) 418,664 58,702 ------- ------- ------ Year ended June 30, 2000 Class A Class B Class C* Sold 2,432,603 901,503 14,052 Issued for reinvested distributions 720,424 98,421 -- Redeemed (5,723,434) (889,429) -- ---------- -------- ------ Net increase (decrease) (2,570,407) 110,495 14,052 ---------- ------- ------ Ohio Tax-Exempt Fund Year ended June 30, 2001 Class A Class B Class C Sold 2,487,537 385,003 130,184 Issued for reinvested distributions 462,347 44,290 880 Redeemed (1,957,754) (179,453) -- ---------- -------- ------ Net increase (decrease) 992,130 249,840 131,064 ------- ------- ------ Year ended June 30, 2000 Class A Class B Class C* Sold 2,204,022 261,911 390 Issued for reinvested distributions 456,700 47,594 -- Redeemed (3,796,480) (474,614) -- ---------- -------- --- Net increase (decrease) (1,135,758) (165,109) 390 ---------- -------- --- * Inception date was June 26, 2000. 5. MUNICIPAL INTEREST RATE FUTURES CONTRACTS Investments in securities as of June 30, 2001, included securities that were valued and pledged as collateral to cover initial margin deposits (see "Summary of significant accounting policies") as follows: Market value Open purchase Fund of collateral (sale) contracts California Tax-Exempt Fund $627,531 (270) Minnesota Tax-Exempt Fund 537,499 (250) New York Tax-Exempt Fund 125,764 (15) Ohio Tax-Exempt Fund 221,185 (15) The market value of the open sale contracts as of June 30, 2001, was as follows: Market value Net unrealized Fund of futures gain (loss) California Tax-Exempt Fund $27,641,250 $128,201 Minnesota Tax-Exempt Fund 25,593,750 78,062 New York Tax-Exempt Fund 1,535,625 7,378 Ohio Tax-Exempt Fund 1,535,625 7,378 The Funds maintain, in a segregated account with their custodian, bonds with at least a market value equal to the value of open long futures contracts, if any. - -------------------------------------------------------------------------------- 37 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT 6. CAPITAL LOSS CARRY-OVER For federal income tax purposes, capital loss carry-overs were as follows as of June 30, 2001: Fund Carry-over Expiration date California Tax-Exempt Fund $6,561,937 2007-2010 Massachusetts Tax-Exempt Fund 899,068 2008-2010 Michigan Tax-Exempt Fund 1,687,209 2008-2010 Minnesota Tax-Exempt Fund 7,573,386 2005-2010 New York Tax-Exempt Fund 2,160,266 2005-2010 Ohio Tax-Exempt Fund 1,276,710 2005-2010 It is unlikely the board will authorize a distribution of any net realized capital gains for a Fund until the respective capital loss carry-over has been offset or expires. 7. BANK BORROWINGS Each Fund has a revolving credit agreement with U.S. Bank, N.A., whereby each Fund is permitted to have bank borrowings for temporary or emergency purposes to fund shareholder redemptions. Each Fund must have asset coverage for borrowings not to exceed the aggregate of 333% of advances equal to or less than five business days plus 367% of advances over five business days. The agreement, which enables each Fund to participate with other American Express mutual funds, permits borrowings up to $200 million, collectively. Interest is charged to each Fund based on its borrowings at a rate equal to the Federal Funds Rate plus 0.30% or the Eurodollar Rate (Reserve Adjusted) plus 0.20%. Borrowings are payable up to 90 days after such loan is executed. Each Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.05% per annum. Each Fund had no borrowings outstanding during the year ended June 30, 2001. 8. NEW ACCOUNTING PRONOUNCEMENT In November 2000, the AICPA issued a revised Audit and Accounting Guide, Audits of Investment Companies, which is effective for fiscal years beginning after Dec. 15, 2000. Adopting the revised Guide is not expected to have a significant impact on the Funds' financial position, results of operations or changes in their net assets. 9. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating each Fund's results. AXP California Tax-Exempt Trust AXP California Tax-Exempt Fund
Class A Per share income and capital changes(a) Fiscal period ended June 30, 2001 2000 1999 1998 1997 Net asset value, beginning of period $5.03 $5.18 $5.35 $5.24 $5.15 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .25 .26 .27 .29 .29 Net gains (losses) (both realized and unrealized) .15 (.15) (.17) .11 .10 --- ---- ---- --- --- Total from investment operations .40 .11 .10 .40 .39 --- --- --- --- --- Less distributions: Dividends from net investment income (.25) (.26) (.27) (.29) (.29) Distributions from realized gains -- -- -- -- (.01) ---- ---- ---- --- --- Total distributions (.25) (.26) (.27) (.29) (.30) ---- ---- ---- ---- ---- Net asset value, end of period $5.18 $5.03 $5.18 $5.35 $5.24 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $231 $213 $246 $239 $232 ---- ---- ---- ---- ---- Ratio of expenses to average daily net assets(c) .85% .82% .79% .75% .77% --- --- --- --- --- Ratio of net investment income (loss) to average daily net assets 4.79% 5.18% 4.97% 5.24% 5.64% ---- ---- ---- ---- ---- Portfolio turnover rate (excluding short-term securities) 11% 18% 16% 15% 14% -- -- -- -- -- Total return(e) 8.00% 2.19% 1.80% 7.72% 7.77% ---- ---- ---- ---- ----
See accompanying notes to financial highlights. - -------------------------------------------------------------------------------- 38 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP California Tax-Exempt Trust AXP California Tax-Exempt Fund
Class B Per share income and capital changes(a) Fiscal period ended June 30, 2001 2000 1999 1998 1997 Net asset value, beginning of period $5.03 $5.18 $5.35 $5.24 $5.15 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .21 .22 .22 .25 .25 Net gains (losses) (both realized and unrealized) .14 (.15) (.17) .11 .10 --- ---- ---- --- --- Total from investment operations .35 .07 .05 .36 .35 --- --- --- --- --- Less distributions: Dividends from net investment income (.21) (.22) (.22) (.25) (.25) Distributions from realized gains -- -- -- -- (.01) --- --- --- --- --- Total distributions (.21) (.22) (.22) (.25) (.26) ---- ---- ---- ---- ---- Net asset value, end of period $5.17 $5.03 $5.18 $5.35 $5.24 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $24 $21 $21 $15 $10 --- --- --- --- --- Ratio of expenses to average daily net assets(c) 1.60% 1.58% 1.53% 1.50% 1.52% ---- ---- ---- ---- ---- Ratio of net investment income (loss) to average daily net assets 3.99% 4.43% 4.23% 4.50% 4.94% ---- ---- ---- ---- ---- Portfolio turnover rate (excluding short-term securities) 11% 18% 16% 15% 14% -- -- -- -- -- Total return(e) 6.98% 1.44% 1.03% 6.94% 6.95% ---- ---- ---- ---- ----
Class C Per share income and capital changes(a) Fiscal period ended June 30, 2001 2000(b) Net asset value, beginning of period $5.03 $5.02 ----- ----- Income from investment operations: Net investment income (loss) .21 -- Net gains (losses) (both realized and unrealized) .15 .01 --- --- Total from investment operations .36 .01 --- --- Less distributions: Dividends from net investment income (.21) -- ---- --- Net asset value, end of period $5.18 $5.03 ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $1 $-- -- --- Ratio of expenses to average daily net assets(c) 1.60% 1.58%(d) ---- ---- Ratio of net investment income (loss) to average daily net assets 4.04% 4.43%(d) ---- ---- Portfolio turnover rate (excluding short-term securities) 11% 18% -- -- Total return(e) 7.20% .20% ---- --- 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. - -------------------------------------------------------------------------------- 39 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Special Tax-Exempt Series Trust AXP Massachusetts Tax-Exempt Fund
Class A Per share income and capital changes(a) Fiscal period ended June 30, 2001 2000 1999 1998 1997 Net asset value, beginning of period $5.11 $5.39 $5.56 $5.42 $5.30 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .27 .27 .27 .29 .29 Net gains (losses) (both realized and unrealized) .17 (.27) (.17) .14 .12 --- ---- ---- --- --- Total from investment operations .44 -- .10 .43 .41 --- --- --- --- --- Less distributions: Dividends from net investment income (.27) (.28) (.27) (.29) (.29) ---- ---- ---- ---- ---- Net asset value, end of period $5.28 $5.11 $5.39 $5.56 $5.42 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $65 $59 $70 $67 $67 --- --- --- --- --- Ratio of expenses to average daily net assets(c) .95% .93% .81% .82% .84% --- --- --- --- --- Ratio of net investment income (loss) to average daily net assets 5.04% 5.28% 4.99% 5.17% 5.32% ---- ---- ---- ---- ---- Portfolio turnover rate (excluding short-term securities) 4% 7% 5% 9% 8% - - - - - Total return(e) 8.64% .04% 1.72% 8.13% 7.81% ---- --- ---- ---- ---- Class B Per share income and capital changes(a) Fiscal period ended June 30, 2001 2000 1999 1998 1997 Net asset value, beginning of period $5.11 $5.39 $5.56 $5.42 $5.30 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .23 .24 .23 .24 .25 Net gains (losses) (both realized and unrealized) .17 (.28) (.17) .14 .12 --- ---- ---- --- --- Total from investment operations .40 (.04) .06 .38 .37 --- ---- --- --- --- Less distributions: Dividends from net investment income (.23) (.24) (.23) (.24) (.25) ---- ---- ---- ---- ---- Net asset value, end of period $5.28 $5.11 $5.39 $5.56 $5.42 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $18 $16 $17 $13 $8 --- --- --- --- -- Ratio of expenses to average daily net assets(c) 1.70% 1.69% 1.56% 1.57% 1.59% ---- ---- ---- ---- ---- Ratio of net investment income (loss) to average daily net assets 4.28% 4.53% 4.25% 4.43% 4.58% ---- ---- ---- ---- ---- Portfolio turnover rate (excluding short-term securities) 4% 7% 5% 9% 8% - - - - - Total return(e) 7.83% (.71%) .96% 7.32% 7.00% ---- ---- --- ---- ----
See accompanying notes to financial highlights. - -------------------------------------------------------------------------------- 40 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Special Tax-Exempt Series Trust AXP Massachusetts Tax-Exempt Fund Class C Per share income and capital changes(a) Fiscal period ended June 30, 2001 2000(b) Net asset value, beginning of period $5.11 $5.10 ----- ----- Income from investment operations: Net investment income (loss) .23 -- Net gains (losses) (both realized and unrealized) .17 .01 --- --- Total from investment operations .40 .01 --- --- Less distributions: Dividends from net investment income (.23) -- ---- --- Net asset value, end of period $5.28 $5.11 ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $1 $-- -- --- Ratio of expenses to average daily net assets(c) 1.70% 1.69%(d) ---- ---- Ratio of net investment income (loss) to average daily net assets 4.30% 4.53%(d) ---- ---- Portfolio turnover rate (excluding short-term securities) 4% 7% - - Total return(e) 7.84% .20% ---- --- 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. - -------------------------------------------------------------------------------- 41 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Special Tax-Exempt Series Trust AXP Michigan Tax-Exempt Fund
Class A Per share income and capital changes(a) Fiscal period ended June 30, 2001 2000 1999 1998 1997 Net asset value, beginning of period $5.09 $5.38 $5.57 $5.44 $5.36 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .27 .27 .28 .29 .29 Net gains (losses) (both realized and unrealized) .18 (.29) (.17) .13 .08 --- ---- ---- --- --- Total from investment operations .45 (.02) .11 .42 .37 --- ---- --- --- --- Less distributions: Dividends from net investment income (.27) (.27) (.28) (.29) (.29) Distributions from realized gains -- -- (.02) -- -- ---- ---- --- --- --- Total distributions (.27) (.27) (.30) (.29) (.29) ---- ---- ---- ---- ---- Net asset value, end of period $5.27 $5.09 $5.38 $5.57 $5.44 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $67 $65 $77 $77 $77 --- --- --- --- --- Ratio of expenses to average daily net assets(c) .95% .89% .83% .82% .81% --- --- --- --- --- Ratio of net investment income (loss) to average daily net assets 5.09% 5.30% 5.00% 5.19% 5.38% ---- ---- ---- ---- ---- Portfolio turnover rate (excluding short-term securities) 4% 12% 20% 10% 21% - -- -- -- -- Total return(e) 8.90% (.14%) 1.92% 7.66% 7.12% ---- ---- ---- ---- ---- Class B Per share income and capital changes(a) Fiscal period ended June 30, 2001 2000 1999 1998 1997 Net asset value, beginning of period $5.09 $5.38 $5.57 $5.44 $5.36 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .23 .23 .24 .25 .25 Net gains (losses) (both realized and unrealized) .18 (.29) (.17) .13 .08 --- ---- ---- --- --- Total from investment operations .41 (.06) .07 .38 .33 --- ---- --- --- --- Less distributions: Dividends from net investment income (.23) (.23) (.24) (.25) (.25) Distributions from realized gains -- -- (.02) -- -- --- --- ---- --- ---- Total distributions (.23) (.23) (.26) (.25) (.25) ---- ---- ---- ---- ---- Net asset value, end of period $5.27 $5.09 $5.38 $5.57 $5.44 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $6 $6 $7 $5 $4 -- -- -- -- -- Ratio of expenses to average daily net assets(c) 1.70% 1.64% 1.59% 1.57% 1.56% ---- ---- ---- ---- ---- Ratio of net investment income (loss) to average daily net assets 4.34% 4.55% 4.25% 4.44% 4.65% ---- ---- ---- ---- ---- Portfolio turnover rate (excluding short-term securities) 4% 12% 20% 10% 21% - -- -- -- -- Total return(e) 8.09% (.92%) 1.17% 6.86% 6.32% ---- ---- ---- ---- ----
See accompanying notes to financial highlights. - -------------------------------------------------------------------------------- 42 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Special Tax-Exempt Series Trust AXP Michigan Tax-Exempt Fund Class C Per share income and capital changes(a) Fiscal period ended June 30, 2001 2000(b) Net asset value, beginning of period $5.09 $5.08 ----- ----- Income from investment operations: Net investment income (loss) .22 -- Net gains (losses) (both realized and unrealized) .18 .01 --- --- Total from investment operations .40 .01 --- --- Less distributions: Dividends from net investment income (.22) -- ---- --- Net asset value, end of period $5.27 $5.09 ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $-- $-- --- --- Ratio of expenses to average daily net assets(c) 1.70% 1.64%(d) ---- ---- Ratio of net investment income (loss) to average daily net assets 4.36% 4.23%(d) ---- ---- Portfolio turnover rate (excluding short-term securities) 4% 12% - -- Total return(e) 8.02% .20% ---- --- 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. - -------------------------------------------------------------------------------- 43 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Special Tax-Exempt Series Trust AXP Minnesota Tax-Exempt Fund
Class A Per share income and capital changes(a) Fiscal period ended June 30, 2001 2000 1999 1998 1997 Net asset value, beginning of period $5.00 $5.26 $5.41 $5.30 $5.20 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .28 .29 .29 .30 .31 Net gains (losses) (both realized and unrealized) .14 (.27) (.15) .11 .10 --- ---- ---- --- --- Total from investment operations .42 .02 .14 .41 .41 --- --- --- --- --- Less distributions: Dividends from net investment income (.28) (.28) (.29) (.30) (.31) ---- ---- ---- ---- ---- Net asset value, end of period $5.14 $5.00 $5.26 $5.41 $5.30 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $357 $340 $406 $385 $376 ---- ---- ---- ---- ---- Ratio of expenses to average daily net assets(c) .84% .82% .78% .75% .75% --- --- --- --- --- Ratio of net investment income (loss) to average daily net assets 5.45% 5.68% 5.37% 5.61% 5.81% ---- ---- ---- ---- ---- Portfolio turnover rate (excluding short-term securities) 4% 18% 13% 8% 14% - -- -- - -- Total return(e) 8.53% .60% 2.62% 7.96% 8.06% ---- --- ---- ---- ---- Class B Per share income and capital changes(a) Fiscal period ended June 30, 2001 2000 1999 1998 1997 Net asset value, beginning of period $5.00 $5.26 $5.41 $5.30 $5.20 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .24 .25 .25 .26 .27 Net gains (losses) (both realized and unrealized) .14 (.26) (.15) .11 .10 --- ---- ---- --- --- Total from investment operations .38 (.01) .10 .37 .37 --- ---- --- --- --- Less distributions: Dividends from net investment income (.24) (.25) (.25) (.26) (.27) ---- ---- ---- ---- ---- Net asset value, end of period $5.14 $5.00 $5.26 $5.41 $5.30 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $53 $44 $46 $31 $22 --- --- --- --- --- Ratio of expenses to average daily net assets(c) 1.60% 1.58% 1.54% 1.50% 1.50% ---- ---- ---- ---- ---- Ratio of net investment income (loss) to average daily net assets 4.70% 4.94% 4.61% 4.86% 5.05% ---- ---- ---- ---- ---- Portfolio turnover rate (excluding short-term securities) 4% 18% 13% 8% 14% - -- -- - -- Total return(e) 7.72% (.16%) 1.85% 7.17% 7.23% ---- ---- ---- ---- ----
See accompanying notes to financial highlights. - -------------------------------------------------------------------------------- 44 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Special Tax-Exempt Series Trust AXP Minnesota Tax-Exempt Fund Class C Per share income and capital changes(a) Fiscal period ended June 30, 2001 2000(b) Net asset value, beginning of period $5.00 $4.99 ----- ----- Income from investment operations: Net investment income (loss) .24 -- Net gains (losses) (both realized and unrealized) .14 .01 --- --- Total from investment operations .38 .01 --- --- Less distributions: Dividends from net investment income (.24) -- ---- --- Net asset value, end of period $5.14 $5.00 ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $2 $-- -- --- Ratio of expenses to average daily net assets(c) 1.59% 1.58%(d) ---- ---- Ratio of net investment income (loss) to average daily net assets 4.74% 4.94%(d) ---- ---- Portfolio turnover rate (excluding short-term securities) 4% 18% - -- Total return(e) 7.75% .20% ---- --- 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. - -------------------------------------------------------------------------------- 45 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Special Tax-Exempt Series Trust AXP New York Tax-Exempt Fund
Class A Per share income and capital changes(a) Fiscal period ended June 30, 2001 2000 1999 1998 1997 Net asset value, beginning of period $4.92 $5.15 $5.29 $5.15 $5.06 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .25 .27 .25 .27 .28 Net gains (losses) (both realized and unrealized) .20 (.23) (.14) .14 .09 --- ---- ---- --- --- Total from investment operations .45 .04 .11 .41 .37 --- --- --- --- --- Less distributions: Dividends from net investment income (.25) (.27) (.25) (.27) (.28) ---- ---- ---- ---- ---- Net asset value, end of period $5.12 $4.92 $5.15 $5.29 $5.15 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $88 $85 $102 $105 $108 --- --- ---- ---- ---- Ratio of expenses to average daily net assets(c) .91% .88% .82% .79% .81% --- --- --- --- --- Ratio of net investment income (loss) to average daily net assets 4.90% 5.27% 4.93% 5.22% 5.55% ---- ---- ---- ---- ---- Portfolio turnover rate (excluding short-term securities) 13% 11% 8% 10% 12% -- -- - -- -- Total return(e) 9.28% .77% 2.04% 8.20% 7.60% ---- --- ---- ---- ---- Class B Per share income and capital changes(a) Fiscal period ended June 30, 2001 2000 1999 1998 1997 Net asset value, beginning of period $4.92 $5.15 $5.29 $5.15 $5.06 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .21 .23 .21 .23 .25 Net gains (losses) (both realized and unrealized) .20 (.23) (.14) .14 .09 --- ---- ---- --- --- Total from investment operations .41 -- .07 .37 .34 --- --- --- --- --- Less distributions: Dividends from net investment income (.21) (.23) (.21) (.23) (.25) ---- ---- ---- ---- ---- Net asset value, end of period $5.12 $4.92 $5.15 $5.29 $5.15 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $16 $13 $14 $10 $8 --- --- --- --- -- Ratio of expenses to average daily net assets(c) 1.66% 1.63% 1.57% 1.55% 1.56% ---- ---- ---- ---- ---- Ratio of net investment income (loss) to average daily net assets 4.14% 4.54% 4.20% 4.47% 4.81% ---- ---- ---- ---- ---- Portfolio turnover rate (excluding short-term securities) 13% 11% 8% 10% 12% -- -- - -- -- Total return(e) 8.47% .01% 1.28% 7.35% 6.80% ---- --- ---- ---- ----
See accompanying notes to financial highlights. - -------------------------------------------------------------------------------- 46 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Special Tax-Exempt Series Trust AXP New York Tax-Exempt Fund Class C Per share income and capital changes(a) Fiscal period ended June 30, 2001 2000(b) Net asset value, beginning of period $4.92 $4.91 ----- ----- Income from investment operations: Net investment income (loss) .21 -- Net gains (losses) (both realized and unrealized) .19 .01 --- --- Total from investment operations .40 .01 --- --- Less distributions: Dividends from net investment income (.21) -- ---- --- Net asset value, end of period $5.11 $4.92 ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $-- $-- --- --- Ratio of expenses to average daily net assets(c) 1.66% 1.63%(d) ---- ---- Ratio of net investment income (loss) to average daily net assets 4.09% 4.54%(d) ---- ---- Portfolio turnover rate (excluding short-term securities) 13% 11% -- -- Total return(e) 8.26% .20% ---- --- 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. - -------------------------------------------------------------------------------- 47 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Special Tax-Exempt Series Trust AXP Ohio Tax-Exempt Fund
Class A Per share income and capital changes(a) Fiscal period ended June 30, 2001 2000 1999 1998 1997 Net asset value, beginning of period $5.13 $5.36 $5.50 $5.38 $5.28 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .27 .27 .27 .29 .29 Net gains (losses) (both realized and unrealized) .14 (.23) (.14) .12 .10 --- ---- ---- --- --- Total from investment operations .41 .04 .13 .41 .39 --- --- --- --- --- Less distributions: Dividends from net investment income (.27) (.27) (.27) (.29) (.29) ---- ---- ---- ---- ---- Net asset value, end of period $5.27 $5.13 $5.36 $5.50 $5.38 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $67 $60 $69 $67 $67 --- --- --- --- --- Ratio of expenses to average daily net assets(c) .93% .88% .88% .83% .83% --- --- --- --- --- Ratio of net investment income (loss) to average daily net assets 4.98% 5.31% 5.02% 5.22% 5.46% ---- ---- ---- ---- ---- Portfolio turnover rate (excluding short-term securities) 3% 13% 5% 10% 9% - -- - -- - Total return(e) 7.95% .91% 2.50% 7.79% 7.43% ---- --- ---- ---- ---- Class B Per share income and capital changes(a) Fiscal period ended June 30, 2001 2000 1999 1998 1997 Net asset value, beginning of period $5.13 $5.36 $5.50 $5.38 $5.28 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .23 .23 .23 .24 .25 Net gains (losses) (both realized and unrealized) .14 (.23) (.14) .13 .10 --- ---- ---- --- --- Total from investment operations .37 -- .09 .37 .35 --- ---- --- --- --- Less distributions: Dividends from net investment income (.23) (.23) (.23) (.25) (.25) ---- ---- ---- ---- ---- Net asset value, end of period $5.27 $5.13 $5.36 $5.50 $5.38 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $8 $7 $8 $5 $4 -- -- -- -- -- Ratio of expenses to average daily net assets(c) 1.68% 1.64% 1.63% 1.59% 1.59% ---- ---- ---- ---- ---- Ratio of net investment income (loss) to average daily net assets 4.23% 4.55% 4.27% 4.47% 4.74% ---- ---- ---- ---- ---- Portfolio turnover rate (excluding short-term securities) 3% 13% 5% 10% 9% - -- - -- - Total return(e) 7.15% .14% 1.75% 6.98% 6.62% ---- --- ---- ---- ----
See accompanying notes to financial highlights. - -------------------------------------------------------------------------------- 48 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Special Tax-Exempt Series Trust AXP Ohio Tax-Exempt Fund Class C Per share income and capital changes(a) Fiscal period ended June 30, 2001 2000(b) Net asset value, beginning of period $5.13 $5.12 ----- ----- Income from investment operations: Net investment income (loss) .22 -- Net gains (losses) (both realized and unrealized) .15 .01 --- --- Total from investment operations .37 .01 --- --- Less distributions: Dividends from net investment income (.22) -- ---- --- Net asset value, end of period $5.28 $5.13 ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $1 $-- -- --- Ratio of expenses to average daily net assets(c) 1.68% 1.64%(d) ---- ---- Ratio of net investment income (loss) to average daily net assets 4.26% 4.55%(d) ---- ---- Portfolio turnover rate (excluding short-term securities) 3% 13% - -- Total return(e) 7.27% .20% ---- --- 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. - -------------------------------------------------------------------------------- 49 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT Investments in Securities AXP California Tax-Exempt Fund June 30, 2001 (Percentages represent value of investments compared to net assets) Municipal bonds (90.0%) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) ABAG Financial Authority for Nonprofit Corporations Certificates of Participation International School Series 1996 05-01-26 7.38% $2,200,000 $2,342,164 ABAG Financial Authority for Nonprofit Corporations Revenue Bonds San Diego Hospital Association Series 2001A 08-15-20 6.13 1,000,000 1,008,070 Alhambra City Elementary School District Los Angeles County Election of 1999 General Obligation Bonds Zero Coupon Series 1999A (FSA Insured) 09-01-22 5.95 1,055,000(e) 329,002 Alta Loma School District Unlimited Tax Capital Appreciation General Obligation Bonds Zero Coupon Series 1999A (FGIC Insured) 08-01-23 5.69 2,600,000(e) 765,960 Anaheim Public Financing Authority Lease Capital Appreciation Improvement Revenue Bonds Zero Coupon Series 1997C (FSA Insured) 09-01-25 5.61 2,170,000(e) 559,079 Anaheim Public Financing Authority Revenue Bonds Electric Utilities San Juan 2nd Series 1993 (FGIC Insured) 10-01-22 5.75 11,100,000 11,357,965 Arcade Certificates of Participation Water District Revenue Bonds Series 1997 (FGIC Insured) 11-01-27 5.00 1,200,000 1,146,336 Beaumont Financing Authority Local Agency Revenue Bonds Series 2000A 09-01-32 7.38 2,000,000 2,080,620 Brea Public Financing Authority Water Refunding Bonds Series 1998 (FGIC Insured) 07-01-21 4.75 1,000,000 935,470 Brea Redevelopment Agency Tax Allocation Refunding Bonds Redevelopment Project AB Series 1993 (MBIA Insured) 08-01-17 5.50 1,800,000 1,831,500 Burbank Redevelopment Agency Tax Allocation Bonds Golden State Series 1993A 12-01-23 6.00 2,000,000 2,052,080 Community Development Authority Health Facilities Unihealth America Certificate of Participation Series 1993 Inverse Floater (AMBAC Insured) 10-01-11 7.63 5,000,000(f) 5,906,250 Contra Costa County Residential Rent Facility Multi-family Housing Revenue Bonds Cypress Meadows Series 1998E A.M.T. 09-01-28 7.00 2,000,000 1,728,420 El Monte Department Public Social Services Facility Certificates of Participation Series 1999 (AMBAC Insured) 06-01-30 4.75 1,500,000 1,354,005 Encinitas Unified School District Unlimited General Obligation Bonds Zero Coupon Series 1996 (MBIA Insured) 08-01-15 5.85 2,500,000(e) 1,216,250 08-01-16 5.85 1,000,000(e) 454,830 Folsom Special Tax Refunding Bonds Community Facilities District #10 Series 1999 09-01-24 7.00 3,000,000 3,220,890 Fontana Redevelopment Agency Refunding Certificates of Participation Police Facility Series 1993 04-01-16 5.63 4,500,000 4,567,140 Fontana Unified School District San Bernardino County General Obligation Convertible Capital Appreciation Bonds Series 1995C (FGIC Insured) 05-01-20 6.15 3,470,000 3,749,196 Fontana Unified School District Unlimited Tax General Obligation Bonds Series1997D (FGIC Insured) 05-01-22 5.75 2,000,000 2,112,120 Foothill/Eastern Transportation Corridor Agency Toll Road Senior Lien Revenue Bonds Series 1995A 01-01-34 6.00 1,775,000 1,978,539 Fresno Unified School District Fresno County Refunding General Obligation Bonds Series 1999C (MBIA Insured) 08-01-22 5.90 2,000,000 2,222,260 Garden Grove Agency Community Development Tax Allocation Refunding Bonds Garden Grove Community Series 1993 10-01-23 5.88 3,000,000 3,009,180 Garden Grove Certificates of Participation Bahia Village/Emerald Isle Series 1993 (FSA Insured) 08-01-23 5.70 2,660,000 2,719,664 Hemet Redevelopment Agency Tax Allocation Bonds Series 1999A (AMBAC Insured) 09-15-28 4.75 2,390,000 2,169,618 Infrastructure & Economic Development Bank Revenue Bonds American Center for Wine, Foods & Arts Series 1999 (ACA Insured) 12-01-19 5.70 2,500,000 2,502,975 Inglewood Redevelopment Agency Revenue Bonds Series 1998A (AMBAC Insured) 05-01-23 5.25 1,100,000 1,125,894 Intercommunity Hospital Finance Authority Certificates of Participation Series 1998 (ACA Insured) 11-01-19 5.25 2,000,000 1,902,640 Irwindale Redevelopment Agency Sub Lien Tax Allocation Bonds Series 1996 12-01-19 7.00 1,700,000 1,836,986 Janesville Union School District Lassen County General Obligation Bonds Series 1996 08-01-21 6.45 860,000(d) 903,464 La Mirada Redevelopment Agency Special Tax Refunding Revenue Bonds Community Facilities District #89-1 Series 1998 10-01-20 5.70 1,000,000 969,680 Lake Elsinore Public Finance Authority Local Agency Revenue Bonds Series 1997F 09-01-20 7.10 2,975,000 3,172,213 Lake Elsinore Public Finance Authority Tax Allocation Revenue Bonds Series 1999A 09-01-30 5.50 2,500,000 2,398,250 Lake Elsinore Redevelopment Agency Community Facilities District #90 Tuscany Hills Public Improvements Special Tax Parity Bonds Series 1999A 10-01-24 6.05 2,000,000 1,984,980 Lake Elsinore School Finance Authority Revenue Bonds Series 1997 09-01-19 6.13 1,235,000 1,266,159 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 50 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP California Tax-Exempt Fund Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) Las Virgenes Unified School District Los Angeles County Capital Appreciation General Obligation Bonds Zero Coupon Series 1999 (FSA Insured) 11-01-21 5.67% $1,800,000(e) $590,004 11-01-22 5.68 2,300,000(e) 710,700 11-01-23 5.68 2,945,000(e) 855,699 Los Angeles County Schools Regionalized Business Services Pooled Financing Program Certificate of Participation Zero Coupon Series 1999A (AMBAC Insured) 08-01-27 5.97 2,410,000(e) 551,697 Los Angeles Department of Water & Power Revenue Bonds Series 2001A (FSA Insured) 07-01-18 5.25 2,000,000 2,027,980 Los Angeles Department of Water & Power Waterworks Refunding Revenue Bonds 2nd Issue Series1993 (Secondary FGIC Insured) 05-15-18 4.50 3,000,000 2,768,970 Los Angeles Multi-family Housing Revenue Bonds Park Parthenia Series 1986 (GNMA Insured) A.M.T. 01-20-22 7.40 1,000,000 1,012,660 Los Angeles Single Family Home Mortgage Revenue Bonds Series 1991A (GNMA & FNMA Insured) A.M.T. 06-01-25 6.88 705,000 719,304 Los Angeles State Harbor Revenue Bonds Series 1988 Escrowed to Maturity 10-01-18 7.60 1,000,000 1,245,070 Los Angeles State Harbor Revenue Bonds Series 1996B (MBIA Insured) A.M.T. 11-01-19 5.38 2,000,000 2,023,420 11-01-23 5.38 1,300,000 1,285,739 Los Angeles Unified School District General Obligation Bonds Series 2001A (FSA Insured) 07-01-21 5.00 2,000,000 1,960,360 Millbrae Residential Facility Revenue Bonds Magnolia of Millbrae Series 1997A A.M.T. 09-01-27 7.38 2,500,000 2,462,600 Modesto Irrigation District Finance Authority Refunding Revenue Bonds Domestic Water Series 1998D (AMBAC Insured) 09-01-22 4.75 2,000,000 1,863,280 Northern California Transmission Select Auction Variable Rate Security & Residual Interest Revenue Bonds Series 1993 (MBIA Insured) 04-29-24 5.50 4,500,000(h) 4,591,530 Novato Community Facility District #1 Vintage Oaks Public Improvement Special Tax Refunding Bonds Series 1994 08-01-21 7.25 2,000,000 2,120,440 Orange County Special Tax Community Facilities Pre-refunded Bonds Aliso Veijo District 88-1 Series 1992A 08-15-18 7.35 3,000,000 3,213,930 Pittsburg Infrastructure Finance Authority Reassessment Revenue Improvement Bonds Series 1998A 09-02-24 5.60 1,440,000 1,400,198 Pittsburg Redevelopment Agency Tax Allocation Bonds Los Medanos Community Development Zero Coupon Series 1999 (AMBAC Insured) 08-01-24 6.05 2,100,000(e) 576,240 Pleasanton Joint Powers Financing Authority Reassessment Revenue Bonds Series 1993A 09-02-12 6.15 1,765,000 1,840,948 Port of Oakland Refunding Revenue Bonds Series 1997G (MBIA Insured) A.M.T. 11-01-25 5.38 3,080,000 3,086,930 Poway Unified School District Special Tax Refunding Bonds Community Facilities District #1 Series 1998 (MBIA Insured) 10-01-23 4.75 2,500,000 2,318,275 Rancho Mirage Joint Powers Finance Authority Certificate of Participation Eisenhower Memorial Hospital Series 1992 03-01-22 7.00 4,250,000 4,457,443 Redding Redevelopment Agency Tax Allocation Refunding Bonds Canby Hilltop Cypress Series 1993D (CGIC Insured) 09-01-23 5.00 4,700,000 4,558,765 Redwood City Elementary School District Capital Appreciation General Obligation Bonds San Mateo County Zero Coupon Series 1997 (FGIC Insured) 08-01-20 5.65 5,475,000(e) 1,929,116 Richmond Elementary School District Lassen County General Obligation Bonds Series 1996 08-01-21 6.50 649,000 680,042 Richmond Joint Powers Financing Authority Lease & Gas Tax Refunding Revenue Bonds Series 1995A 05-15-13 5.25 2,000,000 2,043,860 Riverside County Certificates of Participation Series 1998 (MBIA Insured) 12-01-21 5.00 1,530,000 1,495,483 Rural Home Mortgage Financing Authority Single Family Mortgage Revenue Bonds 2nd Series 1997A (GNMA Insured) A.M.T. 09-01-29 7.00 1,425,000 1,608,953 Rural Home Mortgage Financing Authority Single Family Mortgage Revenue Bonds 5th Series 1998B (FNMA/GNMA Insured) A.M.T. 12-01-29 6.35 1,455,000 1,597,139 Sacramento Cogeneration Authority Pre-refunded Revenue Bonds Procter & Gamble Series 1995 07-01-10 6.38 500,000 565,010 Sacramento Cogeneration Authority Un-refunded Revenue Bonds Procter & Gamble Series 1995 07-01-10 6.38 500,000(d) 535,805 Sacramento Municipal Utility District Pre-refunded Bonds Series1991Y (MBIA Insured) 09-01-19 6.75 3,400,000 3,491,868 Sacramento Power Authority Cogeneration Revenue Bonds Campbell Soup Series 1995 07-01-22 6.00 1,000,000 1,041,110 San Diego Convention Center Expansion Financing Authority Revenue Bonds Series 1998A (AMBAC Insured) 04-01-28 4.75 3,250,000 2,961,108 San Diego County Capital Asset Lease Certificate of Participation Series 1993 Inverse Floater (AMBAC Insured) 09-01-07 7.47 3,200,000(f) 3,692,000 San Diego County Water Authority Revenue Bonds Certificates of Participation Series 1998A (FGIC Insured) 05-01-24 4.50 6,475,000 5,736,721 San Diego Water Utility Systems Undivided Interest Revenue Bonds Series 1998 (FGIC Insured) 08-01-28 4.75 2,695,000 2,447,087 San Francisco City & County Airport Commission International Airport Refunding Revenue Bonds Issue 20 2nd Series 1998 05-01-26 4.50 2,250,000 1,965,218 San Francisco City & County Airport Commission International Airport Revenue Bonds Issue 15B 2nd Series 1998 (MBIA Insured) 05-01-25 4.50 1,500,000 1,323,750 San Jose Redevelopment Agency Merged Area Redevelopment Tax Allocation Bonds Series 1993 (MBIA Insured) 08-01-24 4.75 3,055,000 2,817,290 San Jose Redevelopment Agency Merged Area Redevelopment Tax Allocation Bonds Series 1999 (AMBAC Insured) 08-01-23 4.75 3,000,000 2,764,230 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 51 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP California Tax-Exempt Fund Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) San Jose Redevelopment Agency Merged Area Tax Allocation Bonds Series 1993 Inverse Floater (MBIA Insured) 08-01-14 7.20% $3,000,000(f) $3,161,250 San Juan Unified School District Unlimited Tax General Obligation Bonds Zero Coupon Series 1999 08-01-21 5.68 820,000(d,e) 272,494 08-01-23 5.70 1,820,000(d,e) 536,172 08-01-24 5.70 1,810,000(e) 503,397 San Ramon Certificate of Participation Refunding Bonds Series 2001 (AMBAC Insured) 03-01-21 5.00 1,835,000 1,794,428 San Ysidro School District General Obligation Bonds San Diego County Series 1997 (AMBAC Insured) 08-01-21 6.13 1,000,000 1,126,160 Santa Clara County Mountain View Los Altos Union High School District Unlimited Tax General Obligation Bonds Series 1995A 08-01-15 5.75 1,200,000 1,265,988 Santa Cruz Certificate of Participation Series 1987 08-01-07 8.38 950,000 954,294 Santa Monica-Malibu Unified School District Capital Appreciation General Obligation Bonds Los Angeles County Zero Coupon Series 1999 (FGIC Insured) 08-01-22 5.38 7,300,000(e) 2,286,944 South Tahoe Joint Powers Financing Authority Refunding Revenue Bonds Series 1995B 10-01-20 6.25 2,700,000 2,769,795 Southern California Metropolitan Water District Waterworks Revenue Bonds Series 1997A 07-01-26 5.00 3,700,000 3,532,390 Southern California Public Power Authority Transmission Special Bonds Series 1992 07-01-12 6.00 2,700,000 2,810,592 State Department Water Resource Water Systems Revenue Bonds Center Valley Series 1993L 12-01-23 5.50 3,000,000 3,032,430 State Department Water Resource Water Systems Revenue Bonds Center Valley Series 1995O 12-01-18 4.75 2,000,000 1,906,420 State Educational Facilities Authority Revenue Bonds Keck Graduate Institute of Applied Life Sciences Series 2000 06-01-20 6.63 1,490,000 1,588,578 State Educational Facilities Authority Revenue Bonds Pomona College Series 1992 02-15-17 6.00 3,000,000 3,109,710 State Educational Facilities Authority Revenue Bonds Series 1997B 04-01-21 6.30 1,000,000 1,045,360 State for Previous Veterans Unlimited General Obligation Bonds Series 2000B A.M.T. 12-01-12 4.95 2,250,000 2,244,083 12-01-13 5.05 1,435,000 1,429,705 12-01-14 5.15 2,535,000 2,525,671 State General Obligation Bonds Series 2000 05-01-30 5.75 2,000,000 2,065,060 State Public Works Board California Community Colleges Lease Pre-refunded Revenue Bonds Series 1994 03-01-19 7.00 2,000,000 2,230,340 State Public Works Board Lease Revenue Bonds Department of Correction Substance Abuse Treatment Facility & State Prison Corcoran Series 1996A (AMBAC Insured) 01-01-21 5.25 1,870,000 1,867,737 State University Multi-purpose Revenue Bonds Series 2000K (FGIC Insured) 09-01-20 5.00 1,830,000 1,803,245 State University Refunding Revenue Bonds Series 1993C (AMBAC Insured) 09-01-23 5.00 2,000,000 1,929,720 State Unlimited Tax General Obligation Bonds Series 1993 (FGIC Insured) 09-01-23 4.75 1,075,000 993,074 Statewide Community Development Authority Revenue Certificates of Participation St. Joseph Health System Group Series 1994 07-01-15 6.50 5,500,000 6,122,875 Statewide Community Development Authority Multi-family Housing Revenue Bonds Magnolia City Lights Series 1999X A.M.T. 07-01-30 6.65 1,600,000 1,448,080 Stockton Single Family Mortgage Revenue Bonds Series 1990A (GNMA Insured) A.M.T. 02-01-23 7.50 70,000 73,854 Upland Certificate of Participation Water System Refunding Bonds Series 1992 (FGIC Insured) 08-01-16 6.60 1,000,000 1,049,100 Vallejo Certificates of Participation Touro University Series 1999 06-01-29 7.38 2,000,000 2,067,280 West Sacramento Financing Authority Special Tax Revenue Bonds Series 1999F 09-01-29 6.10 3,000,000 2,890,470 Windsor Civic Center Joint Powers Financing Authority Lease Revenue Bonds Series 2001A (FSA Insured) 10-01-24 5.00 2,555,000 2,466,265 Total municipal bonds (Cost: $215,204,178) $230,720,782 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 52 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP California Tax-Exempt Fund Municipal notes (6.9%) Issuer(b,c,g) Effective Amount Value(a) yield payable at maturity Irvine Ranch Water District Revenue Bonds Series 1985 V.R. 10-01-05 3.10% $1,600,000 $1,600,000 Irvine Ranch Water District Revenue Bonds Series 1991 V.R. 08-01-16 3.10 300,000 300,000 Orange County Improvement District #88 Special Assessment Bonds V.R. 09-02-18 3.05 1,000,000 1,000,000 Orange County Improvement District #88-1 Special Assessment Bonds Series 1988 V.R. 09-02-18 3.05 2,500,000 2,500,000 State Health Facilities Financing Authority Revenue Bonds Adventist Health Systems Series 1998A V.R. (MBIA Insured) 09-01-28 3.05 2,300,000 2,300,000 State Health Facilities Financing Authority Revenue Bonds Adventist Health Systems Series 1998B V.R. 09-01-28 3.05 700,000 700,000 State Health Facilities Financing Authority Revenue Bonds Sutter Health Series 1996B V.R. 03-01-12 3.10 700,000 700,000 Statewide Community Development Authority Certificates of Participation Series 1998 V.R. 04-01-28 3.00 3,700,000 3,700,000 Statewide Community Development Authority Certificate of Participation John Muir/Mt Diablo Health Series 1997 V.R. 08-15-27 3.00 3,700,000 3,700,000 Statewide Community Development Authority Certificate of Participation Sutter Health Group Series 1995 V.R. 07-01-15 3.10 1,200,000 1,200,000 Total municipal notes (Cost: $17,700,000) $17,700,000 Total investments in securities (Cost: $232,904,178)(i) $248,420,782 Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- 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 (c) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- As of June 30, 2001, the value of securities subject to alternative minimum tax represented 9.07% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note (d) Partially pledged as initial deposit on the following open interest rate futures contracts (see Note 5 to the financial statements): Type of security Notional amount Sale contracts Municipal Bonds, Sept. 2001 $27,000,000 (e) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (f) Inverse floaters represent securities that pay interest at a rate that increases (decreases) in the same magnitude as, or in a multiple of, a decline (increase) in market short-term rates. Interest rate disclosed is the rate in effect on June 30, 2001. As of June 30, 2001, the value of inverse floater securities represented 5.0% of net assets. (g) 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 June 30, 2001. (h) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on June 30, 2001. (i) At June 30, 2001, the cost of securities for federal income tax purposes was $232,904,178 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $16,663,868 Unrealized depreciation (1,147,264) ---------- Net unrealized appreciation $15,516,604 ----------- - -------------------------------------------------------------------------------- 53 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT Investments in Securities AXP Massachusetts Tax-Exempt Fund June 30, 2001 (Percentages represent value of investments compared to net assets) Municipal bonds (89.2%) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) Bay Transportation Authority General Transportation System Refunding Revenue Bonds Series 1992B 03-01-16 6.20% $1,500,000 $1,719,240 Bay Transportation Authority Pre-refunded Revenue Bonds Series 1992B (FSA Insured) 03-01-21 5.50 15,000 15,589 Boston City Hospital Refunding Revenue Bonds Series 1993B (FHA Insured) 02-15-23 5.75 3,000,000 3,008,520 Boston General Obligation Refunding Bonds Series 1993A (AMBAC Insured) 02-01-09 5.65 1,500,000 1,562,055 Boston Industrial Development Financing Authority Revenue Bonds Massachusetts College of Pharmacy Series 1994A (Connie Lee Insured) 10-01-26 5.25 1,000,000 971,320 Boston Pre-refunded General Obligation Bonds Series 1991A (MBIA Insured) 07-01-11 6.75 500,000 510,110 Boston Water & Sewer Commission General Pre-refunded Revenue Bonds Senior Series 1991A (FGIC Insured) 11-01-18 7.00 1,000,000 1,034,400 Boston Water & Sewer Commission General Revenue Bonds Series 1998D (FGIC Insured) 11-01-22 4.75 1,000,000 920,310 Haverhill City Unlimited Tax General Obligation Bonds Series 1997 (FGIC Insured) 06-15-17 5.00 250,000 250,320 Health & Educational Facilities Authority Pre-refunded Revenue Bonds Brigham & Women's Hospital Series 1991D 07-01-24 6.75 1,000,000 1,020,220 Health & Educational Facilities Authority Pre-refunded Revenue Bonds Charlton Memorial Hospital Series 1991B 07-01-13 7.25 1,750,000 1,785,420 Health & Educational Facilities Authority Pre-refunded Revenue Bonds New England Deaconess Hospital Series 1992D 04-01-12 6.63 1,000,000 1,048,940 Health & Educational Facilities Authority Pre-refunded Revenue Bonds Newton Wellesley Hospital Series 1991D (MBIA Insured) 07-01-15 7.00 1,000,000 1,020,230 Health & Educational Facilities Authority Pre-refunded Revenue Bonds Northeastern University Series 1992E (MBIA Insured) 10-01-22 6.55 1,000,000 1,056,990 Health & Educational Facilities Authority Refunding Revenue Bonds Beth Israel Hospital Series 1989E 07-01-09 7.00 300,000 300,006 07-01-14 7.00 250,000 244,135 Health & Educational Facilities Authority Revenue Bonds Berkshire Health Systems Series 1994C 10-01-11 5.90 900,000 903,969 Health & Educational Facilities Authority Revenue Bonds Cape Cod Health System Series 1993A (Connie Lee Insured) 11-15-21 5.25 2,500,000 2,469,050 Health & Educational Facilities Authority Revenue Bonds Holyoke Hospital Series 1994B 07-01-15 6.50 1,000,000 931,380 Health & Educational Facilities Authority Revenue Bonds Suffolk University Series 1992B (Connie Lee Insured) 07-01-22 6.35 2,495,000 2,576,537 Industrial Finance Agency Assumption College Revenue Bonds Series 1996 (Connie Lee Insured) 07-01-26 6.00 1,000,000 1,051,260 Industrial Finance Agency Hampshire College Revenue Bonds Series 1997 10-01-17 5.80 1,105,000 1,087,762 Industrial Finance Agency Pollution Control Refunding Revenue Bonds Eastern Edison Series 1993 08-01-08 5.88 2,000,000 2,075,400 Industrial Finance Agency Resource Recovery Revenue Bonds SEMASS Series 1991A 07-01-15 9.00 1,500,000 1,548,285 Mansfield Pre-refunded General Obligation Bonds Series 1991 (AMBAC Insured) 01-15-11 6.70 1,000,000 1,041,450 Municipal Wholesale Electric Power Supply System Pre-refunded Revenue Bonds Series 1992B 07-01-17 6.75 1,395,000 1,477,975 Municipal Wholesale Electric Power Supply System Refunding Revenue Bonds Series 1994B (MBIA Insured) 07-01-11 4.75 1,750,000 1,774,885 Municipal Wholesale Electric Power Supply System Revenue Bonds Special Parts & Inflows Series 1993 (AMBAC Insured) 07-01-18 5.45 1,600,000 1,612,208 Nantucket General Obligation Bonds Series 1991 12-01-11 6.80 1,000,000 1,036,900 Route 3 North Transportation Improvement Lease Bonds Inverse Floater Series 2000 (MBIA Insured) 06-15-19 9.06 500,000(e) 542,470 Southeastern University Building Refunding Revenue Bonds Series 1995A (AMBAC Insured) 05-01-16 5.75 1,250,000 1,307,813 State Development Finance Agency Private School Revenue Bonds Series 1998 11-01-18 5.88 500,000 418,645 State Development Finance Agency Refunding Revenue Bonds Briarwood Retirement Community Series 2001B 12-01-30 8.25 750,000 733,718 State Development Finance Agency Revenue Bonds 1st Mortgage Berkshire Retirement Community Lennox Series 1999 07-01-29 5.63 1,500,000 1,229,430 State Development Finance Agency Revenue Bonds Boston University Series 1999P 05-15-29 6.00 1,400,000 1,490,804 State Development Finance Agency Revenue Bonds Devens Electric System Series 2001 12-01-30 6.00 1,000,000 1,001,610 State Development Finance Agency Revenue Bonds Landmank School Series 1999 (Asset Guaranty) 06-01-29 5.25 1,000,000 957,620 State Development Finance Agency Revenue Bonds Massachusetts College of Pharmacy Series 1999B 07-01-20 6.63 1,000,000 1,042,930 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 54 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Massachusetts Tax-Exempt Fund Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) State Development Finance Agency Revenue Bonds Suffolk University Series 1999 07-01-29 5.85% $1,000,000 $990,480 State Development Finance Agency Revenue Bonds The May Institute Issue Series 1999 (Asset Guaranty) 09-01-29 5.75 1,000,000 1,014,520 State Development Finance Authority Revenue Bonds Boston Biomedical Research Institute Series 1999 02-01-29 5.75 1,000,000 920,460 State Education Loan Authority Educational Loan Revenue Bonds Issue E Series 1994B (AMBAC Insured) A.M.T. 01-01-12 6.00 680,000 715,353 State Health & Education Facilities Authority College Revenue Bonds Brandeis University Series 1998I (MBIA Insured) 10-01-28 4.75 2,000,000 1,824,200 State Health & Education Facilities Authority Hospital Revenue Bonds Harvard Pilgrim Health Series 1998A (FSA Insured) 07-01-22 4.75 1,000,000 911,900 State Health & Education Facilities Authority Hospital Revenue Bonds Milford-Whitinsville Regional Hospital Series 1998C 07-15-28 5.38 1,065,000 808,367 State Health & Education Facilities Authority Pre-refunded Revenue Bonds Boston College Series 1991J (FGIC Insured) 07-01-21 6.63 1,940,000 1,979,207 State Health & Education Facilities Authority Pre-refunded Revenue Bonds Melrose-Wakefield Hospital Series 1992B 07-01-16 6.38 1,000,000 1,085,510 State Health & Education Facilities Authority Pre-refunded Revenue Bonds Series 1992D (MBIA Insured) 07-01-22 6.50 495,000 523,121 State Health & Education Facilities Authority Refunding Revenue Bonds Christopher House Series 1999A 01-01-29 6.88 1,000,000 900,000 State Health & Education Facilities Authority Refunding Revenue Bonds Caritas Christi Obligated Group Series 1999A 07-01-15 5.70 1,000,000 917,700 State Health & Education Facilities Authority Revenue Bonds Boston College Series 1998L 06-01-31 4.75 1,000,000 895,330 State Health & Education Facilities Authority Revenue Bonds Learning Center for Deaf Children Series 1999C 07-01-29 6.13 1,000,000 850,210 State Health & Education Facilities Authority Revenue Bonds North Adams Regional Hospital Series 1996C 07-01-18 6.63 1,000,000 978,580 State Health & Education Facilities Authority Revenue Bonds South Shore Hospital Series 1999F 07-01-29 5.75 1,000,000 963,660 State Health & Education Facilities Authority Revenue Bonds Southcoast Health System Series 1998A (MBIA Insured) 07-01-27 4.75 1,000,000 897,270 State Health & Education Facilities Authority Revenue Bonds Valley Regional Health System Series 1994C (Connie Lee Insured) 07-01-18 5.75 1,000,000 1,026,180 State Health & Education Facilities Authority Un-refunded Revenue Bonds Boston College Series 1991J (FGIC Insured) 07-01-21 6.63 60,000 61,331 State Health & Education Facilities Authority Un-refunded Revenue Bonds Series 1992D (MBIA Insured) 07-01-22 6.50 505,000 526,210 State Housing Authority Residential Development Bonds Series 1992A (FNMA Insured) 11-15-11 6.88 1,000,000 1,044,790 State Industrial Finance Agency Assisted Living Facility Revenue Bonds Marina Bay LLC Series 1997 A.M.T. 12-01-27 7.50 1,000,000 979,670 State Industrial Finance Agency Assisted Living Facility Revenue Bonds Newton Group Properties LLC Series 1997 A.M.T. 09-01-27 8.00 1,160,000 1,208,302 State Industrial Finance Agency College Revenue Bonds Tufts University Series 1998H (MBIA Insured) 02-15-28 4.75 1,000,000 913,830 State Industrial Finance Agency Miscellaneous Revenue Bonds Cambridge Friends School Series 1998 09-01-28 5.80 700,000 664,685 State Industrial Finance Agency School Bonds St. John's High School of Worcester County Series 1998 06-01-28 5.35 500,000 457,895 State Turnpike Authority Metro Highway System Senior Lien Revenue Bonds Toll Road Series 1997A (MBIA Insured) 01-01-37 5.00 2,000,000 1,838,840 State Water Resource Authority Pre-refunded Revenue Bonds Series 1992A (MBIA Insured) 07-15-22 5.50 1,100,000 1,131,669 Taunton General Obligation Refunding Notes Series 1999 (FSA Insured) 05-01-19 4.75 1,000,000 952,950 University of Massachusetts Building Authority Revenue Bonds Series 1976 Escrowed to Maturity 05-01-11 7.50 90,000 104,388 Water Resource Authority General Pre-refunded Revenue Bonds Series 1991A 12-01-19 6.50 1,000,000 1,035,890 Water Resource Authority General Revenue Bonds Series 1993B (MBIA Insured) 03-01-22 5.00 1,000,000 972,310 Total municipal bonds (Cost: $72,884,995) $74,874,714 Municipal notes (8.9%) Issuer(c,d) Effective Amount Value(a) yield payable at maturity State Health & Education Facility Authority Revenue Bonds Capital Asset V.R. Series 1985C 07-01-05 3.30% $1,200,000 $1,200,000 State Health & Education Facility Authority Revenue Bonds Capital Asset V.R. Series 1985E 01-01-35 3.25 6,285,000 6,285,000 Total municipal notes (Cost: $7,485,000) $7,485,000 Total investments in securities (Cost: $80,369,995)(f) $82,359,714 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 55 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Massachusetts Tax-Exempt Fund Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- 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 (c) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- As of June 30, 2001, the value of securities subject to alternative minimum tax represented 3.46% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note (d) 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 June 30, 2001. (e) Inverse floaters represent securities that pay interest at a rate that increases (decreases) in the same magnitude as, or in a multiple of, a decline (increase) in market short-term rates. Interest rate disclosed is the rate in effect on June 30, 2001. As of June 30, 2001, the value of inverse floater securities represented 0.6% of net assets. (f) At June 30, 2001, the cost of securities for federal income tax purposes was $80,369,995 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 3,319,429 Unrealized depreciation (1,329,710) ---------- Net unrealized appreciation $ 1,989,719 ----------- - -------------------------------------------------------------------------------- 56 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT Investments in Securities AXP Michigan Tax-Exempt Fund June 30, 2001 (Percentages represent value of investments compared to net assets) Municipal bonds (94.0%) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) Allegan Hospital Finance Authority Refunding Revenue Bonds Allegan General Hospital Series 1999 11-15-21 7.00% $1,000,000 $981,820 Auburn Hills Limited Tax General Obligation Street Improvement Bonds Series 1989 05-01-04 6.00 200,000 202,942 Battle Creek Calhoun County Downtown Development Authority Pre-refunded Bonds Series 1994 05-01-22 7.65 1,250,000 1,411,963 Big Rapids Public School District Unlimited General Obligation Bonds Series 1999 (FSA Insured) 05-01-25 4.75 1,500,000 1,368,165 Central University Revenue Bonds Series 1997 (FGIC Insured) 10-01-26 5.50 750,000 816,480 Central University Revenue Bonds Series 1998 (FGIC Insured) 10-01-27 5.00 1,000,000 953,970 Chippewa County Hospital Financial Authority Hospital Refunding Revenue Bonds Chippewa County War Memorial Hospital Series 1997B 11-01-14 5.63 500,000 452,215 Chippewa Valley School District Unlimited Tax General Obligation Bonds Series 1993 (FGIC Insured) 05-01-21 5.00 1,000,000 972,950 Concord Academy Certificate of Participation Series 1998 10-01-19 7.00 1,000,000 936,450 Detroit Downtown Development Authority Development Area Project #1 Junior Lien Tax Increment Refunding Bonds Series 1996D 07-01-25 6.50 1,000,000 1,138,590 Detroit Sewer Disposal Pre-refunded Revenue Bonds Series 1993 (FGIC Insured) 07-01-23 5.70 1,600,000 1,696,480 Detroit Sewer Disposal Unrefunded Revenue Bonds Series 1993 (FGIC Insured) 07-01-23 5.70 400,000 407,580 Detroit Unlimited Tax General Obligation Bonds Series 1995A 04-01-15 6.80 1,000,000 1,120,590 Detroit Water Supply System Second Lien Revenue Bonds Series 1995A (MBIA Insured) 07-01-25 5.50 1,500,000 1,512,375 Eaton Rapids Public Schools Unlimited Tax General Obligation Refunding Bonds Series 1999 (MBIA Insured) 05-01-25 4.75 1,000,000 912,230 Farmington Hills Hospital Finance Authority Revenue Bonds Botsford General Hospital Series 1992A (MBIA Insured) 02-15-22 6.50 1,500,000 1,564,980 Ferris State University Board of Trustees General Refunding Revenue Bonds Series 1995 (MBIA Insured) 10-01-20 5.25 1,000,000 1,003,100 Fowlerville Community Schools Unlimited Tax General Obligation Refunding Bonds Series 1999 (FSA Insured) 05-01-26 4.75 1,310,000 1,190,869 Garden City Hospital Finance Authority Hospital Revenue Bonds Series 1998A 09-01-17 5.75 1,000,000 722,950 Genesee County General Obligation Bonds Sewer Disposal System Series 1996A (AMBAC Insured) 04-01-15 5.40 1,000,000 1,028,840 Gogebic County Hospital Finance Authority Hospital Refunding Revenue Bonds Grandview Health System Series 1999 10-01-16 5.88 1,000,000 895,420 Grand Ledge Public Schools Unlimited Tax General Obligation Refunding Bonds Eaton, Clinton & Ionia Counties Series 1995 (MBIA Insured) 05-01-24 5.38 2,000,000 2,009,279 Grand Rapids Community College Limited Tax General Obligation Bonds Series 1996 (MBIA Insured) 05-01-19 5.38 1,000,000 1,013,330 Grand Rapids Sanitary Sewer System Refunding Revenue Bonds Series 1998A (FGIC Insured) 01-01-28 4.75 1,000,000 906,340 Grand Rapids Tax Increment Revenue Bonds Series 1994 (MBIA Insured) 06-01-24 6.88 380,000 417,601 Iosco County Water Supply System Limited Tax General Obligation Bonds Series 1990 (AMBAC Insured) 05-01-08 5.50 175,000 179,237 05-01-09 5.50 200,000 204,760 05-01-10 5.50 200,000 204,678 Jackson General Obligation Capital Appreciation Downtown Development Bonds Zero Coupon Series 2001 (FSA Insured) 06-01-21 5.58 1,450,000(e) 496,756 Lake Orion School District General Obligation Bonds Series 1995 (AMBAC Insured) 05-01-20 5.50 1,000,000 1,014,750 Lincoln Park School District Wayne County School Building & Site Unlimited Tax Pre-refunded General Obligation Bonds Series 1996 (FGIC Insured) 05-01-26 5.90 1,000,000 1,102,170 Midland County Economic Development Authority Unlimited Tax General Obligation Refunding Revenue Bonds Series 2000A A.M.T. 07-23-09 6.88 1,000,000 1,022,880 Muskegon Heights Public Schools Unlimited Tax General Obligation Bonds Series 1999 (MBIA Insured) 05-01-29 5.00 750,000 713,205 Ovid-Elsie School District Unlimited Tax General Obligation Bonds Series 1995 (MBIA Insured) 05-01-21 5.60 1,000,000 1,081,910 Plymouth Educational Center Certificates of Participation Series 1999 07-01-29 7.00 1,250,000 1,198,350 Plymouth-Canton Community School District Unlimited Tax General Obligation Bonds Series 1999 (FSA Insured) 05-01-23 4.75 1,000,000 919,920 Redford General Obligation Bonds Series 1995 (MBIA Insured) 04-01-16 5.25 1,450,000 1,471,185 Richmond Limited Obligation Refunding Revenue Bonds KMart Series 1994 01-01-07 6.63 530,000 537,409 Romulus Township School District Unlimited Tax General Obligation Refunding Bonds Series 1993 (FGIC Insured) 05-01-22 5.75 2,500,000 2,557,549 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 57 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Michigan Tax-Exempt Fund Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) Schoolcraft Community School District Unlimited Tax General Obligation Pre-refunded Bonds Series 1996 05-01-26 5.38% $295,000 $317,190 Schoolcraft Community School District Unlimited Tax General Obligation Bonds Series 1996 05-01-26 5.38 705,000 758,030 South Redford School District Unlimited Tax General Obligation Pre-refunded Bonds Series 1996 05-01-22 5.50 310,000 335,324 South Redford School District Unlimited Tax General Obligation Bond Series 1996 05-01-22 5.50 690,000 700,253 State Building Authority Refunding Revenue Bonds Series 1991I 10-01-20 6.25 2,200,000 2,263,469 State Hospital Finance Authority Hospital Pre-refunded Revenue Bonds McLaren Obligated Group Series 1991A 09-15-21 7.50 1,750,000 1,802,185 State Hospital Finance Authority Hospital Refunding Revenue Bonds Detroit Medical Center Series 1988 08-15-12 8.13 40,000 40,032 State Hospital Finance Authority Hospital Refunding Revenue Bonds Detroit Medical Center Series 1993A 08-15-13 6.25 1,200,000 1,198,884 State Hospital Finance Authority Hospital Refunding Revenue Bonds Memorial Healthcare Center Obligated Group Series 1999 11-15-21 5.88 1,000,000 914,100 State Hospital Finance Authority Refunding Revenue Bonds Presbyterian Villages Obligated Group Series 1995 01-01-25 6.50 1,000,000 921,210 State Hospital Finance Authority Revenue Bonds Presbyterian Villages of Michigan Obligated Group Series 1997 01-01-25 6.38 700,000 637,203 State Hospital Finance Authority Revenue Bonds Central Michigan Community Hospital Series 1996 10-01-27 6.25 1,000,000 855,290 State Municipal Bond Authority Revenue Bonds Public School Academy YMCA Service Learning Series 2001 10-01-21 7.63 750,000 754,628 State Public Power Agency Belle River Refunding Revenue Bonds Series 1993A 01-01-18 5.25 1,000,000 1,000,000 State Strategic Fund Limited Tax Obligation Refunding Revenue Bonds Detroit Edison Series 1990BB (MBIA Insured) 07-15-08 7.00 1,000,000 1,166,540 State Strategic Fund Limited Tax Obligation Refunding Revenue Bonds Detroit Edison Series 1992BB (FGIC Insured) 02-15-16 6.50 1,500,000 1,557,555 State Strategic Fund Limited Tax Obligation Refunding Revenue Bonds Ford Motor Series 1991A 02-01-06 7.10 1,650,000 1,849,947 State Strategic Fund Limited Tax Obligation Refunding Revenue Bonds Oxford Institute Series 1987A Escrowed to Maturity 08-15-05 7.88 115,000 124,769 State Strategic Fund Nursing Home Revenue Bonds Holland Home Series 1998 11-15-28 5.75 1,000,000 857,200 State Trunk Line Bonds Series 1994A (FGIC Insured) 11-15-20 5.75 1,065,000 1,163,544 State Trunk Line Bonds Series 1998A (MBIA Insured) 11-01-20 4.75 1,000,000 935,040 State University Revenue Bonds Series 1992A 08-15-22 5.50 560,000 576,722 Summit Academy Certificates of Participation Junior High School Facility Series 1999 09-01-29 7.00 695,000 800,480 Summit Academy Certificates of Participation Series 1998 08-01-18 7.00 1,110,000 1,048,573 Summit Academy Certificates of Participation Series 2001 07-01-30 7.38 750,000 748,658 Taylor Tax Increment Finance Authority Bonds Series 2001 (FSA Insured) 05-01-19 5.00 1,000,000 973,460 Troy City Downtown Development Authority County of Oakland Development Bonds Series 1995A (Asset Guaranty) 11-01-18 6.38 1,500,000 1,599,885 Van Buren Township Tax Increment Revenue Bonds Series 1994 10-01-16 8.40 995,000 1,089,734 Wayne County Charter Airport Revenue Bonds Detroit Metropolitan Airport Series 1990A (AMBAC Insured) A.M.T. 12-01-20 7.00 1,080,000 1,104,581 Wayne County Charter Airport Revenue Bonds Detroit Metropolitan Airport Series 1998B (MBIA Insured) 12-01-23 4.88 1,000,000 932,170 Wayne County Charter Airport Revenue Bonds Detroit Metropolitan Airport Series 1998A (MBIA Insured) A.M.T. 12-01-28 5.00 1,000,000 937,770 Wayne State University Revenue Bonds University Board of Governors Series 1999 (FGIC Insured) 11-15-29 5.13 1,000,000 968,700 Total municipal bonds (Cost: $65,533,571) $69,275,394 Municipal notes (4.6%) Issuer(c,d) Effective Amount Value(a) yield payable at maturity Royal Oak Michigan Refunding Revenue Bonds William Beaumont Hospital V.R. Series 1997L 01-01-27 3.50% $300,000 $300,000 University of Michigan Hospital Refunding Revenue Bonds V.R. Series 1995A 12-01-27 3.30 2,500,000 2,500,000 University of Michigan Hospital Refunding Revenue Bonds V.R. Series 1998A 12-01-21 3.30 600,000 600,000 Total municipal notes (Cost: $3,400,000) $3,400,000 Total investments in securities (Cost: $68,933,571)(f) $72,675,394 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 58 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Michigan Tax-Exempt Fund Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- 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 (c) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- As of June 30, 2001, the value of securities subject to alternative minimum tax represented 4.16% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note (d) 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 June 30, 2001. (e) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (f) At June 30, 2001, the cost of securities for federal income tax purposes was $68,933,571 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 4,765,394 Unrealized depreciation (1,023,571) ---------- Net unrealized appreciation $ 3,741,823 ----------- - -------------------------------------------------------------------------------- 59 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT Investments in Securities AXP Minnesota Tax-Exempt Fund June 30, 2001 (Percentages represent value of investments compared to net assets) Municipal bonds (90.6%) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) Albert Lea Independent School District #241 Unlimited Tax General Obligation Bonds Series 1998 (MBIA Insured) 02-01-16 4.80% $1,555,000 $1,523,309 Anoka County Housing & Redevelopment Authority Revenue Bonds Epiphany Assisted Living LLC Series 1999 12-01-29 7.40 3,560,000 3,429,241 Austin Housing & Redevelopment Authority Revenue Bonds Courtyard Residence Series 2000A 01-01-32 7.25 3,000,000 3,058,980 Becker Solid Waste Disposal Facility Revenue Bonds Liberty Paper Series 1994B A.M.T. 08-01-15 9.00 3,625,000 3,683,508 Bemidji Hospital Facilities1st Mortgage Pre-refunded Revenue Bonds North Country Health Services Series 1991A 09-01-21 7.00 1,755,000 1,802,841 Bloomington Housing & Redevelopment Authority Housing Revenue Bonds Senior Summerhouse Bloomington Series 1998 05-01-35 6.13 3,400,000 2,789,088 Brooklyn Center Tax Credit Investor Refunding Revenue Bonds Four Courts Apartments Series 1995B A.M.T. 06-15-09 7.58 2,450,000 2,455,390 Buffalo Independent School District #877 Unlimited Tax General Obligation Refunding Bonds Series 1999 (MBIA Insured) 02-01-18 4.80 1,710,000 1,640,386 Carlton Health Care & Housing Facilities Revenue Bonds Inter-Faith Social Services Series 2000 04-01-29 7.75 2,500,000 2,450,700 Chaska Multi-family Housing Revenue Bonds West Suburban Housing Partners Series 1999 A.M.T. 09-01-19 5.75 175,000(e) 157,659 03-01-31 5.88 2,115,000 1,842,546 Duluth Economic Development Authority Health Care Facilities Revenue Bonds BSM Properties Series 1998A 12-01-28 5.88 500,000(e) 407,000 Eden Prairie Housing Development Authority Refunding Revenue Bonds Eden Commons Series 1990 (FHA Insured) 03-01-25 8.25 5,845,000 5,881,122 Eden Prairie Multi-family Housing Refunding Revenue Bonds Sterling Ponds Series 1999A A.M.T. 12-01-29 6.25 5,215,000 4,806,926 Eden Prairie Multi-family Housing Refunding Revenue Bonds Sterling Ponds Series 1999B A.M.T. 12-01-29 6.25 670,000 617,573 Edina Multi-family Housing Pre-refunded Revenue Bonds Walker Assisted Living Series 1991 09-01-31 9.00 6,570,000 6,833,260 Faribault Rice & Goodhue Counties Independent School District #656 General Obligation School Building Bonds Series 1995 (FSA Insured) 06-01-15 5.75 6,900,000 7,323,522 Faribault Single Family Housing Mortgage Refunding Revenue Bonds Series 1991A 12-01-11 7.50 480,000 493,502 Farmington Independent School District #192 Unlimited Tax General Obligation Capital Appreciation School Building Bonds Zero Coupon Series 1998B (FSA Insured) 02-01-15 5.30 2,070,000 1,008,815 Fergus Falls Health Care Facilities Revenue Bonds LRHC Long-term Care Facility Series 1995 12-01-25 6.50 1,500,000 1,462,320 Fridley Senior Housing Revenue Bonds Banfill Crossing Homes Series 1999 09-01-34 6.75 3,090,000 2,914,952 Golden Valley Governmental Facilities Local Government Information Systems Association Revenue Bonds Series 1997 12-01-17 6.10 1,125,000 1,131,109 Golden Valley Revenue Bonds Covenant Retirement Communities Series 1999A 12-01-29 5.50 6,250,000 5,715,000 Harmony Multi-family Housing Refunding Revenue Bonds Zedakah Foundation Series 1997A 09-01-20 5.95 1,240,000 1,249,449 Hastings Healthcare Tax-Exempt Nursing Home Revenue Bonds Regina Medical Center Series 1998 (ACA Insured) 09-15-28 5.30 4,100,000 3,700,291 Hastings Housing & Redevelopment Authority Housing & Health Care Revenue Bonds Arbor Oaks Assisted Living Series 2000A 01-01-32 8.25 2,000,000 2,010,300 Hennepin County Lease Pre-refunded Revenue Certificates of Participation Series 1991A 05-15-17 6.80 7,250,000 7,361,360 Hopkins Pre-refunded Revenue Bonds Blake School Series 1994 09-01-24 6.70 3,120,000 3,417,118 Hubbard County Solid Waste Disposal Revenue Bonds Potlatch Series 1989 A.M.T. 08-01-13 7.38 5,610,000 5,613,927 International Falls Solid Waste Disposal Refunding Revenue Bonds Boise Cascade Series 1999 A.M.T. 12-01-29 6.85 4,000,000 4,124,360 Lakeville Independent School District #194 General Obligation Series 1997A 02-01-22 5.13 2,400,000 2,368,344 Little Canada Multi-family Housing Revenue Bonds Little Canada Series 1996 A.M.T. 02-01-27 7.00 3,725,000 3,646,626 Little Canada Multi-family Housing Revenue Bonds Housing Alternatives Development Company Series 1997A 12-01-27 6.25 4,900,000 4,548,474 Mahtomedi Multi-family Housing Refunding Revenue Bonds Briarcliff Series 1996 A.M.T. 06-01-36 7.35 2,215,000 2,232,676 Maplewood Elder Care Facilities Revenue Bonds Care Institute Series 1994 01-01-24 7.75 3,775,000 3,403,616 Maplewood Multi-family Housing Refunding Revenue Bonds Carefree Cottages of Maplewood III Series 1995 A.M.T. 11-01-32 7.20 2,875,000 2,832,766 Minneapolis & St. Paul Housing & Redevelopment Authority Health Care System Revenue Bonds Healthspan Series 1993A (AMBAC Insured) 11-15-18 4.75 13,500,000 12,619,124 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 60 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Minnesota Tax-Exempt Fund Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) Minneapolis & St. Paul Housing & Redevelopment Authority Health Care System Revenue Bonds Group Health Plan Series 1992 12-01-13 6.75% $10,500,000 $10,695,299 Minneapolis & St. Paul Metropolitan Airports Commission Special Facilities Revenue Bonds Northwest Airlines Series 2001A A.M.T 04-01-25 7.00 2,000,000 1,910,820 Minneapolis Community Development Agency Limited Tax Supported Development General Obligation Bonds Common Bond Fund 7th Series 1997A 06-01-12 5.50 250,000 258,308 Minneapolis Community Development Agency Limited Tax Supported Development Revenue Bonds Common Bond Fund 2nd Series 1998A A.M.T. 06-01-16 5.20 290,000 271,721 06-01-19 5.25 500,000 483,630 Minneapolis Community Development Agency Limited Tax Supported Development Revenue Bonds Common Bond Fund 1st Series 1996 06-01-11 6.00 980,000 1,030,970 Minneapolis Community Development Agency Limited Tax Supported Development Revenue Bonds Common Bond Fund 5th Series 1997 12-01-27 5.70 420,000 415,174 Minneapolis Community Development Agency Limited Tax Supported Refunding Revenue Bonds Series 2001 2-A A.M.T. 06-01-19 5.88 1,000,000 1,013,750 Minneapolis Nursing Home Revenue Bonds Walker Cityview & Southview Series 1992 07-01-22 8.50 5,125,000 5,550,836 Minneapolis Parking Ramp Unlimited General Obligation Bonds Series 1998 12-01-26 4.75 2,160,000 2,020,788 Minneapolis Special School District #1 Certificates of Participation Series 1998A (FGIC Insured) 02-01-19 4.75 2,000,000 1,872,020 Minnetonka Senior Housing Revenue Bonds Westridge Senior Housing Series 1997 09-01-27 7.00 1,775,000 1,707,976 Moorhead Economic Development Authority Multi-family Housing Development Refunding Revenue Bonds Eventide Senior Housing Series 1999B 06-01-19 5.90 500,000 423,110 06-01-29 6.00 1,400,000 1,155,728 New Brighton Tax Credit Investor Revenue Bonds Polynesian Village Apartments Series 1995B A.M.T. 07-15-09 7.75 2,355,000 2,433,327 New Hope Housing & Healthcare Facilities Revenue Bonds Minnesota Masonic Home North Ridge Series 1999 03-01-29 5.88 5,750,000 4,769,510 North St. Paul & Maplewood Independent School District #622 General Obligation Refunding Bonds Series 1996A 02-01-25 5.13 2,910,000 2,857,125 Northern Minnesota Municipal Power Agency Electric System Refunding Revenue Bonds Series 1998B (AMBAC Insured) 01-01-20 4.75 5,000,000 4,685,500 Oakdale Multi-family Housing Refunding Revenue Bonds Oakdale Village Apartments Series 1998 A.M.T. 11-01-28 6.00 3,650,000 3,256,202 Olmsted County Health Care Facilities Refunding Revenue Bonds Olmsted Medical Center Series 1998 07-01-19 5.55 1,125,000(e) 967,286 Park Rapids Independent School District #309 Unlimited Tax General Obligation Bonds Series 1999 (MBIA Insured) 02-01-21 4.75 3,000,000 2,810,700 Plymouth Multi-family Housing Revenue Bonds Harbor Lane Apartments Series 1993 (Asset Guaranty) A.M.T. 09-01-13 5.90 2,325,000 2,393,402 Princeton Independent School District #477 General Obligation Bonds Series 1997 (FSA Insured) 02-01-24 5.13 1,000,000 983,530 Richfield Independent School District #280 General Obligation Bonds Series 1993 Inverse Floater (FGIC Insured) 02-01-10 5.30 6,600,000(g) 6,690,948 02-01-12 5.35 5,020,000(g) 5,159,807 Richfield Multi-family Housing Refunding Revenue Bonds Village Shores Apartments Series 1996 08-01-31 7.63 2,955,000 2,960,437 Richfield Senior Housing Revenue Bonds Series 2000A 02-01-35 7.75 3,000,000 3,006,120 Robbinsdale Multi-family Housing Revenue Bonds Copperfield Hill Series 1996A 12-01-31 7.35 3,260,000 3,209,111 Rochester Health Care Facility Revenue Bonds Mayo Foundation Series 1992 11-15-19 4.95 5,000,000 4,807,700 Rochester Multi-family Housing Development Revenue Bonds Civic Square Series 1991 (FHA Insured) A.M.T. 07-15-31 7.45 4,255,000 4,385,501 Rochester Multi-family Housing Development Revenue Bonds Wedum Shorewood Campus Series 1999 06-01-36 6.60 5,000,000 4,384,900 Roseville Housing Facilities Nursing Home Refunding Revenue Bonds College Properties Series 1998 10-01-28 5.88 5,000,000 4,136,250 Sartell Health Care & Housing Facilities Nursing Home Revenue Bonds Series 2001A 09-01-30 8.00 1,000,000 1,004,210 Sartell Health Care & Housing Facilities Revenue Bonds The Foundation for Health Care Continuums Series 1999A 09-01-29 6.63 3,000,000 2,646,120 Shoreview Senior Housing Revenue Bonds Series 1996 02-01-26 7.25 3,200,000 3,138,592 Southeastern Minnesota Multi-county Housing & Redevelopment Authority Winona County Unlimited Tax General Obligation Bonds Series 1997 01-01-28 5.35 1,170,000 1,151,432 Southern Minnesota Municipal Power Agency Power Supply System Pre-refunded Revenue Bonds Series 1992A Escrowed to Maturity (MBIA Insured) 01-01-18 5.75 1,970,000 2,083,827 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 61 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Minnesota Tax-Exempt Fund Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) Southern Minnesota Municipal Power Agency Power Supply System Revenue Bonds Zero Coupon Series 1994A (MBIA Insured) 01-01-19 6.67% $19,500,000(f) $7,725,119 01-01-22 6.88 12,000,000(f) 3,984,120 01-01-24 6.08 5,150,000(f) 1,522,083 Southern Minnesota Municipal Power Agency Revenue Bonds Series 1992A 01-01-18 5.75 1,895,000 1,930,437 Southern Minnesota Municipal Power Agency Revenue Bonds Series 1993A (MBIA Insured) 01-01-16 4.75 9,165,000 8,848,073 Spring Park Health Care Facilities Pre-refunded Revenue Bonds Twin Birch Health Care Center Series 1991 08-01-11 8.25 1,780,000 1,823,717 St. Cloud Certificates of Participation Series 1997 12-01-17 5.90 400,000(e) 407,220 St. Cloud Hospital Facility Pre-refunded Revenue Bonds St. Cloud Hospital Series 1990B (AMBAC Insured) 07-01-20 7.00 3,000,000 3,060,690 St. Cloud Hospital Facility Refunding Revenue Bonds Series 1993C (AMBAC Insured) 10-01-20 5.30 1,515,000 1,514,864 St. Louis Park Health Care Facilities Revenue Bonds Healthsystem Minnesota Obligated Group Series 1993A (AMBAC Insured) 07-01-23 5.20 3,250,000 3,191,500 St. Louis Park Health Care Facilities Revenue Bonds Healthsystem Minnesota Obligated Group Series 1994 Inverse Floater (AMBAC Insured) 07-01-13 6.67 7,000,000(g) 7,043,750 St. Louis Park Multi-family Housing Refunding Revenue Bonds Park Boulevard Towers Series 1996 04-01-31 7.00 3,925,000 3,941,132 St. Paul Housing & Redevelopment Authority Health Care Facilities Revenue Bonds Lyngblomsten Care Center Series 1993 11-01-06 7.13 750,000 750,885 11-01-17 7.13 1,775,000 1,727,270 St. Paul Housing & Redevelopment Authority Health Care Facilities Revenue Bonds Lyngblomsten Multi-family Rental Housing Series 1993 11-01-24 7.00 1,845,000 1,811,513 St. Paul Housing & Redevelopment Authority Health Care Facilities Revenue Bonds Regions Hospital Series 1998 05-15-28 5.30 2,375,000 2,044,400 St. Paul Housing & Redevelopment Authority Lease Revenue Bonds Community of Peace Academy Series 2001A 12-01-30 7.88 2,390,000 2,413,948 St. Paul Housing & Redevelopment Authority Lease Revenue Bonds Minnesota Business Academy Series 2000 03-01-30 8.00 3,775,000 3,818,413 St. Paul Housing & Redevelopment Authority Sales Tax Revenue Bonds Civic Center Escrowed to Maturity Series 1993 (MBIA Insured) 11-01-23 5.55 7,500,000 7,732,274 St. Paul Housing & Redevelopment Authority Single Family Housing Mortgage Refunding Revenue Mortgage-backed Bonds Middle Income Series 1995 (FNMA Insured) 03-01-28 6.80 3,345,000 3,561,723 St. Paul Independent School District #625 Certificates of Participation Series 1999A 02-01-19 4.75 1,000,000 949,600 St. Paul Port Authority Revenue Bonds Hotel Facilities Radisson Kellogg 2nd Series 1999 08-01-29 7.38 3,500,000 3,482,815 St. Paul Port Authority Unlimited Tax General Obligation Bonds Series 1994 03-01-24 5.13 4,770,000 4,722,348 State Agricultural & Economic Development Board Health Care Facilities Facilities Refunding Revenue Bonds Benedictine Health System St. Mary's Health System Duluth Clinic Obligated Group Series 1999A (MBIA Insured) 02-15-23 5.00 1,795,000 1,733,898 State Agricultural & Economic Development Board Health Care Facilities Revenue Bonds Benedictine Health Series 1999A (MBIA Insured) 02-15-16 4.75 1,000,000 955,430 State General Obligation Various Purpose Pre-refunded Bonds Series 1991 08-01-11 6.70 6,000,000 6,021,180 State Higher Education Facilities Authority Gustavus Adolphus College Revenue Bonds 4th Series 1998X 10-01-24 4.80 2,340,000 2,118,355 State Higher Education Facilities Authority Northwestern College of Chiropractic Mortgage Revenue Bonds 4th Series 1999Z 10-01-13 5.20 275,000 270,672 State Housing Finance Agency Single Family Housing Mortgage Pre-refunded Revenue Bonds Series 1994L A.M.T. 07-01-20 6.70 710,000 742,355 State Housing Finance Agency Single Family Housing Mortgage Revenue Bonds Series 1992A 07-01-16 6.95 1,925,000 1,975,300 State Housing Finance Agency Single Family Housing Mortgage Revenue Bonds Series 1996J A.M.T. 07-01-21 5.60 440,000 443,106 State Housing Finance Agency Single Family Housing Mortgage Revenue Bonds Series 1997K A.M.T. 01-01-26 5.75 2,935,000 2,978,203 State Public Facilities Authority Water Pollution Control Revenue Bonds Series 1998A 03-01-16 4.75 3,500,000 3,413,095 State University Board of Regents General Obligation Bonds Inverse Floater Series 1993A 08-15-03 5.67 5,000,000(g) 5,231,250 State University Board of Regents General Obligation Bonds Series 1996A 07-01-21 5.50 12,500,000 13,219,374 State University Board of Regents Refunding Revenue Bonds Series 1986A Escrowed to Maturity 02-01-11 6.00 4,625,000 4,638,043 Steele County Health Care Facilities Revenue Bonds Elderly Housing Project Series 2000 06-01-30 6.88 2,205,000 2,319,550 Vadnais Heights Multi-family Housing Refunding Revenue Bonds Cottages of Vadnais Heights Series 1995 A.M.T. 12-01-31 7.00 3,070,000 3,020,420 Vadnais Heights Multi-family Housing Tax Credit Revenue Bonds Series 1997 A.M.T. 07-15-09 7.00 1,080,000 1,064,988 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 62 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Minnesota Tax-Exempt Fund Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) Washington County Housing & Redevelopment Authority Refunding Revenue Bonds Woodbury Multi-family Housing Series 1996 12-01-23 6.95% $1,895,000 $1,882,095 Western Minnesota Municipal Power Agency Refunding Revenue Bonds Series 1987A (MBIA Insured) 01-01-15 5.50 6,250,000 6,252,750 Western Minnesota Municipal Power Agency Refunding Revenue Bonds Series 1987A 01-01-15 5.50 5,000,000 5,001,200 Windom Independent School District #177 Unlimited Tax General Obligation Bonds Series 1999 02-01-24 4.75 2,195,000 2,015,888 Woodbury Senior Housing Revenue Bonds Summer House of Woodbury Series 1999 07-01-34 6.40 5,145,000 4,882,091 Total municipal bonds (Cost: $364,150,324) $373,475,984 Municipal notes (7.7%) Issuer(c,d) Annualized Amount Value(a) yield on date payable at of purchase maturity Cohasset Revenue Bonds (Minnesota Power & Light) V.R. Series 1997B 06-01-13 3.50% $700,000(h) $700,000 06-01-20 3.50 1,000,000(h) 1,000,000 Cohasset Revenue Bonds (Minnesota Power & Light) V.R.D.N. Series 1997A 06-01-20 3.50 5,045,000(h) 5,045,000 Cohasset Revenue Bonds (Minnesota Power & Light) V.R.D.N. Series 1997B 06-01-13 3.50 815,000(h) 815,000 Cohasset Revenue Bonds (Minnesota Power & Light) V.R.D.N. Series 1997D 06-01-13 3.50 100,000(h) 100,000 Duluth Health Facilities Revenue Bonds Miller-Dwan Medical Center V.R. Series 1997 06-01-19 3.50 8,550,000(h) 8,550,000 Minneapolis & St. Paul Housing & Health Care Facilities Revenue Bonds Presbyterian Homes V.R. Series 1999B 09-01-29 3.50 1,490,000(h) 1,490,000 Minneapolis & St. Paul Housing & Redevelopment Authority Health Care System Revenue Bonds Children's Hospital V.R. Series 1995B 08-15-25 3.55 9,920,000(h) 9,920,000 Rochester Health Care Facility Revenue Bonds (Mayo Clinic) C.P. Series 2000B 07-11-01 2.60 1,000,000 1,000,000 State Higher Education Facilities Authority Revenue Bonds St. Olaf College V.R. 5th Series 2000H 10-01-30 3.50 3,000,000(h) 3,000,000 Total municipal notes (Cost: $31,620,000) $31,620,000 Total investments in securities (Cost: $395,770,324)(i) $405,095,984 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 63 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Minnesota Tax-Exempt Fund Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- 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 (c) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- As of June 30, 2001, the value of securities subject to alternative minimum tax represented 13.69% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note (d) 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 June 30, 2001. (e) Partially pledged as initial deposit on the following open interest rate futures contracts (see Note 5 to the financial statements): Type of security Notional amount Sale contracts Municipal Bonds, Sept. 2001 $25,000,000 (f) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (g) Inverse floaters represent securities that pay interest at a rate that increases (decreases) in the same magnitude as, or in a multiple of, a decline (increase) in market short-term rates. Interest rate disclosed is the rate in effect on June 30, 2001. As of June 30, 2001, the value of inverse floater securities represented 5.9% of net assets. (h) Interest rate disclosed is the rate in effect on June 30, 2001. (i) At June 30, 2001, the cost of securities for federal income tax purposes was $395,770,324 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $17,264,983 Unrealized depreciation (7,939,323) ---------- Net unrealized appreciation $ 9,325,660 ----------- - -------------------------------------------------------------------------------- 64 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT Investments in Securities AXP New York Tax-Exempt Fund June 30, 2001 (Percentages represent value of investments compared to net assets) Municipal bonds (89.9%) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) Albany County Airport Authority Airport Revenue Bonds Series 1997 (FSA Insured) A.M.T. 12-15-19 5.50% $250,000 $256,970 Broome County Certificates of Participation Public Safety Facilities Series 1994 (MBIA Insured) 04-01-22 5.25 1,300,000 1,300,975 Buffalo Municipal Water Finance Authority Water System Revenue Bonds Series 1995 (FGIC Insured) 07-01-25 5.00 1,000,000(g) 966,100 Erie County Unlimited Tax General Obligation Bonds Series 1995B (FGIC Insured) 06-15-25 5.50 700,000 713,860 Erie County Water Authority Water Works System Revenue Bonds Series 1990A Escrowed to Maturity (AMBAC Insured) 12-01-08 6.00 1,765,000 1,949,584 Huntington Housing Authority Senior Housing Facilities Revenue Bonds Gurwin Jewish Senior Residences Series 1999A 05-01-39 6.00 1,750,000 1,460,743 Kenmore Housing Authority Multi-family Housing Revenue Bonds State University Buffalo Student Apartments Series 1999A (Asset Guaranty) 08-01-24 5.50 1,000,000 1,010,750 Long Island Power Authority Electronic Systems Revenue Bonds Sub Series 1998A (AMBAC Insured) 04-01-09 5.25 1,000,000 1,070,870 Metropolitan Transportation Authority Commuter Facilities Service Contract Refunding Revenue Bonds 5th Series 1991 07-01-16 6.50 1,775,000 1,812,648 Metropolitan Transportation Authority Dedicated Tax Revenue Bonds Series 1998A (FGIC Insured) 04-01-28 4.75 1,000,000 932,290 Metropolitan Transportation Authority Transportation Facilities Revenue Bonds Series 1998A (MBIA Insured) 07-01-24 4.75 1,500,000 1,410,030 Monroe County Airport Authority Airport Refunding Revenue Bonds Greater Rochester International Airport Series 1999 (MBIA Insured) A.M.T. 01-01-16 5.88 1,500,000 1,657,155 Mount Vernon Industrial Development Agency Civic Facilities Revenue Bonds Wartburg Senior Housing Meadowview Series 1999 06-01-29 6.20 1,000,000 847,760 New York Unlimited General Obligation Bonds Series 1997D 08-01-03 5.25 1,000,000 1,042,100 New York City Health & Hospital Revenue Bonds Series 1993A 02-15-20 6.30 870,000 931,822 New York City Industrial Development Agency Civic Facilities Refunding Revenue & Improvement Bonds Lighthouse International Series 1998 (MBIA Insured) 07-01-23 4.50 200,000 176,680 New York City Industrial Development Agency Civic Facilities Revenue Bonds Riverdale Country School Series 1997 (MBIA Insured) 06-01-17 5.25 1,000,000 1,018,110 New York City Industrial Development Agency Civic Facilities Revenue Bonds Rockefeller Foundation Series 1993 07-01-23 5.38 2,000,000 2,026,920 New York City Industrial Development Agency Civic Facilities Revenue Bonds Touro College Series 1999A 06-01-29 6.35 1,000,000 927,570 New York City Industrial Development Agency Civic Facilities Revenue Bonds Trinity Episcopal School Series 1997 (MBIA Insured) 06-15-27 5.25 1,000,000 997,580 New York City Industrial Development Agency Civic Facilities Revenue Bonds YMCA Series 1997 08-01-16 5.80 1,000,000 990,230 New York City Municipal Water Finance Authority Water & Sewer System Revenue Bonds Series 1993 Inverse Floater (MBIA Insured) 06-15-09 6.73 2,000,000(f) 2,147,500 New York City Municipal Water Finance Authority Water & Sewer System Revenue Bonds Series 1996B (MBIA Insured) 06-15-26 5.75 500,000 522,255 New York City Transitional Cultural Resources Revenue Bonds Museum of American Folk Art Series 2000 (ACA Insured) 07-01-22 6.00 1,000,000 1,028,010 New York City Transitional Finance Authority Future Secured Sales Tax Revenue Bonds Series 1998B 11-15-23 4.75 1,500,000 1,384,230 New York City Transitional Finance Authority Future Secured Sales Tax Revenue Bonds Series 1999C 05-01-25 5.50 1,000,000 1,027,450 New York City Transitional Finance Authority Future Secured Sales Tax Revenue Bonds Series 2001C 02-01-08 5.50 1,500,000 1,625,520 New York City Unlimited Tax General Obligation Bonds Series 1996G 02-01-17 5.75 1,000,000 1,042,180 New York City Unlimited Tax General Obligation Bonds Series 1996J 02-15-19 5.88 1,000,000 1,045,090 New York City Unlimited Tax General Obligation Bonds Series 1999I (MBIA Insured) 04-15-29 5.00 1,000,000 959,350 New York City Unlimited Tax General Obligation Bonds Series 2000R Inverse Floater (FGIC Insured) 05-15-16 11.52 1,000,000(f) 1,223,830 New York City Unlimited Tax General Obligation Pre-refunded Revenue Bonds Series 1994B-1 08-15-16 7.00 1,500,000 1,679,970 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 65 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP New York Tax-Exempt Fund Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) North Hempstead Unlimited Tax General Obligation Various Purpose Bonds Series 1998A (FGIC Insured) 01-15-23 4.75% $1,000,000 $933,480 Oneida County Industrial Development Agency Civic Facilities Revenue Bonds Mohawk Valley Handicapped Services Series 1999 (ACA Insured) 03-15-19 5.30 500,000 476,765 Port Authority Special Obligation Revenue Bonds KIAC Partners 4th Series 1996 A.M.T. 10-01-19 6.75 1,500,000 1,557,180 State Dormitory Authority Revenue Bonds Frances Schervier Home Series 1997 (Asset Guaranty) 07-01-17 5.50 1,000,000 1,019,440 State Dormitory Authority College Revenue Bonds Barnard College Series 1996 (AMBAC Insured) 07-01-16 5.25 1,140,000 1,164,647 State Dormitory Authority College Revenue Bonds Consolidated City University System Series 1993A 07-01-13 5.75 3,000,000 3,336,059 State Dormitory Authority College Revenue Bonds Cooper Union Series 1996 (AMBAC Insured) 07-01-20 5.38 860,000 874,293 State Dormitory Authority College Revenue Bonds Culinary Institute of America Series 1997 (MBIA Insured) 07-01-17 5.00 500,000 500,000 State Dormitory Authority College Revenue Bonds Long Island University Series 1999 (Asset Guaranty) 09-01-28 5.25 1,400,000 1,384,894 State Dormitory Authority College Revenue Bonds Siena College Series 2001 (MBIA Insured) 07-01-03 4.25 330,000(e) 337,435 State Dormitory Authority College Revenue Bonds St. Thomas Aquinas College Series 1998 (Asset Guaranty) 07-01-14 5.00 1,125,000 1,126,609 State Dormitory Authority Pre-refunded College Revenue Bonds Consolidated City University System 3rd General Resolution 2nd Series 1994 (MBIA Insured) 07-01-19 6.25 1,500,000 1,629,660 State Dormitory Authority Pre-refunded Revenue Bonds Series 1990B 05-15-11 7.50 415,000 515,899 State Dormitory Authority Revenue Bonds Mount Sinai Health Series 2000A 07-01-25 6.50 500,000 529,400 State Dormitory Authority Revenue Bonds NYACK Hospital Series 1996 07-01-13 6.25 1,000,000 867,240 State Dormitory Authority Revenue Bonds Pratt Institute Series 1999 (Asset Guaranty) 07-01-20 6.00 1,500,000 1,609,635 State Dormitory Authority Revenue Bonds St. Francis Hospital Series 1999A (MBIA Insured) 07-01-29 5.50 1,000,000 1,021,610 State Dormitory Authority State University Educational Facilities Refunding Revenue Bonds Series 1993A (AMBAC Insured) 05-15-15 5.25 1,000,000 1,055,550 05-15-19 5.50 2,000,000 2,131,840 State Dormitory Authority Un-refunded Revenue Bonds Series 1990B 05-15-11 7.50 1,485,000 1,766,214 State Energy Research & Development Authority Gas Facilities Revenue Bonds Residual Certificates Series 2000 Inverse Floater (MBIA Insured) 01-01-21 10.47 400,000(f) 421,912 State Energy Research & Development Authority Gas Facilities Revenue Bonds Brooklyn Union Gas Series 1996 (MBIA Insured) 01-01-21 5.50 1,000,000 1,021,910 State Energy Research & Development Authority Pollution Control Refunding Revenue Bonds Rochester Gas & Electric Series 1992B (MBIA Insured) A.M.T. 05-15-32 6.50 2,500,000 2,576,300 State Energy Research & Development Authority Solid Waste Disposal Revenue Bonds State Electric & Gas Company Series 1993A (MBIA Insured) A.M.T. 12-01-28 5.70 3,000,000 3,056,670 State Environmental Facilities State Water Revolving Fund Pollution Control Revenue Bonds Series 1990A 06-15-12 7.50 3,000,000 3,089,250 State Local Government Assistance Sales Tax Refunding Revenue Bonds Series 1997B (MBIA Insured) 04-01-20 4.88 1,000,000 962,440 State Local Government Assistance Sales Tax Revenue Bonds Series 1992C 04-01-22 5.50 1,500,000 1,503,705 State Medical Care Facilities Finance Agency Mental Health Services Revenue Bonds Series 1994A (FSA Insured) 08-15-23 5.25 1,500,000 1,488,270 State Mortgage Agency Homeowner Mortgage Refunding Revenue Bonds Series 1991TT 04-01-15 7.50 760,000 776,188 State Mortgage Agency Homeowner Mortgage Revenue Bonds 27th Series 1992 04-01-15 6.90 3,000,000 3,105,390 State Urban Development Capital Correctional Facilities Refunding Lease Revenue Bonds Series 1994A (FSA Insured) 01-01-21 5.25 2,500,000 2,503,950 State Urban Development Capital Correctional Facilities Revenue Bonds 5th Series 1995 (MBIA Insured) 01-01-25 5.50 750,000(g) 762,083 Suffolk County Industrial Development Agency Continuing Care Retirement Revenue Bonds Jeffersons Ferry Series 1999A 11-01-28 7.25 1,500,000 1,560,645 Troy Municipal Assistance General Obligation Revenue Bonds Series 1996A (MBIA Insured) 01-15-22 5.00 1,250,000 1,218,638 Ulster County Independent Development Agency Civic Facilities Revenue Bonds Benedictine Hospital Series 1999A 06-01-24 6.45 1,950,000 1,706,250 United Nations Development Senior Lien Pre-refunded Revenue Bonds Series 1992A 07-01-26 6.00 4,500,000 4,847,489 Utica Industrial Development Agency Civic Facilities Revenue Bonds Munson-Williams-Proctor Series 1996A (MBIA Insured) 07-15-16 5.50 750,000 771,698 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 66 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP New York Tax-Exempt Fund Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) Westchester County Industrial Development Agency Continuing Care Retirement Revenue Bonds Hebrew Hospital Senior Housing Series 2000A 07-01-30 7.38% $1,000,000 $999,870 Yonkers Unlimited Tax General Obligation Bonds Series 2001B (AMBAC Insured) 12-15-07 3.88 1,010,000 1,008,323 Total municipal bonds (Cost: $88,804,546) $94,404,963 Municipal notes (8.9%) Issuer(c,d) Effective Amount Value(a) yield payable at maturity Long Island Power Authority Electric Systems Revenue Bonds V.R. Series 1998B-2 05-01-33 3.10% $200,000 $200,000 New York City Municipal Water Finance Authority Water & Sewer System Revenue Bonds V.R. Series 1994G 06-15-24 3.10 7,600,000 7,600,000 New York City Transitional Finance Authority Future Secured Tax Revenue Bonds V.R. Series 1998C 05-01-28 3.20 400,000 400,000 New York General Obligation Bonds V.R. Series 1993A-7 08-01-20 3.15 1,100,000 1,100,000 Total municipal notes (Cost: $9,300,000) $9,300,000 Total investments in securities (Cost: $98,104,546)(h) $103,704,963 Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- 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 (c) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- As of June 30, 2001, the value of securities subject to alternative minimum tax represented 8.67% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note (d) 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 June 30, 2001. (e) At June 30, 2001, the cost of securities purchased, including interest purchased, on a when-issued basis was $338,759. (f) Inverse floaters represent securities that pay interest at a rate that increases (decreases) in the same magnitude as, or in a multiple of, a decline (increase) in market short-term rates. Interest rate disclosed is the rate in effect on June 30, 2001. As of June 30, 2001, the value of inverse floater securities represented 3.6% of net assets. (g) Partially pledged as initial deposit on the following open interest rate futures contracts (see Note 5 to the financial statements): Type of security Notional amount Sale contracts Municipal Bonds, Sept. 2001 $1,500,000 (h) At June 30, 2001, the cost of securities for federal income tax purposes was $98,307,650 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $6,389,436 Unrealized depreciation (992,123) -------- Net unrealized appreciation $5,397,313 ---------- - -------------------------------------------------------------------------------- 67 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT Investments in Securities AXP Ohio Tax-Exempt Fund June 30, 2001 (Percentages represent value of investments compared to net assets) Municipal bonds (91.6%) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) Akron Bath Copley Joint Township Hospital District Revenue Bonds Summa Hospital Series 1998A 11-15-24 5.38% $1,500,000 $1,257,510 Avon Lake General Obligation Refunding Bonds Series 2001 (AMBAC Insured) 12-01-20 5.00 500,000(e) 490,840 Barberton Limited Tax Various Purpose General Obligation Bonds Series 1989 12-01-09 7.35 630,000 638,474 Bellefontaine Hospital Facility Refunding Revenue Bonds Mary Rutan Health Association of Logan County Series 1993 12-01-13 6.00 1,000,000 948,790 Buckeye Valley Local School District School Improvement Unlimited Tax General Obligation Bonds Series 1995A (MBIA Insured) 12-01-20 5.25 1,000,000 1,005,370 Butler County Hospital Facility Improvement Refunding Revenue Bonds Fort Hamilton-Hughes Memorial Center Series 1991 01-01-10 7.50 1,750,000 1,823,605 Carroll Water & Sewer District Unlimited Tax General Obligation Bonds Series 1998 12-01-10 6.25 415,000 426,309 Carroll Water & Sewer District Water System Improvement Unlimited Tax General Obligation Bonds Series 1996 12-01-10 6.25 895,000 919,774 Celina Local School District Unlimited General Obligation Bonds Series 1996 (FGIC Insured) 12-01-20 5.25 1,000,000 1,006,450 Cincinnati School District School Improvement General Obligation Bonds Series 2001 (MBIA Insured) 12-01-02 4.00 805,000 817,300 Clermont County Hospital Facility Revenue Bonds Mercy Health System Province of Cincinnati Series 1989A (AMBAC Insured) 09-01-19 7.50 165,000 166,322 Cleveland Airport Systems Revenue Bonds Series 1997A (FSA Insured) A.M.T. 01-01-17 5.13 1,000,000 988,940 Cleveland Waterworks Improvement 1st Mtge Refunding Revenue Bonds Series F 1992B (AMBAC Insured) 01-01-16 6.25 1,000,000 1,033,620 Columbus Tax Increment Finance Revenue Bonds Easton Series 1999 (AMBAC Insured) 12-01-24 4.88 1,000,000 938,220 Coshocton County Solid Waste Disposal Refunding Revenue Bonds Stone Container Series 1992 08-01-13 7.88 1,000,000 1,020,970 Cuyahoga County Health Care Facilities Refunding Revenue Bonds Judson Retirement Community Series 1996A 11-15-18 7.25 1,000,000 1,023,330 Cuyahoga County Hospital Facilities Revenue Bonds Canton Series 2000 01-01-30 7.50 1,000,000 1,042,780 Cuyahoga County Hospital Improvement Revenue Bonds University Hospitals Health System Series 1992 (AMBAC Insured) 01-15-11 6.50 500,000 520,075 Cuyahoga County Hospital Refunding Revenue Bonds Cleveland Clinic Foundation Series 1992C (MBIA Insured) 11-15-11 5.50 1,500,000 1,547,385 Cuyahoga County Hospital Revenue Bonds Meridia Health System Series 1991 08-15-23 7.00 1,000,000 1,025,360 Cuyahoga County Hospital Revenue Bonds Mount Sinai Medical Center Series 1991 (AMBAC Insured) 11-15-21 6.63 600,000 620,706 Cuyahoga County Hospital Revenue Bonds University Hospitals Health System Series 1999 (AMBAC Insured) 01-15-19 5.40 1,000,000 1,019,700 Cuyahoga County Limited Tax General Obligation Bonds Series 1993 05-15-13 5.60 500,000 545,240 Dayton Water System Refunding Revenue Bonds Series 1999 (FSA Insured) 12-01-02 4.00 1,000,000 1,015,280 Delaware County Sewer Improvement Limited Tax General Obligation Bonds Series 1995 12-01-15 5.25 1,000,000 1,016,920 Dover Limited Tax Improvement General Obligation Bonds Municipal Sewer System Series 1989 12-01-09 7.10 930,000 945,810 Erie County Hospital Improvement Refunding Revenue Bonds Firelands Community Hospital Series 1992 01-01-15 6.75 2,000,000 2,052,620 Franklin County Health Care Facilities Refunding Revenue Bonds Lutheran Senior City Incorporated Series 1999 12-15-28 6.13 1,250,000 1,043,600 Franklin County Multi-family Housing Refunding Revenue Bonds Jefferson Chase Apartments Series 1998B A.M.T. 11-01-35 6.40 1,000,000 918,620 Franklin County Multi-family Housing Refunding Revenue Bonds West Bay Apartments Series 1998 A.M.T. 12-01-25 6.38 990,000 700,128 Hamilton County Hospital Facilities Revenue Bonds Children's Hospital Medical Center Series 1998G (MBIA Insured) 05-15-28 4.75 500,000 452,910 Hamilton County Sales Tax Revenue Bonds Hamilton County Football Series 1998A (MBIA Insured) 12-01-17 4.75 1,000,000 960,590 Hamilton County Sales Tax Revenue Bonds Hamilton County Football Series 1998B (MBIA Insured) 12-01-27 5.00 1,000,000 959,070 Hilliard County School District Unlimited Tax General Obligation Bonds Series 1996A (FGIC Insured) 12-01-20 5.00 1,000,000 984,090 Jackson County Hospital Facilities Revenue Bonds Consolidated Health System Jackson Hospital Series 1999 (Asset Guaranty) 10-01-20 6.13 1,000,000 1,056,170 Lakota Local School District Unlimited Tax Improvement General Obligation Bonds Series 1994 (AMBAC Insured) 12-01-14 6.25 2,000,000 2,216,539 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 68 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Ohio Tax-Exempt Fund Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) Lorain County Hospital Facilities Refunding Revenue Bonds EMH Regional Medical Center Series 1995 (AMBAC Insured) 11-01-21 5.38% $2,000,000 $2,009,980 Lorain County Independent Living & Hospital Facilities Refunding Revenue Bonds Elyria United Methodist Series 1996C 06-01-22 6.88 1,000,000 1,005,650 Mahoning Valley Sanitary District Water Refunding Revenue Bonds Series 1999 (FSA Insured) 11-15-18 5.75 1,000,000 1,057,370 Marion County Health Care Facilities Improvement Refunding Revenue Bonds United Church Homes Series 1993 11-15-10 6.38 885,000 853,813 Marysville Sewer System 1st Mortgage Revenue Bonds Series 1988 (BIG Insured) 02-15-08 7.85 300,000 300,825 Marysville Water System Mortgage Revenue Bonds Series 1991 (MBIA Insured) 12-01-21 7.05 1,000,000 1,028,180 Montgomery County Hospital Facilities Refunding Revenue Bonds Kettering Medical Center Series 1999 04-01-22 6.75 1,000,000 1,004,110 Montgomery County Water Revenue Bonds Greater Moraine-Beavercreek District Series 1992 (FGIC Insured) 11-15-17 6.25 1,000,000 1,037,640 North Olmstead County General Obligation Bonds Series 1996 (AMBAC Insured) 12-01-16 5.00 1,500,000 1,504,035 12-01-21 5.00 200,000 195,982 Oak Hills Local School District Unlimited Tax General Obligation Bonds Series 1997 (MBIA Insured) 12-01-25 5.13 1,000,000 981,510 Orrville Electric System Refunding Revenue & Improvement Mortgage Bonds Series 1997 (AMBAC Insured) 12-01-17 5.10 1,000,000 1,004,170 Rural Loraine County Water Authority Water Resource Improvement Pre-refunded Revenue Bonds Series 1991 (AMBAC Insured) 10-01-11 7.00 1,000,000 1,020,810 Stark County Health Care Facilities Refunding Revenue Bonds Rose Lane Series 1998 (GNMA/FHA Insured) 07-20-33 5.45 215,000(e) 213,701 State Air Quality Development Authority Refunding Revenue Bonds JMG Funding Limited Partnership Series 1994 (AMBAC Insured) A.M.T. 01-01-29 6.38 2,000,000 2,103,800 04-01-29 6.38 500,000 525,950 State Air Quality Development Authority Revenue Bonds Columbus & Southern Series 1985A (FGIC Insured) 12-01-20 6.38 1,000,000 1,039,810 State Department of Administrative Services Certificate of Participation Ohio Center Series 1998 (AMBAC Insured) 07-15-28 5.00 550,000 527,560 State Housing Finance Agency Mortgage Revenue Bonds Aristocrat South Board & Care Series 1991A (FHA Insured) A.M.T. 08-01-31 7.30 1,500,000 1,546,095 State Municipal Electric Generation Agency Revenue Bonds Joint Venture #5 Series 1993 (AMBAC Insured) 02-15-24 5.38 2,000,000 2,004,760 State Turnpike Commission Revenue Bonds Series 1998B (FGIC Insured) 02-15-24 4.50 1,000,000 885,340 02-15-28 4.75 800,000 728,952 State Turnpike Revenue Bonds Series 1994A 02-15-24 5.75 1,000,000 1,077,380 State Turnpike Revenue Bonds Series 1996A (MBIA Insured) 02-15-26 5.50 1,000,000 1,091,400 State Valley School District School Improvement Unlimited Tax General Obligation Bonds Counties of Adams & Highland Series 1995 (MBIA Insured) 12-01-21 5.25 2,000,000 2,007,480 State Water Development Authority Pollution Control Refunding Revenue Bonds Cleveland Electric Illuminating Series 1995 08-01-25 7.70 1,000,000 1,082,330 State Water Development Authority Pollution Control Refunding Revenue Bonds Toledo Edison Series 1994A A.M.T. 10-01-23 8.00 1,000,000 1,082,590 State Water Development Authority Refunding & Improvement Revenue Bonds Pure Water Series 1992 (AMBAC Insured) 12-01-18 5.50 750,000 759,750 State Water Development Authority Solid Waste Disposal Revenue Bonds Northstar BHP Steel Cargill Series 1995 A.M.T. 09-01-20 6.30 500,000 518,005 Streetsboro City School District School Improvement Unlimited Tax General Obligation Bonds Series 2001 (MBIA Insured) 12-01-25 5.00 1,000,000 963,110 Swanton Local School District School Improvement Unlimited Tax General Obligation Bonds Series 2001 (FGIC Insured) 12-01-02 3.10 550,000 551,562 University of Cincinnati Certificates of Participation Student Recreation Center Series 1996 (MBIA Insured) 06-01-24 5.13 1,000,000 978,190 Warren County Various Purpose Limited Tax General Obligation Bonds Series 1992 12-01-12 6.10 500,000 571,780 Youngstown State University General Receipts College Revenue Bonds Series 1998 (AMBAC Insured) 12-15-16 4.75 1,000,000 974,330 Total municipal bonds (Cost: $66,401,373) $69,387,367 Municipal notes (7.0%) Issuer(c,d) Effective Amount Value(a) yield payable at maturity State Air Quality Development Authority Pollution Control Refunding Revenue Bonds Ohio Edison V.R. Series 2000C A.M.T. 09-01-18 3.45% $1,200,000 $1,200,000 State Air Quality Development Authority Pollution Control Refunding Revenue Bonds Toledo Edison V.R. Series 2000A 04-01-24 3.30 2,600,000 2,600,000 12-01-26 2.65 1,000,000 1,000,000 State Water & Air Development Authority Pollution Facilities Refunding Revenue Bonds Toledo Edison V.R. Series 2000A 04-01-24 3.30 500,000 500,000 Total municipal notes (Cost: $5,300,000) $5,300,000 Total investments in securities (Cost: $71,701,373)(f) $74,687,367 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 69 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Ohio Tax-Exempt Fund Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- 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 (c) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- As of June 30, 2001, the value of securities subject to alternative minimum tax represented 12.66% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note (d) 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 June 30, 2001. (e) Partially pledged as initial margin deposit on the following open interest rate futures contracts (see Note 5 to the financial statements): Type of security Notional amount Sale contracts Municipal Bonds, Sept. 2001 $1,500,000 (f) At June 30, 2001, the cost of securities for federal income tax purposes was $71,701,373 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $3,860,660 Unrealized depreciation (874,666) -------- Net unrealized appreciation $2,985,994 ---------- - -------------------------------------------------------------------------------- 70 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT Federal Income Tax Information (Unaudited) Each Fund is required by the Internal Revenue Code of 1986 to tell its shareholders about the tax treatment of the dividends it pays during its fiscal year. The dividends listed below are reported to you on your year-end statement. AXP California Tax-Exempt Fund Fiscal year ended June 30, 2001 Class A Exempt-interest dividends -- taxable status explained below. Payable date Per share July 24, 2000 $0.02337 Aug. 24, 2000 0.02151 Sept. 21, 2000 0.01904 Oct. 24, 2000 0.02289 Nov. 21, 2000 0.01940 Dec. 20, 2000 0.01974 Jan. 26, 2001 0.02467 Feb. 26, 2001 0.02048 March 26, 2001 0.01870 April 26, 2001 0.02048 May 24, 2001 0.01889 June 26, 2001 0.02204 Total distributions $0.25121 Class B Exempt-interest dividends -- taxable status explained below. Payable date Per share July 24, 2000 $0.01993 Aug. 24, 2000 0.01825 Sept. 21, 2000 0.01606 Oct. 24, 2000 0.01941 Nov. 21, 2000 0.01644 Dec. 20, 2000 0.01665 Jan. 26, 2001 0.02066 Feb. 26, 2001 0.01712 March 26, 2001 0.01566 April 26, 2001 0.01713 May 24, 2001 0.01589 June 26, 2001 0.01851 Total distributions $0.21171 Class C Exempt-interest dividends -- taxable status explained below. Payable date Per share July 24, 2000 $0.01831 Aug. 24, 2000 0.01833 Sept. 21, 2000 0.01631 Oct. 24, 2000 0.01926 Nov. 21, 2000 0.01648 Dec. 20, 2000 0.01683 Jan. 26, 2001 0.02067 Feb. 26, 2001 0.01715 March 26, 2001 0.01587 April 26, 2001 0.01724 May 24, 2001 0.01583 June 26, 2001 0.01858 Total distributions $0.21086 Source of distributions 100% of exempt-interest distributions during the fiscal year ended June 30, 2001 was derived from interest on California municipal securities. Federal taxation Exempt-interest dividends are exempt from federal income taxes and should not be included in shareholders' gross income. Other taxation Exempt-interest dividends may be subject to state and local taxes. Each shareholder should consult a tax advisor about reporting this income for state and local tax purposes. - -------------------------------------------------------------------------------- 71 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Massachusetts Tax-Exempt Fund Fiscal year ended June 30, 2001 Class A Exempt-interest dividends -- taxable status explained below. Payable date Per share July 24, 2000 $0.02449 Aug. 24, 2000 0.02257 Sept. 21, 2000 0.02014 Oct. 24, 2000 0.02436 Nov. 21, 2000 0.02042 Dec. 20, 2000 0.02098 Jan. 26, 2001 0.02580 Feb. 26, 2001 0.02294 March 26, 2001 0.02063 April 26, 2001 0.02283 May 24, 2001 0.02043 June 26, 2001 0.02244 Total distributions $0.26803 Class B Exempt-interest dividends -- taxable status explained below. Payable date Per share July 24, 2000 $0.02100 Aug. 24, 2000 0.01927 Sept. 21, 2000 0.01715 Oct. 24, 2000 0.02087 Nov. 21, 2000 0.01745 Dec. 20, 2000 0.01788 Jan. 26, 2001 0.02173 Feb. 26, 2001 0.01956 March 26, 2001 0.01758 April 26, 2001 0.01946 May 24, 2001 0.01742 June 26, 2001 0.01886 Total distributions $0.22823 Class C Exempt-interest dividends -- taxable status explained below. Payable date Per share July 24, 2000 $0.01995 Aug. 24, 2000 0.01931 Sept. 21, 2000 0.01718 Oct. 24, 2000 0.02090 Nov. 21, 2000 0.01748 Dec. 20, 2000 0.01790 Jan. 26, 2001 0.02178 Feb. 26, 2001 0.01959 March 26, 2001 0.01759 April 26, 2001 0.01949 May 24, 2001 0.01743 June 26, 2001 0.01892 Total distributions $0.22752 Source of distributions 100% of exempt-interest distributions during the fiscal year ended June 30, 2001 was derived from interest on Massachusetts municipal securities. Federal taxation Exempt-interest dividends are exempt from federal income taxes and should not be included in shareholders' gross income. Other taxation Exempt-interest dividends may be subject to state and local taxes. Each shareholder should consult a tax advisor about reporting this income for state and local tax purposes. - -------------------------------------------------------------------------------- 72 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Michigan Tax-Exempt Fund Fiscal year ended June 30, 2001 Class A Exempt-interest dividends -- taxable status explained below. Payable date Per share July 24, 2000 $0.02356 Aug. 24, 2000 0.02266 Sept. 21, 2000 0.02027 Oct. 24, 2000 0.02403 Nov. 21, 2000 0.02045 Dec. 20, 2000 0.02117 Jan. 26, 2001 0.02720 Feb. 26, 2001 0.02306 March 26, 2001 0.02052 April 26, 2001 0.02304 May 24, 2001 0.02018 June 26, 2001 0.02252 Total distributions $0.26866 Class B Exempt-interest dividends -- taxable status explained below. Payable date Per share July 24, 2000 $0.02020 Aug. 24, 2000 0.01938 Sept. 21, 2000 0.01729 Oct. 24, 2000 0.02053 Nov. 21, 2000 0.01749 Dec. 20, 2000 0.01806 Jan. 26, 2001 0.02320 Feb. 26, 2001 0.01970 March 26, 2001 0.01746 April 26, 2001 0.01968 May 24, 2001 0.01716 June 26, 2001 0.01895 Total distributions $0.22910 Class C Exempt-interest dividends -- taxable status explained below. Payable date Per share July 24, 2000 $0.01756 Aug. 24, 2000 0.01844 Sept. 21, 2000 0.01655 Oct. 24, 2000 0.01952 Nov. 21, 2000 0.01689 Dec. 20, 2000 0.01776 Jan. 26, 2001 0.02320 Feb. 26, 2001 0.02022 March 26, 2001 0.01749 April 26, 2001 0.01968 May 24, 2001 0.01716 June 26, 2001 0.01894 Total distributions $0.22341 Source of distributions 100% of exempt-interest distributions during the fiscal year ended June 30, 2001 was derived from interest on Michigan municipal securities. Federal taxation Exempt-interest dividends are exempt from federal income taxes and should not be included in shareholders' gross income. Other taxation Exempt-interest dividends may be subject to state and local taxes. Each shareholder should consult a tax advisor about reporting this income for state and local tax purposes. - -------------------------------------------------------------------------------- 73 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Minnesota Tax-Exempt Fund Fiscal year ended June 30, 2001 Class A Exempt-interest dividends -- taxable status explained below. Payable date Per share July 24, 2000 $0.02551 Aug. 24, 2000 0.02373 Sept. 21, 2000 0.02190 Oct. 24, 2000 0.02528 Nov. 21, 2000 0.02151 Dec. 20, 2000 0.02138 Jan. 26, 2001 0.02781 Feb. 26, 2001 0.02384 March 26, 2001 0.02124 April 26, 2001 0.02340 May 24, 2001 0.02076 June 26, 2001 0.02454 Total $0.28090 Taxable dividend -- income distribution taxable as dividend income. Payable date Per share Dec. 20, 2000 $0.00125 Total distributions $0.28215 Class B Exempt-interest dividends -- taxable status explained below. Payable date Per share July 24, 2000 $0.02210 Aug. 24, 2000 0.02049 Sept. 21, 2000 0.01896 Oct. 24, 2000 0.02185 Nov. 21, 2000 0.01859 Dec. 20, 2000 0.01836 Jan. 26, 2001 0.02388 Feb. 26, 2001 0.02055 March 26, 2001 0.01827 April 26, 2001 0.02012 May 24, 2001 0.01781 June 26, 2001 0.02105 Total $0.24203 Taxable dividend -- income distribution taxable as dividend income. Payable date Per share Dec. 20, 2000 $0.00125 Total distributions $0.24328 - -------------------------------------------------------------------------------- 74 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT Class C Exempt-interest dividends -- taxable status explained below. Payable date Per share July 24, 2000 $0.02052 Aug. 24, 2000 0.02078 Sept. 21, 2000 0.01902 Oct. 24, 2000 0.02196 Nov. 21, 2000 0.01866 Dec. 20, 2000 0.01841 Jan. 26, 2001 0.02396 Feb. 26, 2001 0.02059 March 26, 2001 0.01833 April 26, 2001 0.02018 May 24, 2001 0.01787 June 26, 2001 0.02107 Total $0.24135 Taxable dividend -- income distribution taxable as dividend income. Payable date Per share Dec. 20, 2000 $0.00125 Total distributions $0.24260 Source of distributions 100% of exempt-interest distributions during the fiscal year ended June 30, 2001 was derived from interest on Minnesota municipal securities. Federal taxation Exempt-interest dividends are exempt from federal income taxes and should not be included in shareholders' gross income. Other taxation Exempt-interest dividends may be subject to state and local taxes. Each shareholder should consult a tax advisor about reporting this income for state and local tax purposes. - -------------------------------------------------------------------------------- 75 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP New York Tax-Exempt Fund Fiscal year ended June 30, 2001 Class A Exempt-interest dividends -- taxable status explained below. Payable date Per share July 24, 2000 $0.02410 Aug. 24, 2000 0.02147 Sept. 21, 2000 0.01950 Oct. 24, 2000 0.02311 Nov. 21, 2000 0.01944 Dec. 20, 2000 0.02002 Jan. 26, 2001 0.02433 Feb. 26, 2001 0.02131 March 26, 2001 0.01920 April 26, 2001 0.02043 May 24, 2001 0.01833 June 26, 2001 0.02092 Total $0.25216 Taxable dividend -- income distribution taxable as dividend income. Payable date Per Share Dec. 20, 2000 $0.00045 Total distributions $0.25261 Class B Exempt-interest dividends -- taxable status explained below. Payable date Per share July 24, 2000 $0.02077 Aug. 24, 2000 0.01829 Sept. 21, 2000 0.01660 Oct. 24, 2000 0.01973 Nov. 21, 2000 0.01656 Dec. 20, 2000 0.01701 Jan. 26, 2001 0.02073 Feb. 26, 2001 0.01804 March 26, 2001 0.01625 April 26, 2001 0.01718 May 24, 2001 0.01541 June 26, 2001 0.01744 Total $0.21401 Taxable dividend -- income distribution taxable as dividend income. Payable data Per share Dec. 20, 2000 $0.00045 Total distributions $0.21446 - -------------------------------------------------------------------------------- 76 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT Class C Exempt-interest dividends -- taxable status explained below. Payable date Per share July 24, 2000 $0.01904 Aug. 24, 2000 0.01799 Sept. 21, 2000 0.01661 Oct. 24, 2000 0.01975 Nov. 21, 2000 0.01661 Dec. 20, 2000 0.01714 Jan. 26, 2001 0.02074 Feb. 26, 2001 0.01802 March 26, 2001 0.01623 April 26, 2001 0.01715 May 24, 2001 0.01553 June 26, 2001 0.01741 Total $0.21222 Taxable dividend -- income distribution taxable dividend income. Payable date Per share Dec. 20, 2000 $0.00045 Total distributions $0.21267 Source of distributions 100% of exempt-interest distributions during the fiscal year ended June 30, 2001 was derived from interest on New York municipal securities. Federal taxation Exempt-interest dividends are exempt from federal income taxes and should not be included in shareholders' gross income. Other taxation Exempt-interest dividends may be subject to state and local taxes. Each shareholder should consult a tax advisor about reporting this income for state and local tax purposes. - -------------------------------------------------------------------------------- 77 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Ohio Tax-Exempt Fund Fiscal year ended June 30, 2001 Class A Exempt-interest dividends -- taxable status explained below. Payable date Per share July 24, 2000 $0.02474 Aug. 24, 2000 0.02283 Sept. 21, 2000 0.02019 Oct. 24, 2000 0.02390 Nov. 21, 2000 0.02055 Dec. 20, 2000 0.02104 Jan. 26, 2001 0.02655 Feb. 26, 2001 0.02169 March 26, 2001 0.01999 April 26, 2001 0.02234 May 24, 2001 0.01939 June 26, 2001 0.02245 Total distributions $0.26566 Class B Exempt-interest dividends -- taxable status explained below. Payable date Per share July 24, 2000 $0.02125 Aug. 24, 2000 0.01951 Sept. 21, 2000 0.01719 Oct. 24, 2000 0.02038 Nov. 21, 2000 0.01756 Dec. 20, 2000 0.01793 Jan. 26, 2001 0.02249 Feb. 26, 2001 0.01831 March 26, 2001 0.01695 April 26, 2001 0.01896 May 24, 2001 0.01637 June 26, 2001 0.01885 Total distributions $0.22575 Class C Exempt-interest dividends -- taxable status explained below. Payable date Per share July 24, 2000 $0.01942 Aug. 24, 2000 0.01858 Sept. 21, 2000 0.01655 Oct. 24, 2000 0.01947 Nov. 21, 2000 0.01679 Dec. 20, 2000 0.01719 Jan. 26, 2001 0.02235 Feb. 26, 2001 0.01805 March 26, 2001 0.01709 April 26, 2001 0.01923 May 24, 2001 0.01671 June 26, 2001 0.01890 Total distributions $0.22033 Source of distributions 100% of exempt-interest distributions during the fiscal year ended June 30, 2001 was derived from interest on Ohio municipal securities. Federal taxation Exempt-interest dividends are exempt from federal income taxes and should not be included in shareholders' gross income. Other taxation Exempt-interest dividends may be subject to state and local taxes. Each shareholder should consult a tax advisor about reporting this income for state and local tax purposes. - -------------------------------------------------------------------------------- 78 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP State Tax-Exempt Funds 70100 AXP Financial Center Minneapolis, MN 55474 americanexpress.com Ticker Symbol AXP California Tax-Exempt Fund Class A: ICALX Class B: N/A Class C: N/A AXP Massachusetts Tax-Exempt Fund Class A: IDMAX Class B: N/A Class C: N/A AXP Michigan Tax-Exempt Fund Class A: INMIX Class B: N/A Class C: N/A AXP Minnesota Tax-Exempt Fund Class A: IMNTX Class B: IDSMX Class C: N/A AXP New York Tax-Exempt Fund Class A: INYKX Class B: N/A Class C: N/A AXP Ohio Tax-Exempt Fund Class A: IOHIX Class B: N/A Class C: N/A PRSRT STD AUTO U.S. POSTAGE PAID AMERICAN EXPRESS 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. (logo) American Express S-6328 V (8/01) -----END PRIVACY-ENHANCED MESSAGE-----