N-30D 1 s6238.txt AXP STATE TAX-EXEMPT FUNDS AXP(R) State Tax-Exempt Funds 2002 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 2002 ANNUAL REPORT The purpose of this annual report is to tell investors how the Fund performed. From the Chairman 3 Portfolio Manager Q & A 4 Fund Facts 6 California Tax-Exempt Fund 12 The 10 Largest Holdings 12 The Fund's Long-term Performance 13 Massachusetts Tax-Exempt Fund 14 The 10 Largest Holdings 14 The Fund's Long-term Performance 15 Michigan Tax-Exempt Fund 16 The 10 Largest Holdings 16 The Fund's Long-term Performance 17 Minnesota Tax-Exempt Fund 18 The 10 Largest Holdings 18 The Fund's Long-term Performance 19 New York Tax-Exempt Fund 20 The 10 Largest Holdings 20 The Fund's Long-term Performance 21 Ohio Tax-Exempt Fund 22 The 10 Largest Holdings 22 The Fund's Long-term Performance 23 Making the Most of the Fund 24 Board Members and Officers 25 Independent Auditors' Report 27 Financial Statements 28 Notes to Financial Statements 35 Investments in Securities 53 Federal Income Tax Information 74 -------------------------------------------------------------------------------- 2 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT (picture of)Arne H. Carlson Arne H. Carlson Chairman of the board From the Chairman Although we see reason for optimism as the U.S. economy slowly improves, various factors continue to create uncertainty in the financial markets. Warnings about terrorist activities, doubts about the reliability of companies' financial information and growing unrest around the world have contributed to a volatile environment in 2002. While this short-term volatility is unsettling, we encourage you to keep a long-term perspective when it comes to your investments. At times like these, it is important for you to assess your own financial needs, set short- and long-term goals and develop a plan to obtain these goals. Your personal financial advisor can be an important asset in helping you meet your goals. American Express Financial Corporation has set its own goals to assist you in meeting yours. It has taken steps toward improving the competitive ranking and investment performance of the American Express Funds and expanding the range of investment options. The members of the Board, the majority of whom are independent from American Express Financial Corporation, oversee these efforts and believe the steps that have been taken show promise for meeting the goals. These Funds will join the other American Express Funds in holding shareholder meetings in November. We believe it is important for your voice as a Fund shareholder to be heard. When you receive your proxy statement, please take the time to consider the proposals and vote. The Board's recommendation on each proposal will be outlined in the proxy statement. On behalf of the Board, Arne H. Carlson -------------------------------------------------------------------------------- 3 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT Portfolio Manager Q & A Q: How did the Funds perform (Class A shares, excluding sales charges) for the one-year period ended June 30, 2002? A: In an environment that, while somewhat volatile, was generally favorable for municipal bonds, our state-specific tax-exempt bond funds enjoyed positive results. AXP California Tax-Exempt Fund gained 5.66% during the year, compared to a return of 6.16% for the Lipper California Municipal Debt Funds Index. AXP Massachusetts Tax-Exempt Fund returned 5.94%, compared to a return of 6.30% for the Lipper Massachusetts Municipal Debt Funds Index. AXP Michigan Tax-Exempt Fund gained 5.83% for the year while the Lipper Michigan Municipal Debt Funds Index rose 6.08%. AXP Minnesota Tax-Exempt Fund returned 6.15% for the period while the Lipper Minnesota Municipal Debt Funds Index gained 6.07%. AXP New York Tax-Exempt Fund rose 5.26% for the year compared to a return of 5.68% for the Lipper New York Municipal Debt Funds Index. AXP Ohio Tax-Exempt Fund returned 5.87% during the year, while its comparative Lipper Ohio Municipal Debt Funds Index generated a return of 6.22%. A broad barometer applicable to each of the Funds, the Lehman Brothers Municipal Bond Index, returned 6.92% for the same 12-month period. Q: What factors affected the performance of the Funds during the year? A: Early in the period, a slowdown in the U.S. economy led to a decline in interest rates, a generally positive factor for bond prices. Interest rates remained relatively stable for most of the rest of 2001 as the terrorist attacks of September 11 had a negative effect on the bond market. Bonds started 2002 in a strong position as well, and except for an uptick in interest rates in March, due to sudden concerns about the threat of higher inflation, the Funds continued to enjoy solid performance through the end of June. The Funds were somewhat defensively positioned from an interest-rate standpoint in the first half of the 12-month period, in anticipation that interest rates would trend higher as the economy improved. As it became apparent in the new year that interest rates were not likely to rise substantially, the Funds were structured in an effort to better capitalize on that environment. Most states were also beginning to feel an increasing budget crunch, resulting in greater issuance of debt. Among issues of note for specific state Funds were: California A strong demand for bonds helped to keep interest rates stable, despite additional issuance by cash-strapped governments negatively affected by reduced tax revenues as a result of a weakened economy. New York New issue activity was light in the first quarter of 2002, which boosted relative (New York versus national) bond values more than normal. The positive relative price trend was counteracted in the second quarter, when issuance rose heavily in connection to the rebuilding process following the terrorist attacks. Minnesota Issuance was low in Minnesota this quarter and year-to-date. As a result, we've added some select Puerto Rico bonds to the portfolio, which has helped us in our efforts to keep the portfolio fully invested. We have been emphasizing high-quality intermediate municipals with good structure and call protection, which we feel offer the best overall value in the market. Michigan We continue our efforts to keep this portfolio fully invested. Additionally, we are attempting to move the portfolio to a more neutral position regarding interest rate sensitivity (duration), in light of our expectations of higher interest rates in the months ahead. Massachusetts and Ohio Issuance continues to be strong in both Massachusetts and Ohio, and we took advantage of the attractive pricing that typically accompanies strong-issuance periods and added several new bonds to both portfolios this period. In addition, we added Puerto Rico bonds to the portfolios, which are extremely liquid and appeal to investors due in large part to their triple tax-exemption in most cases. -------------------------------------------------------------------------------- 4 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT Q: Did you make significant changes to the Funds during this period? A: Along with adjusting the Funds to be more sensitive to interest rate trends (as mentioned above), significant effort was placed on improving the quality of the Funds. This included reducing holdings among investment-grade issues that receive lower quality ratings (from independent rating agencies). The California Tax-Exempt Fund added some non-rated securities that offer a more attractive yield, but are being closely watched by our internal research analysts who specialize in the municipal bond market. Another general change implemented in recent months for all of the Funds was to reduce the number of longer-term holdings that had unfavorable call provisions (that allow the issuer to payoff the debt obligation early, which can eliminate a bond from our portfolio that pays attractive dividends). Instead, we put greater emphasis on intermediate-term bonds with more favorable call provisions and less interest rate risk. We anticipate this will improve the performance opportunities for the Funds over the long term. Q: What is your outlook for the coming year? A: The bond market is likely to present challenges as well as opportunities in the coming year. With signs generally pointing to positive movement in the U.S. economy, it seems likely that interest rates will trend somewhat higher during the next 12 months. But at the same time, we are encouraged by the fact that the threat of a significant jump in the rate of inflation seems muted. If that continues to be the case, it seems unlikely that we'll experience a dramatic jump in interest rates. Also working in favor of these Funds is that the demand for tax-advantaged investments remains strong, and should contribute favorably to the pricing environment for the market. Q: How are you positioning the Funds in light of your outlook? A: We plan to keep the Funds virtually fully invested in order to take complete advantage of the tax-exempt income opportunities available to us. We also are likely to focus primarily on higher-quality securities. At the same time, we will closely monitor interest rate trends, and make adjustments to the Funds, particularly if it appears that rates are destined to move higher in the coming months. Our emphasis will be to preserve principal while still generating a competitive level of income that is generally free of income tax at the federal, state and (where applicable) local levels. -------------------------------------------------------------------------------- 5 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, 2002 $5.23 June 30, 2001 $5.18 Increase $0.05 Distributions -- July 1, 2001 - June 30, 2002 From income $0.24 From long-term capital gains $ -- Total distributions $0.24 Total return* +5.66% Class B -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2002 $5.23 June 30, 2001 $5.17 Increase $0.06 Distributions -- July 1, 2001 - June 30, 2002 From income $0.20 From long-term capital gains $ -- Total distributions $0.20 Total return* +5.07% Class C -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2002 $5.24 June 30, 2001 $5.18 Increase $0.06 Distributions -- July 1, 2001 - June 30, 2002 From income $0.20 From long-term capital gains $ -- Total distributions $0.20 Total return* +5.07% * 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 Massachusetts Tax-Exempt Fund Class A -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2002 $5.37 June 30, 2001 $5.28 Increase $0.09 Distributions -- July 1, 2001 - June 30, 2002 From income $0.22 From long-term capital gains $ -- Total distributions $0.22 Total return* +5.94% Class B -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2002 $5.37 June 30, 2001 $5.28 Increase $0.09 Distributions -- July 1, 2001 - June 30, 2002 From income $0.18 From long-term capital gains $ -- Total distributions $0.18 Total return* +5.15% Class C -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2002 $5.37 June 30, 2001 $5.28 Increase $0.09 Distributions -- July 1, 2001 - June 30, 2002 From income $0.18 From long-term capital gains $ -- Total distributions $0.18 Total return* +5.16% * 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 Michigan Tax-Exempt Fund Class A -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2002 $5.33 June 30, 2001 $5.27 Increase $0.06 Distributions -- July 1, 2001 - June 30, 2002 From income $0.24 From long-term capital gains $ -- Total distributions $0.24 Total return* +5.83% Class B -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2002 $5.33 June 30, 2001 $5.27 Increase $0.06 Distributions -- July 1, 2001 - June 30, 2002 From income $0.20 From long-term capital gains $ -- Total distributions $0.20 Total return* +5.04% Class C -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2002 $5.33 June 30, 2001 $5.27 Increase $0.06 Distributions -- July 1, 2001 - June 30, 2002 From income $0.20 From long-term capital gains $ -- Total distributions $0.20 Total return* +5.05% * 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 Minnesota Tax-Exempt Fund Class A -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2002 $5.20 June 30, 2001 $5.14 Increase $0.06 Distributions -- July 1, 2001 - June 30, 2002 From income $0.25 From long-term capital gains $ -- Total distributions $0.25 Total return* +6.15% Class B -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2002 $5.20 June 30, 2001 $5.14 Increase $0.06 Distributions -- July 1, 2001 - June 30, 2002 From income $0.21 From long-term capital gains $ -- Total distributions $0.21 Total return* +5.36% Class C -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2002 $5.20 June 30, 2001 $5.14 Increase $0.06 Distributions -- July 1, 2001 - June 30, 2002 From income $0.21 From long-term capital gains $ -- Total distributions $0.21 Total return* +5.36% * 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 AXP New York Tax-Exempt Fund Class A -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2002 $5.16 June 30, 2001 $5.12 Increase $0.04 Distributions -- July 1, 2001 - June 30, 2002 From income $0.22 From long-term capital gains $ -- Total distributions $0.22 Total return* +5.26% Class B -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2002 $5.16 June 30, 2001 $5.12 Increase $0.04 Distributions -- July 1, 2001 - June 30, 2002 From income $0.19 From long-term capital gains $ -- Total distributions $0.19 Total return* +4.48% Class C -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2002 $5.16 June 30, 2001 $5.11 Increase $0.05 Distributions -- July 1, 2001 - June 30, 2002 From income $0.19 From long-term capital gains $ -- Total distributions $0.19 Total return* +4.68% * 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. -------------------------------------------------------------------------------- 10 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, 2002 $5.35 June 30, 2001 $5.27 Increase $0.08 Distributions -- July 1, 2001 - June 30, 2002 From income $0.22 From long-term capital gains $ -- Total distributions $0.22 Total return* +5.87% Class B -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2002 $5.34 June 30, 2001 $5.27 Increase $0.07 Distributions -- July 1, 2001 - June 30, 2002 From income $0.18 From long-term capital gains $ -- Total distributions $0.18 Total return* +4.89% Class C -- 12-month performance (All figures per share) Net asset value (NAV) June 30, 2002 $5.35 June 30, 2001 $5.28 Increase $0.07 Distributions -- July 1, 2001 - June 30, 2002 From income $0.18 From long-term capital gains $ -- Total distributions $0.18 Total return* +4.89% * 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. -------------------------------------------------------------------------------- 11 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, 2002) Anaheim Public Finance Authority Revenue Bonds Electric Utilities San Juan 2nd Series 1993 5.75% 2022 4.4% $11,677,976 Community Development Authority Health Facilities Unihealth America Certificate of Participation Series 1993 Inverse Floater 9.70% 2011 2.4 6,284,999 San Diego County Water Authority Revenue Bonds Certificates of Participation Series 1998A 4.50% 2024 2.2 5,934,467 Redding Redevelopment Agency Tax Allocation Refunding Bonds Canby Hilltop Cypress Series 1993D 5.00% 2023 1.8 4,663,293 Fontana Redevelopment Agency Refunding Certificate of Participation Police Facility Series 1993 5.63% 2016 1.7 4,600,305 Northern California Transmission Select Auction Variable Rate Security & Residual Interest Revenue Bonds Series 1993 5.50% 2024 1.7 4,590,720 Puerto Rico Electric Power Authority Refunding Revenue Bonds Series 2002-683 Inverse Floater 14.20% 2017 1.5 4,016,100 San Diego County Capital Asset Lease Certificate of Participation Series 1993 Inverse Floater 9.22% 2007 1.5 3,924,672 Statewide Communities Development Authority Certificates of Participation St. Joseph Health System Group Series 1994 6.50% 2015 1.5 3,891,300 Fontana Unified School District Unlimited Tax General Obligation Bonds Series 1995C 6.15% 2020 1.4 3,764,395
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 20.1% of net assets -------------------------------------------------------------------------------- 12 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 $16,500 AXP California Tax-Exempt Fund Class A $9,525 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 Average Annual Total Returns (as of June 30, 2002) 1 year 5 years 10 years Since inception Class A +0.64% +4.05% +5.13% N/A Class B +1.07% +4.11% N/A +4.69%* Class C +5.07% N/A N/A +6.24%** * Inception date was March 20, 1995. ** Inception date was June 26, 2000. Assumes: Holding period from 7/1/92 to 6/30/02. Returns do not reflect taxes payable on distributions. Reinvestment of all income and capital gain distributions for the Fund has a value of $7,216. 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. The Lipper California Municipal Debt Funds 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. -------------------------------------------------------------------------------- 13 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, 2002) State Residuals Unlimited General Obligation Refunding Bonds Series 2002-692 Inverse Floater 14.18% 2015 4.8% $4,440,088 Boston City Hospital Refunding Revenue Bonds Series 1993B 5.75% 2023 3.2 3,000,930 State Special Obligation Consolidated Loan Refunding Revenue Bonds Series 2002A 5.50% 2016 3.1 2,889,588 State Limited General Obligation Bonds Consolidated Loan Series 2002A 5.00% 2014 2.9 2,702,975 Greater Lawrence Vocational Technical High School District Limited General Obligation Bonds State Qualified Series 2001 5.00% 2003 2.8 2,563,525 State Health & Educational Facilities Authority Pre-refunded Revenue Bonds Suffolk University Series 1992B 6.35% 2022 2.8 2,545,923 State Health & Educational Facilities Authority Refunding Revenue Bonds Cape Cod Health System Series 1993A 5.25% 2021 2.7 2,508,275 State Water Resources Authority Revenue Bonds Series 1992A 6.50% 2019 2.6 2,403,160 Commonwealth of Puerto Rico Public Improvement Unlimited General Obligation Refunding Bonds Series 2001A 5.50% 2016 2.4 2,230,460 State Development Finance Agency Revenue Bonds SeMass System Series 2001B A.M.T. 5.00% 2005 2.3 2,101,400
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 29.6% of net assets -------------------------------------------------------------------------------- 14 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 $16,523 AXP Massachusetts Tax-Exempt Fund Class A $9,525 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 Average Annual Total Returns (as of June 30, 2002) 1 year 5 years 10 years Since inception Class A +0.92% +3.85% +5.15% N/A Class B +1.15% +3.91% N/A +4.59%* Class C +5.16% N/A N/A +6.61%** * Inception date was March 20, 1995. ** Inception date was June 26, 2000. Assumes: Holding period from 7/1/92 to 6/30/02. Returns do not reflect taxes payable on distributions. Reinvestment of all income and capital gain distributions for the Fund has a value of $7,025. 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. The Lipper Massachusetts Municipal Debt Funds Index, published by Lipper Inc., includes the 10 largest funds that are generally similar to the Fund, although some funds in the index may have somewhat different investment policies or objectives. -------------------------------------------------------------------------------- 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, 2002) Romulus Township School District Unlimited Tax General Obligation Refunding Bonds Series 1993 5.75% 2022 3.2% $2,557,549 State Utility Unlimited Tax General Obligation Revenue Bonds Series 2001 5.50% 2014 2.8 2,229,079 State Unlimited General Obligation Refunding Revenue Bonds Series 2002 5.50% 2016 2.8 2,214,959 Grand Ledge Public Schools Unlimited Tax General Obligation Refunding Bonds Eaton, Clinton & Ionia Counties Series 1995 5.38% 2024 2.5 2,024,040 Woodhaven & Brownstown School Districts Unlimited General Obligation Bonds Series 2002 5.38% 2018 2.5 1,973,681 State Strategic Fund Limited Tax Obligation Refunding Revenue Bonds Ford Motor Series 1991A 7.10% 2006 2.3 1,820,973 Troy City Downtown Development Authority County of Oakland Development Pre-refunded Revenue Bonds Series 1995A 6.38% 2018 2.1 1,709,655 Detroit Sewer Disposal Pre-refunded Revenue Bonds Series 1993 5.70% 2023 2.1 1,697,520 Puerto Rico Public Finance Revenue Bonds Series 1998A 5.38% 2018 2.1 1,642,635 State Strategic Fund Limited Tax Obligation Refunding Revenue Bonds Detroit Edison Series 1992BB 6.50% 2016 1.9 1,535,565
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 24.3% of net assets -------------------------------------------------------------------------------- 16 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 $16,484 AXP Michigan Tax-Exempt Fund Class A $9,525 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 Average Annual Total Returns (as of June 30, 2002) 1 year 5 years 10 years Since inception Class A +0.80% +3.79% +5.12% N/A Class B +1.04% +3.84% N/A +4.48%* Class C +5.05% N/A N/A +6.62%** * Inception date was March 20, 1995. ** Inception date was June 26, 2000. Assumes: Holding period from 7/1/92 to 6/30/02. Returns do not reflect taxes payable on distributions. Reinvestment of all income and capital gain distributions for the Fund has a value of $7,269. 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. The Lipper Michigan Municipal Debt Funds Index, published by Lipper Inc., includes the 10 largest funds that are generally similar to the Fund, although some funds in the index may have somewhat different investment policies or objectives. -------------------------------------------------------------------------------- 17 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, 2002) Minneapolis & St. Paul Housing & Redevelopment Authority Health Care System Revenue Bonds Healthspan Series 1993A 4.75% 2018 3.0% $13,423,319 State Unlimited General Obligation Bonds Series 2001 5.00% 2010 2.4 10,828,400 Minneapolis & St. Paul Housing & Redevelopment Authority Health Care System Revenue Bonds Group Health Plan Series 1992 6.75% 2013 2.4 10,736,565 State Unlimited General Obligation Bonds Series 2001 5.00% 2015 2.2 9,911,298 State Unlimited General Obligation Bonds Series 2002 5.00% 2010 2.2 9,814,068 St. Louis Park Health Care Facilities Regular Fixed Revenue Bonds Series 1993 Inverse Floater 5.10% 2013 2.1 9,119,970 Southern Minnesota Municipal Power Agency Power Supply System Refunding Revenue Bonds Capital Appreciation Zero Coupon Series 1994A 6.67% 2019 1.9 8,559,915 Metropolitan Council Minneapolis & St. Paul Unlimited General Obligation Bonds Series 2001B 4.00% 2004 1.7 7,678,154 Southern Minnesota Municipal Power Agency Power Supply System Refunding Revenue Bonds Series 1993A 4.75% 2016 1.7 7,669,139 Faribault Independent School District #656 Unlimited General Obligation School Building Bonds Series 1995 5.75% 2015 1.7 7,360,437
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 21.3% of net assets -------------------------------------------------------------------------------- 18 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 $16,612 AXP Minnesota Tax-Exempt Fund Class A $9,525 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 Average Annual Total Returns (as of June 30, 2002) 1 year 5 years 10 years Since inception Class A +1.11% +4.13% +5.21% N/A Class B +1.36% +4.19% N/A +4.82%* Class C +5.36% N/A N/A +6.65%** * Inception date was March 20, 1995. ** Inception date was June 26, 2000. Assumes: Holding period from 7/1/92 to 6/30/02. Returns do not reflect taxes payable on distributions. Reinvestment of all income and capital gain distributions for the Fund has a value of $7,488. 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. The Lipper Minnesota Municipal Debt Funds Index, published by Lipper Inc., includes the 10 largest funds that are generally similar to the Fund, although some funds in the index may have somewhat different investment policies or objectives. -------------------------------------------------------------------------------- 19 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, 2002) State Dormitory Authority Revenue Bonds School Districts Financing Series 2002A 5.75% 2017 4.9% $5,498,599 New York City Transitional Finance Authority Public Improvement Revenue Bonds Series 2002C 5.50% 2016 4.8 5,382,949 State Dormitory Authority Revenue Bonds New York University Series 1998A 6.00% 2017 3.1 3,443,979 State Dormitory Authority Refunding Revenue Bonds Consolidated City University System Series 1993A 5.75% 2013 3.0 3,335,340 New York City Unlimited General Obligation Refunding Bonds Series 2002E 5.75% 2016 2.9 3,205,890 State Energy Research & Development Authority Revenue Bonds Solid Waste Disposal State Electric & Gas Series 1993A A.M.T. 5.70% 2028 2.7 3,057,390 Commonwealth of Puerto Rico Highway & Transportation Authority Refunding Revenue Bonds Series 2002E 5.50% 2021 2.6 2,922,368 State Energy Research & Development Authority Pollution Control Refunding Revenue Bonds Rochester Gas & Electric Series 1992B A.M.T. 6.50% 2032 2.3 2,552,850 State Dormitory Authority Refunding Revenue Bonds State University Educational Facilities Series 1993A 5.25% 2015 2.0 2,204,438 New York City Unlimited General Obligation Refunding Bonds Series 2002E 5.63% 2015 2.0 2,187,600
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 30.3% of net assets -------------------------------------------------------------------------------- 20 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 $16,288 AXP New York Tax-Exempt Fund Class A $9,525 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 Average Annual Total Returns (as of June 30, 2002) 1 year 5 years 10 years Since inception Class A +0.27% +4.08% +5.00% N/A Class B +0.48% +4.14% N/A +4.54%* Class C +4.68% N/A N/A +6.57%** * Inception date was March 20, 1995. ** Inception date was June 26, 2000. Assumes: Holding period from 7/1/92 to 6/30/02. Returns do not reflect taxes payable on distributions. Reinvestment of all income and capital gain distributions for the Fund has a value of $7,050. 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. The Lipper New York Municipal Debt Funds 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. -------------------------------------------------------------------------------- 21 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, 2002) Cleveland Regional Transit Authority Limited General Obligation Bonds Capital Improvement Series 2002R 5.00% 2010 3.3% $2,693,924 Lakota Local School District Unlimited Tax Improvement General Obligation Pre-refunded Bonds Series 1994 6.25% 2014 2.7 2,239,439 Commonwealth of Puerto Rico Public Improvement Unlimited General Obligation Refunding Bonds Series 2001A 5.50% 2016 2.7 2,230,460 State Building Facilities Authority Refunding Revenue Bonds Series 2001A 5.50% 2014 2.6 2,183,159 State Air Quality Development Authority Refunding Revenue Bonds JMG Funding Limited Partnership Series 1994 A.M.T. 6.38% 2029 2.6 2,180,739 State Building Facilities Authority Administration Building Fund Series 2002A 5.50% 2016 2.6 2,173,795 Lorain County Hospital Facilities Refunding Revenue Bonds EMH Regional Medical Center Series 1995 5.38% 2021 2.5 2,032,760 State Valley School District School Improvement Unlimited Tax General Obligation Bonds Counties of Adams & Highland Series 1995 5.25% 2021 2.5 2,025,320 Gateway Economic Development Greater Cleveland Excise Tax Refunding Revenue Bonds Senior Lien Series 2001 A.M.T. 5.13% 2005 2.3 1,869,420 State Schools Capital Facilities Unlimited Tax General Obligation Bonds Series 2001A 5.00% 2013 1.9 1,580,490
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 25.7% of net assets -------------------------------------------------------------------------------- 22 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 $16,355 AXP Ohio Tax-Exempt Fund Class A $9,525 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 Average Annual Total Returns (as of June 30, 2002) 1 year 5 years 10 years Since inception Class A +0.84% +3.97% +5.04% N/A Class B +0.89% +3.99% N/A +4.51%* Class C +4.89% N/A N/A +6.19%** * Inception date was March 20, 1995. ** Inception date was June 26, 2000. Assumes: Holding period from 7/1/92 to 6/30/02. Returns do not reflect taxes payable on distributions. Reinvestment of all income and capital gain distributions for the Fund has a value of $7,024. 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. The Lipper Ohio Municipal Debt Funds Index, published by Lipper Inc., includes the 10 largest funds that are generally similar to the Fund, although some funds in the index may have somewhat different investment policies or objectives. -------------------------------------------------------------------------------- 23 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 $20 $20 $15 $16 $18 $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 $20 $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. $20 $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 dividends, interest and other income 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. -------------------------------------------------------------------------------- 24 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 78 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, address, age Position held with Principal occupations during past Other directorships Registrant and five years length of service ------------------------------- --------------------- ------------------------------------ ------------------------------------- H. Brewster Atwater, Jr. Board member since Retired chair and chief executive 4900 IDS Tower 1996 officer, General Mills, Inc. Minneapolis, MN 55402 (consumer foods) Born in 1931 ------------------------------- --------------------- ------------------------------------ ------------------------------------- Arne H. Carlson Chair of the Board Chair, Board Services Corporation 901 S. Marquette Ave. since 1999 (provides administrative services Minneapolis, MN 55402 to boards), former Governor of Born in 1934 Minnesota ------------------------------- --------------------- ------------------------------------ ------------------------------------- Lynne V. Cheney Board member since Distinguished Fellow, AEI The Reader's Digest Association Inc American Enterprise Institute 1994 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 the board and Cargill, Incorporated (commodity 30 Seventh Street East 2001 chief executive officer, Minnesota merchants and processors), Target Suite 3050 Mining and Manufacturing (3M) Corporation (department stores), St. Paul, MN 55101-4901 General Mills, Inc. (consumer Born in 1936 foods), Vulcan Materials Company (construction chemicals), Milliken & Company (textiles and chemicals) and Nexia Biotechnology, Inc. ------------------------------- --------------------- ------------------------------------ ------------------------------------- Ira D. Hall Board member since Private investor; formerly with Imagistics International, Inc. Texaco, Inc. 2001 Texaco Inc., treasurer, 1999-2001 (office equipment), Reynolds & 2000 Westchester Avenue and general manager, alliance Reynolds Company (information White Plains, NY 10650 management operations, 1998-1999. services), TECO Energy, Inc. Born in 1944 Prior to that, director, (energy holding company), The International Operations IBM Corp. Williams Companies, Inc. (energy distribution company) ------------------------------- --------------------- ------------------------------------ ------------------------------------- Heinz F. Hutter Board member since Retired president and chief P.O. Box 2187 1994 operating officer, Cargill, Minneapolis, MN 55402 Incorporated (commodity merchants Born in 1929 and processors) ------------------------------- --------------------- ------------------------------------ ------------------------------------- Anne P. Jones Board member since Attorney and consultant Motorola, Inc. (electronics) 5716 Bent Branch Rd. 1985 Bethesda, MD 20816 Born in 1935 ------------------------------- --------------------- ------------------------------------ ------------------------------------- Stephen R. Lewis, Jr. Board member since Retired president and professor of 901 S, Marquette Ave. 2002 economics, Carleton College Minneapolis, MN 55402 Born in 1939 ------------------------------- --------------------- ------------------------------------ ------------------------------------- William R. Pearce Board member since RII Weyerhaeuser World Timberfund, 2050 One Financial Plaza 1980 L.P. (develops timber resources) Minneapolis, MN 55402 -- management committee; former Born in 1927 chair, American Express Funds ------------------------------- --------------------- ------------------------------------ -------------------------------------
-------------------------------------------------------------------------------- 25 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT
Independent Board Members (continued) Name, address, age Position held with Principal occupations during past Other directorships Registrant and five years length of service ------------------------------- --------------------- ------------------------------------ ------------------------------------- Alan G. Quasha Board member since President, Quadrant Management, Compagnie Financiere Richemont AG 720 Fifth Avenue 2002 Inc. (management of private (luxury goods) New York, NY 10019 equities) Born in 1949 ------------------------------- --------------------- ------------------------------------ ------------------------------------- Alan K. Simpson Board member since Former three-term United States Biogen, Inc. (bio-pharmaceuticals) 1201 Sunshine Ave. 1997 Senator for Wyoming Cody, WY 82414 Born in 1931 ------------------------------- --------------------- ------------------------------------ ------------------------------------- C. Angus Wurtele Board member since Retired chair of the board and Bemis Corporation (packaging) 4900 IDS Tower 1994 chief executive officer, The Minneapolis, MN 55402 Valspar Corporation Born in 1934 ------------------------------- --------------------- ------------------------------------ ------------------------------------- Board Members Affiliated with American Express Financial Corporation (AEFC) Name, address, age Position held with Principal occupations during past Other directorships Registrant and five years length of service ------------------------------- --------------------- ------------------------------------ ------------------------------------- David R. Hubers Board member since Retired chief executive officer Chronimed Inc. (specialty 50643 AXP Financial Center 1993 and director of AEFC pharmaceutical distribution), RTW Minneapolis, MN 55474 Inc. (manages worker's compensation Born in 1943 programs), Lawson Software, Inc. (technology based business applications) ------------------------------- --------------------- ------------------------------------ ------------------------------------- John R. Thomas Board member since Senior vice president - 50652 AXP Financial Center 1987, president information and technology of AEFC Minneapolis, MN 55474 since 1997 Born in 1937 ------------------------------- --------------------- ------------------------------------ ------------------------------------- William F. Truscott Board member since Senior vice president - chief 53600 AXP Financial Center 2001, vice investment officer of AEFC; former Minneapolis, MN 55474 president since 2002 chief investment officer and Born in 1960 managing director, Zurich Scudder Investments ------------------------------- --------------------- ------------------------------------ ------------------------------------- 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, and Mr. Truscott, who is vice president, the Fund's other officers are: Other Officers Name, address, age Position held with Principal occupations during past Other directorships Registrant and five years length of service ------------------------------- --------------------- ------------------------------------ ------------------------------------- Leslie L. Ogg Vice president, President of Board Services 901 S. Marquette Ave. general counsel, Corporation Minneapolis, MN 55402 and secretary since Born in 1938 1978 ------------------------------- --------------------- ------------------------------------ ------------------------------------- Paul D. Pearson Acting treasurer Vice president - managed 222 AXP Financial Center since 2002 assets/investment accounting, Minneapolis, MN 55474 AEFC, 1998 to present; vice Born in 1956 president-mutual fund administrative services, Piper Capital Management, 1994-1998 ------------------------------- --------------------- ------------------------------------ ------------------------------------- Stephen W. Roszell Vice president Senior vice president - 50239 AXP Financial Center since 2002 institutional group of AEFC Minneapolis, MN 55474 Born in 1949 ------------------------------- --------------------- ------------------------------------ -------------------------------------
-------------------------------------------------------------------------------- 26 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, 2002, 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, 2002, and the financial highlights for each of the years in the five-year period ended June 30, 2002. 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, 2002, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements 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, 2002, and the results of their operations, changes in their net assets and the financial highlights for each of the periods stated in the first paragraph above, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Minneapolis, Minnesota August 2, 2002 -------------------------------------------------------------------------------- 27 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, 2002 Fund Fund Fund Assets Investments in securities, at value (Note 1) (identified cost $250,380,554, $94,914,020 and $80,915,206) $268,704,660 $ 97,915,429 $84,698,451 Cash in bank on demand deposit 11,572 46,360 69,757 Capital shares receivable -- 675 -- Accrued interest receivable 3,604,923 1,509,393 1,037,580 Receivable for investment securities sold 9,964,890 14,434,358 3,321,630 --------- ---------- --------- Total assets 282,286,045 113,906,215 89,127,418 ----------- ----------- ---------- Liabilities Payable for securities purchased on a when-issued basis (Note 1) 7,888,767 5,777,335 3,557,290 Dividends payable to shareholders 66,208 18,635 19,600 Payable for investment securities purchased 9,983,515 15,669,763 5,852,827 Accrued investment management services fee 3,395 1,191 1,026 Accrued distribution fee 2,443 1,175 745 Accrued transfer agency fee 280 20 39 Accrued administrative services fee 288 101 87 Other accrued expenses 33,436 29,600 49,359 ------ ------ ------ Total liabilities 17,978,332 21,497,820 9,480,973 ---------- ---------- --------- Net assets applicable to outstanding shares $264,307,713 $ 92,408,395 $79,646,445 ============ ============ =========== Represented by Shares of beneficial interest -- $.01 par value (Note 1) $ 504,929 $ 171,981 $ 149,476 Additional paid-in capital 254,042,927 90,208,746 77,386,243 Undistributed net investment income 39 3,199 9,006 Accumulated net realized gain (loss) (Note 5) (8,564,288) (976,940) (1,681,525) Unrealized appreciation (depreciation) on investments 18,324,106 3,001,409 3,783,245 ---------- --------- --------- Total -- representing net assets applicable to outstanding shares $264,307,713 $ 92,408,395 $79,646,445 ============ ============ =========== Net assets applicable to outstanding shares: Class A $233,536,704 $ 66,065,842 $69,997,312 Class B $ 27,291,594 $ 24,090,858 $ 8,236,860 Class C $ 3,479,415 $ 2,251,695 $ 1,412,273 Outstanding shares of beneficial interest: Class A shares 44,613,368 12,295,439 13,136,888 Class B shares 5,215,616 4,483,711 1,545,661 Class C shares 663,882 418,975 265,016 Net asset value per share: Class A $ 5.23 $ 5.37 $ 5.33 Class B $ 5.23 $ 5.37 $ 5.33 Class C $ 5.24 $ 5.37 $ 5.33 ------------ ------------ -----------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 28 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, 2002 Fund Fund Fund Assets Investments in securities, at value (Note 1) (identified cost $432,710,054, $107,640,222 and $79,729,326) $441,597,000 $112,998,629 $83,045,089 Cash in bank on demand deposit 204,018 83,515 104,434 Capital shares receivable 29,785 1,650 -- Accrued interest receivable 7,002,651 1,709,806 807,711 Receivable for investment securities sold 15,890,311 13,666,429 4,323,901 ---------- ---------- --------- Total assets 464,723,765 128,460,029 88,281,135 ----------- ----------- ---------- Liabilities Payable for securities purchased on a when-issued basis (Note 1) 7,480,597 7,485,545 2,385,059 Dividends payable to shareholders 111,066 24,328 18,930 Payable for investment securities purchased 13,311,353 9,009,488 3,327,839 Accrued investment management services fee 5,580 1,438 1,061 Accrued distribution fee 4,461 1,164 834 Accrued transfer agency fee 355 75 46 Accrued administrative services fee 460 122 90 Other accrued expenses 46,044 26,279 33,640 ------ ------ ------ Total liabilities 20,959,916 16,548,439 5,767,499 ---------- ---------- --------- Net assets applicable to outstanding shares $443,763,849 $111,911,590 $82,513,636 ============ ============ =========== Represented by Shares of beneficial interest -- $.01 par value (Note 1) $ 853,804 $ 216,950 $ 154,372 Additional paid-in capital 439,980,163 107,647,771 80,305,226 Undistributed net investment income 73 2,800 1,699 Accumulated net realized gain (loss) (Note 5) (5,957,137) (1,314,338) (1,263,424) Unrealized appreciation (depreciation) on investments 8,886,946 5,358,407 3,315,763 --------- --------- --------- Total -- representing net assets applicable to outstanding shares $443,763,849 $111,911,590 $82,513,636 ============ ============ =========== Net assets applicable to outstanding shares: Class A $374,528,169 $ 92,414,751 $69,431,098 Class B $ 64,344,285 $ 18,222,141 $11,811,168 Class C $ 4,891,395 $ 1,274,698 $ 1,271,370 Outstanding shares of beneficial interest: Class A shares 72,061,193 17,915,191 12,989,406 Class B shares 12,378,473 3,532,642 2,209,981 Class C shares 940,739 247,124 237,807 Net asset value per share: Class A $ 5.20 $ 5.16 $ 5.35 Class B $ 5.20 $ 5.16 $ 5.34 Class C $ 5.20 $ 5.16 $ 5.35 ------------ ------------ -----------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 29 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, 2002 Fund Fund Fund Investment income Income: Interest $14,223,966 $4,423,125 $4,183,574 ----------- ---------- ---------- Expenses (Note 2): Investment management services fee 1,235,782 415,878 358,361 Distribution fee Class A 590,783 164,691 170,335 Class B 251,296 212,620 72,254 Class C 22,533 13,448 8,861 Transfer agency fee 87,957 45,572 31,404 Incremental transfer agency fee Class A 8,528 3,921 3,130 Class B 1,991 1,801 601 Class C 241 95 71 Administrative services fees and expenses 107,218 35,344 30,258 Compensation of board members 10,285 10,285 10,285 Custodian fees 18,715 9,110 8,438 Printing and postage 24,676 10,195 9,738 Registration fees 42,493 32,363 38,869 Audit fees 17,750 16,500 16,500 Other 1,711 1,428 3,202 ----- ----- ----- Total expenses 2,421,959 973,251 762,307 Earnings credits on cash balances (Note 2) (12,964) (10,658) (2,104) ------- ------- ------ Total net expenses 2,408,995 962,593 760,203 --------- ------- ------- Investment income (loss) -- net 11,814,971 3,460,532 3,423,371 ---------- --------- --------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) 1,049,445 446,460 747,992 Futures contracts (966,844) -- -- ---------- --------- --------- Net realized gain (loss) on investments 82,601 446,460 747,992 Net change in unrealized appreciation (depreciation) on investments 2,679,301 1,011,690 41,422 --------- --------- ------ Net gain (loss) on investments 2,761,902 1,458,150 789,414 --------- --------- ------- Net increase (decrease) in net assets resulting from operations $14,576,873 $4,918,682 $4,212,785 =========== ========== ==========
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 30 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, 2002 Fund Fund Fund Investment income Income: Interest $24,178,894 $5,689,908 $4,057,362 ----------- ---------- ---------- Expenses (Note 2): Investment management services fee 1,971,770 507,335 372,070 Distribution fee Class A 917,641 225,478 170,941 Class B 589,303 170,137 97,934 Class C 30,888 7,374 9,925 Transfer agency fee 196,045 50,253 33,275 Incremental transfer agency fee Class A 18,594 4,628 3,161 Class B 5,190 1,490 845 Class C 412 141 93 Administrative services fees and expenses 167,448 43,393 31,438 Compensation of board members 11,260 10,285 10,285 Custodian fees 22,977 12,547 10,066 Printing and postage 50,003 12,079 8,413 Registration fees 30,580 34,085 36,938 Audit fees 19,250 17,750 16,500 Other 2,896 3,054 441 ----- ----- --- Total expenses 4,034,257 1,100,029 802,325 Earnings credits on cash balances (Note 2) (24,977) (2,537) (5,224) ------- ------ ------ Total net expenses 4,009,280 1,097,492 797,101 --------- --------- ------- Investment income (loss) -- net 20,169,614 4,592,416 3,260,261 ---------- --------- --------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) 6,142,362 1,189,729 741,736 Futures contracts (919,566) (36,955) (18,062) -------- ------- ------- Net realized gain (loss) on investments 5,222,796 1,152,774 723,674 Net change in unrealized appreciation (depreciation) on investments (516,776) (249,388) 322,391 -------- -------- ------- Net gain (loss) on investments 4,706,020 903,386 1,046,065 --------- ------- --------- Net increase (decrease) in net assets resulting from operations $24,875,634 $5,495,802 $4,306,326 =========== ========== ==========
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 California Tax-Exempt Fund Massachusetts Tax-Exempt Fund Year ended June 30, 2002 2001 2002 2001 Operations and distributions Investment income (loss) -- net $ 11,814,971 $ 11,680,771 $ 3,460,532 $ 3,840,113 Net realized gain (loss) on investments 82,601 (1,830,748) 446,460 124,201 Net change in unrealized appreciation (depreciation) on investments 2,679,301 8,710,217 1,011,690 2,441,440 --------- --------- --------- --------- Net increase (decrease) in net assets resulting from operations 14,576,873 18,560,240 4,918,682 6,405,754 ---------- ---------- --------- --------- Distributions to shareholders from: Net investment income Class A (10,780,957) (10,760,792) (2,702,376) (3,110,622) Class B (958,913) (893,383) (710,330) (705,659) Class C (85,460) (16,198) (44,625) (25,202) ------- ------- ------- ------- Total distributions (11,825,330) (11,670,373) (3,457,331) (3,841,483) ----------- ----------- ---------- ---------- Share transactions (Note 4) Proceeds from sales Class A shares (Note 2) 33,494,831 39,718,956 9,681,074 10,931,282 Class B shares 5,623,387 6,533,410 7,560,746 3,986,974 Class C shares 2,865,234 1,283,535 1,542,297 401,630 Reinvestment of distributions at net asset value Class A shares 7,198,598 7,119,547 2,155,918 2,494,457 Class B shares 716,434 682,053 554,566 547,285 Class C shares 82,396 12,648 43,201 25,164 Payments for redemptions Class A shares (40,934,944) (35,050,333) (11,618,413) (10,097,344) Class B shares (Note 2) (3,138,704) (4,535,825) (2,863,167) (2,202,984) Class C shares (Note 2) (566,965) (199,923) (92,628) (7,584) -------- -------- ------- ------ Increase (decrease) in net assets from share transactions 5,340,267 15,564,068 6,963,594 6,078,880 --------- ---------- --------- --------- Total increase (decrease) in net assets 8,091,810 22,453,935 8,424,945 8,643,151 Net assets at beginning of year 256,215,903 233,761,968 83,983,450 75,340,299 ----------- ----------- ---------- ---------- Net assets at end of year $264,307,713 $256,215,903 $ 92,408,395 $ 83,983,450 ============ ============ ============ ============ Undistributed (excess of distributions over) net investment income $ 39 $ 10,398 $ 3,199 $ (2) ------------ ------------ ------------ ------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 32 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, 2002 2001 2002 2001 Operations and distributions Investment income (loss) -- net $ 3,423,371 $ 3,600,202 $ 20,169,614 $ 21,052,341 Net realized gain (loss) on investments 747,992 191,171 5,222,796 (1,943,976) Net change in unrealized appreciation (depreciation) on investments 41,422 2,276,366 (516,776) 12,884,312 ------ --------- -------- ---------- Net increase (decrease) in net assets resulting from operations 4,212,785 6,067,739 24,875,634 31,992,677 --------- --------- ---------- ---------- Distributions to shareholders from: Net investment income Class A (3,105,521) (3,327,020) (17,759,670) (18,810,469) Class B (275,352) (262,535) (2,383,907) (2,219,057) Class C (33,507) (3,631) (126,057) (32,460) ------- ------ -------- ------- Total distributions (3,414,380) (3,593,186) (20,269,634) (21,061,986) ---------- ---------- ----------- ----------- Share transactions (Note 4) Proceeds from sales Class A shares (Note 2) 9,654,946 8,519,696 65,421,543 72,638,585 Class B shares 2,076,931 1,208,719 15,393,581 12,617,886 Class C shares 1,376,765 216,679 3,561,686 1,721,901 Reinvestment of distributions at net asset value Class A shares 2,425,406 2,517,943 14,104,344 14,979,095 Class B shares 207,725 198,272 1,964,040 1,846,453 Class C shares 17,110 1,174 114,925 28,344 Payments for redemptions Class A shares (9,785,605) (11,731,757) (66,134,707) (79,888,353) Class B shares (Note 2) (601,805) (1,047,810) (6,815,468) (7,009,477) Class C shares (Note 2) (205,370) -- (551,308) (29,028) -------- ---------- -------- ------- Increase (decrease) in net assets from share transactions 5,166,103 (117,084) 27,058,636 16,905,406 --------- -------- ---------- ---------- Total increase (decrease) in net assets 5,964,508 2,357,469 31,664,636 27,836,097 Net assets at beginning of year 73,681,937 71,324,468 412,099,213 384,263,116 ---------- ---------- ----------- ----------- Net assets at end of year $79,646,445 $ 73,681,937 $443,763,849 $412,099,213 =========== ============ ============ ============ Undistributed net investment income $ 9,006 $ 15 $ 73 $ 100,093 ----------- ------------ ------------ ------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 33 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, 2002 2001 2002 2001 Operations and distributions Investment income (loss) -- net $ 4,592,416 $ 4,809,815 $ 3,260,261 $ 3,478,451 Net realized gain (loss) on investments 1,152,774 561,832 723,674 (117,724) Net change in unrealized appreciation (depreciation) on investments (249,388) 3,325,987 322,391 1,999,088 -------- --------- ------- --------- Net increase (decrease) in net assets resulting from operations 5,495,802 8,697,634 4,306,326 5,359,815 --------- --------- --------- --------- Distributions to shareholders from: Net investment income Class A (3,950,616) (4,229,578) (2,885,476) (3,170,105) Class B (611,823) (585,710) (338,845) (303,547) Class C (27,161) (5,568) (34,240) (4,799) ------- ------ ------- ------ Total distributions (4,589,600) (4,820,856) (3,258,561) (3,478,451) ---------- ---------- ---------- ---------- Share transactions (Note 4) Proceeds from sales Class A shares (Note 2) 11,016,258 10,426,775 12,656,332 13,023,386 Class B shares 4,034,756 4,013,030 4,337,475 2,015,019 Class C shares 1,029,957 357,049 678,955 686,081 Reinvestment of distributions at net asset value Class A shares 3,017,090 3,190,608 2,209,759 2,420,796 Class B shares 468,120 433,889 257,092 231,940 Class C shares 25,291 3,471 34,104 4,639 Payments for redemptions Class A shares (10,849,539) (13,763,371) (13,283,245) (10,236,659) Class B shares (Note 2) (2,559,354) (2,300,461) (1,008,014) (937,170) Class C shares (Note 2) (159,021) (61,242) (146,087) -- -------- ------- -------- --------- Increase (decrease) in net assets from share transactions 6,023,558 2,299,748 5,736,371 7,208,032 --------- --------- --------- --------- Total increase (decrease) in net assets 6,929,760 6,176,526 6,784,136 9,089,396 Net assets at beginning of year 104,981,830 98,805,304 75,729,500 66,640,104 ----------- ---------- ---------- ---------- Net assets at end of year $111,911,590 $104,981,830 $ 82,513,636 $ 75,729,500 ============ ============ ============ ============ Undistributed (excess of distributions over) net investment income $ 2,800 $ (16) $ 1,699 $ (1) ------------ ------------ ------------ ------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 34 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. 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. 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. -------------------------------------------------------------------------------- 35 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT 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 forward-commitment basis Delivery and payment for securities that have been purchased by the Funds on a forward-commitment basis, including when-issued securities and other forward-commitments, can take place one month or more after the transaction date. During this period, such securities are subject to market fluctuations, and they may affect each Fund's net assets the same as owned securities. The Funds designate cash or liquid securities at least equal to the amount of its forward-commitments. As of June 30, 2002, the outstanding forward-commitments for the Funds are as follows: Other When-issued Fund forward-commitments securities California Tax-Exempt Fund $ -- $7,888,767 Massachusetts Tax-Exempt Fund -- 5,777,335 Michigan Tax-Exempt Fund 2,524,989 3,557,290 Minnesota Tax-Exempt Fund -- 7,480,597 New York Tax-Exempt Fund 1,017,730 7,485,545 Ohio Tax-Exempt Fund -- 2,385,059 Federal taxes Each Fund's policy is to comply with all sections of the Internal Revenue Code that apply to regulated investment companies and to distribute substantially all of its taxable income to shareholders. No provision for income or excise taxes is thus required. 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. The tax character of distributions paid for the years indicated is as follows:
Year ended June 30, 2002 2001 California Tax-Exempt Fund Class A Distributions paid from: Ordinary income -- tax-exempt interest distributions(a) $10,780,957 $10,760,792 Long-term capital gain -- -- Class B Distributions paid from: Ordinary income -- tax-exempt interest distributions(a) 958,913 893,383 Long-term capital gain -- -- Class C Distributions paid from: Ordinary income -- tax-exempt interest distributions(a) 85,460 16,198 Long-term capital gain -- --
(a) Tax-exempt interest distributions were 99.63% and 99.93% for the years ended 2002 and 2001, respectively.
Massachusetts Tax-Exempt Fund Class A Distributions paid from: Ordinary income -- tax-exempt interest distributions(b) 2,702,376 3,110,622 Long-term capital gain -- -- Class B Distributions paid from: Ordinary income -- tax-exempt interest distributions(b) 710,330 705,659 Long-term capital gain -- -- Class C Distributions paid from: Ordinary income -- tax-exempt interest distributions(b) 44,625 25,202 Long-term capital gain -- --
(b) Tax-exempt interest distributions were 99.89% and 100% for the years ended 2002 and 2001, respectively. -------------------------------------------------------------------------------- 36 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT
Year ended June 30, 2002 2001 Michigan Tax-Exempt Fund Class A Distributions paid from: Ordinary income -- tax-exempt interest distributions(c) $3,105,521 $3,327,020 Long-term capital gain -- -- Class B Distributions paid from: Ordinary income -- tax-exempt interest distributions(c) 275,352 262,535 Long-term capital gain -- -- Class C Distributions paid from: Ordinary income -- tax-exempt interest distributions(c) 33,507 3,631 Long-term capital gain -- --
(c) Tax-exempt interest distributions were 99.46% and 100% for the years ended 2002 and 2001, respectively.
Minnesota Tax-Exempt Fund Class A Distributions paid from: Ordinary income -- tax-exempt interest distributions(d) 17,759,670 18,810,469 Long-term capital gain -- -- Class B Distributions paid from: Ordinary income -- tax-exempt interest distributions(d) 2,383,907 2,219,057 Long-term capital gain -- -- Class C Distributions paid from: Ordinary income -- tax-exempt interest distributions(d) 126,057 32,460 Long-term capital gain -- --
(d) Tax-exempt interest distributions were 97.85% and 99.16% for the years ended 2002 and 2001, respectively.
New York Tax-Exempt Fund Class A Distributions paid from: Ordinary income -- tax-exempt interest distributions(e) 3,950,616 4,229,578 Long-term capital gain -- -- Class B Distributions paid from: Ordinary income -- tax-exempt interest distributions(e) 611,823 585,710 Long-term capital gain -- -- Class C Distributions paid from: Ordinary income -- tax-exempt interest distributions(e) 27,161 5,568 Long-term capital gain -- --
(e) Tax-exempt interest distributions were 99.66% and 99.82% for the years ended 2002 and 2001, respectively.
Ohio Tax-Exempt Fund Class A Distributions paid from: Ordinary income -- tax-exempt interest distributions(f) 2,885,476 3,170,105 Long-term capital gain -- -- Class B Distributions paid from: Ordinary income -- tax-exempt interest distributions(f) 338,845 303,547 Long-term capital gain -- -- Class C Distributions paid from: Ordinary income -- tax-exempt interest distributions(f) 34,240 4,799 Long-term capital gain -- --
(f) Tax-exempt interest distributions were 99.84% and 100% for the years ended 2002 and 2001, respectively. -------------------------------------------------------------------------------- 37 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT
As of June 30, 2002, the components of distributable earnings on a tax basis for each Fund are as follows: Undistributed Accumulated Unrealized Fund tax-exempt income long-term gain (loss) appreciation (depreciation) California Tax-Exempt Fund $ 66,248 $(6,521,703) $16,281,520 Massachusetts Tax-Exempt Fund 21,834 (639,020) 2,663,489 Michigan Tax-Exempt Fund 28,606 (1,155,781) 3,257,501 Minnesota Tax-Exempt Fund 111,139 (5,225,228) 8,155,037 New York Tax-Exempt Fund 27,126 (1,214,744) 5,258,815 Ohio Tax-Exempt Fund 20,630 (732,897) 2,785,235
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. 2. EXPENSES AND SALES CHARGES Each Fund has agreements with American Express Financial Corporation (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. The incremental transfer agency fee is the amount charged to the specific classes for the additional expense above the base fee of $17.50. 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, 2002, are as follows: Fund Class A Class B Class C California Tax-Exempt Fund $413,671 $24,801 $2,198 Massachusetts Tax-Exempt Fund 150,126 27,649 739 Michigan Tax-Exempt Fund 122,675 6,371 1,101 Minnesota Tax-Exempt Fund 727,238 50,577 1,053 New York Tax-Exempt Fund 115,957 18,083 868 Ohio Tax-Exempt Fund 107,981 12,028 252 During the year ended June 30, 2002, 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 $12,964 Massachusetts Tax-Exempt Fund 10,658 Michigan Tax-Exempt Fund 2,104 Minnesota Tax-Exempt Fund 24,977 New York Tax-Exempt Fund 2,537 Ohio Tax-Exempt Fund 5,224 -------------------------------------------------------------------------------- 38 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT 3. SECURITIES TRANSACTIONS For the year ended June 30, 2002, 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 $ 63,867,557 $ 39,640,626 Massachusetts Tax-Exempt Fund 56,170,264 42,287,698 Michigan Tax-Exempt Fund 30,944,374 23,110,731 Minnesota Tax-Exempt Fund 199,551,578 142,154,533 New York Tax-Exempt Fund 58,102,220 43,656,273 Ohio Tax-Exempt Fund 34,618,386 23,732,168 Realized gains and losses are determined on an identified cost basis. 4. SHARE TRANSACTIONS Transactions in shares for each Fund for the years indicated are as follows: California Tax-Exempt Fund Year ended June 30, 2002 Class A Class B Class C Sold 6,400,241 1,076,874 546,402 Issued for reinvested distributions 1,377,230 137,133 15,782 Redeemed (7,849,109) (601,379) (108,997) ---------- -------- -------- Net increase (decrease) (71,638) 612,628 453,187 ------- ------- ------- 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 --------- ------- ------- Massachusetts Tax-Exempt Fund Year ended June 30, 2002 Class A Class B Class C Sold 1,812,571 1,416,140 288,225 Issued for reinvested distributions 403,515 103,797 8,087 Redeemed (2,176,807) (536,151) (17,426) ---------- -------- ------- Net increase (decrease) 39,279 983,786 278,886 ------ ------- ------- 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 ------- ------- ------ Michigan Tax-Exempt Fund Year ended June 30, 2002 Class A Class B Class C Sold 1,819,107 391,292 258,824 Issued for reinvested distributions 456,888 39,126 3,229 Redeemed (1,842,736) (113,589) (38,682) ---------- -------- ------- Net increase (decrease) 433,259 316,829 223,371 ------- ------- ------- 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 -------- ------ ------ -------------------------------------------------------------------------------- 39 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT Minnesota Tax-Exempt Fund Year ended June 30, 2002 Class A Class B Class C Sold 12,664,270 2,975,471 688,424 Issued for reinvested distributions 2,727,845 379,830 22,223 Redeemed (12,789,800) (1,320,782) (106,738) ----------- ---------- -------- Net increase (decrease) 2,602,315 2,034,519 603,909 --------- --------- ------- 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 --------- --------- ------- New York Tax-Exempt Fund Year ended June 30, 2002 Class A Class B Class C Sold 2,146,982 784,095 200,482 Issued for reinvested distributions 587,385 91,154 4,929 Redeemed (2,110,315) (497,151) (31,041) ---------- -------- ------- Net increase (decrease) 624,052 378,098 174,370 ------- ------- ------- 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 ------- ------- ------ Ohio Tax-Exempt Fund Year ended June 30, 2002 Class A Class B Class C Sold 2,378,833 817,058 127,515 Issued for reinvested distributions 415,736 48,376 6,415 Redeemed (2,499,609) (189,940) (27,577) ---------- -------- ------- Net increase (decrease) 294,960 675,494 106,353 ------- ------- ------- 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 ------- ------- ------- -------------------------------------------------------------------------------- 40 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT 5. CAPITAL LOSS CARRY-OVER For federal income tax purposes, capital loss carry-overs as of June 30, 2002 are as follows: Fund Carry-over Expiration date California Tax-Exempt Fund $6,521,703 2006-2010 Massachusetts Tax-Exempt Fund 639,020 2008-2009 Michigan Tax-Exempt Fund 1,155,781 2008-2009 Minnesota Tax-Exempt Fund 5,225,228 2008-2011 New York Tax-Exempt Fund 1,214,744 2005-2009 Ohio Tax-Exempt Fund 732,897 2008-2009 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. 6. 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, 2002. 7. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating each Fund's results.
AXP California Tax-Exempt Fund Class A Per share income and capital changes(a) Fiscal period ended June 30, 2002 2001 2000 1999 1998 Net asset value, beginning of period $5.18 $5.03 $5.18 $5.35 $5.24 Income from investment operations: Net investment income (loss) .24 .25 .26 .27 .29 Net gains (losses) (both realized and unrealized) .05 .15 (.15) (.17) .11 Total from investment operations .29 .40 .11 .10 .40 Less distributions: Dividends from net investment income (.24) (.25) (.26) (.27) (.29) Net asset value, end of period $5.23 $5.18 $5.03 $5.18 $5.35 Ratios/supplemental data Net assets, end of period (in millions) $234 $231 $213 $246 $239 Ratio of expenses to average daily net assets(c) .84% .85% .82% .79% .75% Ratio of net investment income (loss) to average daily net assets 4.56% 4.79% 5.18% 4.97% 5.24% Portfolio turnover rate (excluding short-term securities) 16% 11% 18% 16% 15% Total return(e) 5.66% 8.00% 2.19% 1.80% 7.72%
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 41 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT
AXP California Tax-Exempt Fund Class B Per share income and capital changes(a) Fiscal period ended June 30, 2002 2001 2000 1999 1998 Net asset value, beginning of period $5.17 $5.03 $5.18 $5.35 $5.24 Income from investment operations: Net investment income (loss) .20 .21 .22 .22 .25 Net gains (losses) (both realized and unrealized) .06 .14 (.15) (.17) .11 Total from investment operations .26 .35 .07 .05 .36 Less distributions: Dividends from net investment income (.20) (.21) (.22) (.22) (.25) Net asset value, end of period $5.23 $5.17 $5.03 $5.18 $5.35 Ratios/supplemental data Net assets, end of period (in millions) $27 $24 $21 $21 $15 Ratio of expenses to average daily net assets(c) 1.59% 1.60% 1.58% 1.53% 1.50% Ratio of net investment income (loss) to average daily net assets 3.81% 3.99% 4.43% 4.23% 4.50% Portfolio turnover rate (excluding short-term securities) 16% 11% 18% 16% 15% Total return(e) 5.07% 6.98% 1.44% 1.03% 6.94% Class C Per share income and capital changes(a) Fiscal period ended June 30, 2002 2001 2000(b) Net asset value, beginning of period $5.18 $5.03 $5.02 Income from investment operations: Net investment income (loss) .20 .21 -- Net gains (losses) (both realized and unrealized) .06 .15 .01 Total from investment operations .26 .36 .01 Less distributions: Dividends from net investment income (.20) (.21) -- Net asset value, end of period $5.24 $5.18 $5.03 Ratios/supplemental data Net assets, end of period (in millions) $3 $1 $-- Ratio of expenses to average daily net assets(c) 1.60% 1.60% 1.58%(d) Ratio of net investment income (loss) to average daily net assets 3.86% 4.04% 4.43%(d) Portfolio turnover rate (excluding short-term securities) 16% 11% 18% Total return(e) 5.07% 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. -------------------------------------------------------------------------------- 42 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT
AXP Massachusetts Tax-Exempt Fund Class A Per share income and capital changes(a) Fiscal period ended June 30, 2002 2001 2000 1999 1998 Net asset value, beginning of period $5.28 $5.11 $5.39 $5.56 $5.42 Income from investment operations: Net investment income (loss) .22 .27 .27 .27 .29 Net gains (losses) (both realized and unrealized) .09 .17 (.27) (.17) .14 Total from investment operations .31 .44 -- .10 .43 Less distributions: Dividends from net investment income (.22) (.27) (.28) (.27) (.29) Net asset value, end of period $5.37 $5.28 $5.11 $5.39 $5.56 Ratios/supplemental data Net assets, end of period (in millions) $66 $65 $59 $70 $67 Ratio of expenses to average daily net assets(c) .91% .95% .93% .81% .82% Ratio of net investment income (loss) to average daily net assets 4.11% 5.04% 5.28% 4.99% 5.17% Portfolio turnover rate (excluding short-term securities) 53% 4% 7% 5% 9% Total return(e) 5.94% 8.64% .04% 1.72% 8.13% Class B Per share income and capital changes(a) Fiscal period ended June 30, 2002 2001 2000 1999 1998 Net asset value, beginning of period $5.28 $5.11 $5.39 $5.56 $5.42 Income from investment operations: Net investment income (loss) .18 .23 .24 .23 .24 Net gains (losses) (both realized and unrealized) .09 .17 (.28) (.17) .14 Total from investment operations .27 .40 (.04) .06 .38 Less distributions: Dividends from net investment income (.18) (.23) (.24) (.23) (.24) Net asset value, end of period $5.37 $5.28 $5.11 $5.39 $5.56 Ratios/supplemental data Net assets, end of period (in millions) $24 $18 $16 $17 $13 Ratio of expenses to average daily net assets(c) 1.66% 1.70% 1.69% 1.56% 1.57% Ratio of net investment income (loss) to average daily net assets 3.34% 4.28% 4.53% 4.25% 4.43% Portfolio turnover rate (excluding short-term securities) 53% 4% 7% 5% 9% Total return(e) 5.15% 7.83% (.71%) .96% 7.32%
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 43 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT
AXP Massachusetts Tax-Exempt Fund Class C Per share income and capital changes(a) Fiscal period ended June 30, 2002 2001 2000(b) Net asset value, beginning of period $5.28 $5.11 $5.10 Income from investment operations: Net investment income (loss) .18 .23 -- Net gains (losses) (both realized and unrealized) .09 .17 .01 Total from investment operations .27 .40 .01 Less distributions: Dividends from net investment income (.18) (.23) -- Net asset value, end of period $5.37 $5.28 $5.11 Ratios/supplemental data Net assets, end of period (in millions) $2 $1 $-- Ratio of expenses to average daily net assets(c) 1.66% 1.70% 1.69%(d) Ratio of net investment income (loss) to average daily net assets 3.32% 4.30% 4.53%(d) Portfolio turnover rate (excluding short-term securities) 53% 4% 7% Total return(e) 5.16% 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. -------------------------------------------------------------------------------- 44 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT
AXP Michigan Tax-Exempt Fund Class A Per share income and capital changes(a) Fiscal period ended June 30, 2002 2001 2000 1999 1998 Net asset value, beginning of period $5.27 $5.09 $5.38 $5.57 $5.44 Income from investment operations: Net investment income (loss) .24 .27 .27 .28 .29 Net gains (losses) (both realized and unrealized) .06 .18 (.29) (.17) .13 Total from investment operations .30 .45 (.02) .11 .42 Less distributions: Dividends from net investment income (.24) (.27) (.27) (.28) (.29) Distributions from realized gains -- -- -- (.02) -- Total distributions (.24) (.27) (.27) (.30) (.29) Net asset value, end of period $5.33 $5.27 $5.09 $5.38 $5.57 Ratios/supplemental data Net assets, end of period (in millions) $70 $67 $65 $77 $77 Ratio of expenses to average daily net assets(c) .92% .95% .89% .83% .82% Ratio of net investment income (loss) to average daily net assets 4.57% 5.09% 5.30% 5.00% 5.19% Portfolio turnover rate (excluding short-term securities) 33% 4% 12% 20% 10% Total return(e) 5.83% 8.90% (.14%) 1.92% 7.66% Class B Per share income and capital changes(a) Fiscal period ended June 30, 2002 2001 2000 1999 1998 Net asset value, beginning of period $5.27 $5.09 $5.38 $5.57 $5.44 Income from investment operations: Net investment income (loss) .20 .23 .23 .24 .25 Net gains (losses) (both realized and unrealized) .06 .18 (.29) (.17) .13 Total from investment operations .26 .41 (.06) .07 .38 Less distributions: Dividends from net investment income (.20) (.23) (.23) (.24) (.25) Distributions from realized gains -- -- -- (.02) -- Total distributions (.20) (.23) (.23) (.26) (.25) Net asset value, end of period $5.33 $5.27 $5.09 $5.38 $5.57 Ratios/supplemental data Net assets, end of period (in millions) $8 $6 $6 $7 $5 Ratio of expenses to average daily net assets(c) 1.67% 1.70% 1.64% 1.59% 1.57% Ratio of net investment income (loss) to average daily net assets 3.82% 4.34% 4.55% 4.25% 4.44% Portfolio turnover rate (excluding short-term securities) 33% 4% 12% 20% 10% Total return(e) 5.04% 8.09% (.92%) 1.17% 6.86%
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 45 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT
AXP Michigan Tax-Exempt Fund Class C Per share income and capital changes(a) Fiscal period ended June 30, 2002 2001 2000(b) Net asset value, beginning of period $5.27 $5.09 $5.08 Income from investment operations: Net investment income (loss) .20 .22 -- Net gains (losses) (both realized and unrealized) .06 .18 .01 Total from investment operations .26 .40 .01 Less distributions: Dividends from net investment income (.20) (.22) -- Net asset value, end of period $5.33 $5.27 $5.09 Ratios/supplemental data Net assets, end of period (in millions) $1 $-- $-- Ratio of expenses to average daily net assets(c) 1.66% 1.70% 1.64%(d) Ratio of net investment income (loss) to average daily net assets 3.80% 4.36% 4.23%(d) Portfolio turnover rate (excluding short-term securities) 33% 4% 12% Total return(e) 5.05% 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. -------------------------------------------------------------------------------- 46 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT
AXP Minnesota Tax-Exempt Fund Class A Per share income and capital changes(a) Fiscal period ended June 30, 2002 2001 2000 1999 1998 Net asset value, beginning of period $5.14 $5.00 $5.26 $5.41 $5.30 Income from investment operations: Net investment income (loss) .25 .28 .29 .29 .30 Net gains (losses) (both realized and unrealized) .06 .14 (.27) (.15) .11 Total from investment operations .31 .42 .02 .14 .41 Less distributions: Dividends from net investment income (.25) (.28) (.28) (.29) (.30) Net asset value, end of period $5.20 $5.14 $5.00 $5.26 $5.41 Ratios/supplemental data Net assets, end of period (in millions) $375 $357 $340 $406 $385 Ratio of expenses to average daily net assets(c) .83% .84% .82% .78% .75% Ratio of net investment income (loss) to average daily net assets 4.82% 5.45% 5.68% 5.37% 5.61% Portfolio turnover rate (excluding short-term securities) 36% 4% 18% 13% 8% Total return(e) 6.15% 8.53% .60% 2.62% 7.96% Class B Per share income and capital changes(a) Fiscal period ended June 30, 2002 2001 2000 1999 1998 Net asset value, beginning of period $5.14 $5.00 $5.26 $5.41 $5.30 Income from investment operations: Net investment income (loss) .21 .24 .25 .25 .26 Net gains (losses) (both realized and unrealized) .06 .14 (.26) (.15) .11 Total from investment operations .27 .38 (.01) .10 .37 Less distributions: Dividends from net investment income (.21) (.24) (.25) (.25) (.26) Net asset value, end of period $5.20 $5.14 $5.00 $5.26 $5.41 Ratios/supplemental data Net assets, end of period (in millions) $64 $53 $44 $46 $31 Ratio of expenses to average daily net assets(c) 1.59% 1.60% 1.58% 1.54% 1.50% Ratio of net investment income (loss) to average daily net assets 4.02% 4.70% 4.94% 4.61% 4.86% Portfolio turnover rate (excluding short-term securities) 36% 4% 18% 13% 8% Total return(e) 5.36% 7.72% (.16%) 1.85% 7.17%
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 47 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT
AXP Minnesota Tax-Exempt Fund Class C Per share income and capital changes(a) Fiscal period ended June 30, 2002 2001 2000(b) Net asset value, beginning of period $5.14 $5.00 $4.99 Income from investment operations: Net investment income (loss) .21 .24 -- Net gains (losses) (both realized and unrealized) .06 .14 .01 Total from investment operations .27 .38 .01 Less distributions: Dividends from net investment income (.21) (.24) -- Net asset value, end of period $5.20 $5.14 $5.00 Ratios/supplemental data Net assets, end of period (in millions) $5 $2 $-- Ratio of expenses to average daily net assets(c) 1.59% 1.59% 1.58%(d) Ratio of net investment income (loss) to average daily net assets 4.04% 4.74% 4.94%(d) Portfolio turnover rate (excluding short-term securities) 36% 4% 18% Total return(e) 5.36% 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. -------------------------------------------------------------------------------- 48 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT
AXP New York Tax-Exempt Fund Class A Per share income and capital changes(a) Fiscal period ended June 30, 2002 2001 2000 1999 1998 Net asset value, beginning of period $5.12 $4.92 $5.15 $5.29 $5.15 Income from investment operations: Net investment income (loss) .22 .25 .27 .25 .27 Net gains (losses) (both realized and unrealized) .04 .20 (.23) (.14) .14 Total from investment operations .26 .45 .04 .11 .41 Less distributions: Dividends from net investment income (.22) (.25) (.27) (.25) (.27) Net asset value, end of period $5.16 $5.12 $4.92 $5.15 $5.29 Ratios/supplemental data Net assets, end of period (in millions) $92 $88 $85 $102 $105 Ratio of expenses to average daily net assets(c) .90% .91% .88% .82% .79% Ratio of net investment income (loss) to average daily net assets 4.38% 4.90% 5.27% 4.93% 5.22% Portfolio turnover rate (excluding short-term securities) 44% 13% 11% 8% 10% Total return(e) 5.26% 9.28% .77% 2.04% 8.20% Class B Per share income and capital changes(a) Fiscal period ended June 30, 2002 2001 2000 1999 1998 Net asset value, beginning of period $5.12 $4.92 $5.15 $5.29 $5.15 Income from investment operations: Net investment income (loss) .19 .21 .23 .21 .23 Net gains (losses) (both realized and unrealized) .04 .20 (.23) (.14) .14 Total from investment operations .23 .41 -- .07 .37 Less distributions: Dividends from net investment income (.19) (.21) (.23) (.21) (.23) Net asset value, end of period $5.16 $5.12 $4.92 $5.15 $5.29 Ratios/supplemental data Net assets, end of period (in millions) $18 $16 $13 $14 $10 Ratio of expenses to average daily net assets(c) 1.65% 1.66% 1.63% 1.57% 1.55% Ratio of net investment income (loss) to average daily net assets 3.60% 4.14% 4.54% 4.20% 4.47% Portfolio turnover rate (excluding short-term securities) 44% 13% 11% 8% 10% Total return(e) 4.48% 8.47% .01% 1.28% 7.35%
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 49 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT
AXP New York Tax-Exempt Fund Class C Per share income and capital changes(a) Fiscal period ended June 30, 2002 2001 2000(b) Net asset value, beginning of period $5.11 $4.92 $4.91 Income from investment operations: Net investment income (loss) .19 .21 -- Net gains (losses) (both realized and unrealized) .05 .19 .01 Total from investment operations .24 .40 .01 Less distributions: Dividends from net investment income (.19) (.21) -- Net asset value, end of period $5.16 $5.11 $4.92 Ratios/supplemental data Net assets, end of period (in millions) $1 $-- $-- Ratio of expenses to average daily net assets(c) 1.66% 1.66% 1.63%(d) Ratio of net investment income (loss) to average daily net assets 3.69% 4.09% 4.54%(d) Portfolio turnover rate (excluding short-term securities) 44% 13% 11% Total return(e) 4.68% 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. -------------------------------------------------------------------------------- 50 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT
AXP Ohio Tax-Exempt Fund Class A Per share income and capital changes(a) Fiscal period ended June 30, 2002 2001 2000 1999 1998 Net asset value, beginning of period $5.27 $5.13 $5.36 $5.50 $5.38 Income from investment operations: Net investment income (loss) .22 .27 .27 .27 .29 Net gains (losses) (both realized and unrealized) .08 .14 (.23) (.14) .12 Total from investment operations .30 .41 .04 .13 .41 Less distributions: Dividends from net investment income (.22) (.27) (.27) (.27) (.29) Net asset value, end of period $5.35 $5.27 $5.13 $5.36 $5.50 Ratios/supplemental data Net assets, end of period (in millions) $69 $67 $60 $69 $67 Ratio of expenses to average daily net assets(c) .91% .93% .88% .88% .83% Ratio of net investment income (loss) to average daily net assets 4.22% 4.98% 5.31% 5.02% 5.22% Portfolio turnover rate (excluding short-term securities) 33% 3% 13% 5% 10% Total return(e) 5.87% 7.95% .91% 2.50% 7.79% Class B Per share income and capital changes(a) Fiscal period ended June 30, 2002 2001 2000 1999 1998 Net asset value, beginning of period $5.27 $5.13 $5.36 $5.50 $5.38 Income from investment operations: Net investment income (loss) .18 .23 .23 .23 .24 Net gains (losses) (both realized and unrealized) .07 .14 (.23) (.14) .13 Total from investment operations .25 .37 -- .09 .37 Less distributions: Dividends from net investment income (.18) (.23) (.23) (.23) (.25) Net asset value, end of period $5.34 $5.27 $5.13 $5.36 $5.50 Ratios/supplemental data Net assets, end of period (in millions) $12 $8 $7 $8 $5 Ratio of expenses to average daily net assets(c) 1.66% 1.68% 1.64% 1.63% 1.59% Ratio of net investment income (loss) to average daily net assets 3.46% 4.23% 4.55% 4.27% 4.47% Portfolio turnover rate (excluding short-term securities) 33% 3% 13% 5% 10% Total return(e) 4.89% 7.15% .14% 1.75% 6.98%
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 51 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT
AXP Ohio Tax-Exempt Fund Class C Per share income and capital changes(a) Fiscal period ended June 30, 2002 2001 2000(b) Net asset value, beginning of period $5.28 $5.13 $5.12 Income from investment operations: Net investment income (loss) .18 .22 -- Net gains (losses) (both realized and unrealized) .07 .15 .01 Total from investment operations .25 .37 .01 Less distributions: Dividends from net investment income (.18) (.22) -- Net asset value, end of period $5.35 $5.28 $5.13 Ratios/supplemental data Net assets, end of period (in millions) $1 $1 $-- Ratio of expenses to average daily net assets(c) 1.66% 1.68% 1.64%(d) Ratio of net investment income (loss) to average daily net assets 3.45% 4.26% 4.55%(d) Portfolio turnover rate (excluding short-term securities) 33% 3% 13% Total return(e) 4.89% 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. -------------------------------------------------------------------------------- 52 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT Investments in Securities AXP California Tax-Exempt Fund June 30, 2002 (Percentages represent value of investments compared to net assets) Municipal bonds (97.9%) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,d) ABAG Financial Authority for Nonprofit Corporations Certificates of Participation International School Series 1996 05-01-26 7.38% $2,200,000 $2,339,018 ABAG Financial Authority for Nonprofit Corporations Revenue Bonds San Diego Hospital Association Series 2001A 08-15-20 6.13 1,000,000 1,025,720 Alameda Unified School District Unlimited General Obligation Refunding Bonds Alameda County Series 2002 (FSA Insured) 07-01-14 5.50 2,000,000(j) 2,245,240 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(f) 350,028 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(f) 812,734 Anaheim High School District Unlimited General Obligation Bonds Series 2002A (FSA Insured) 08-01-16 5.38 1,550,000 1,662,871 Anaheim Public Financing Authority Lease Capital Appreciation Improvement Revenue Bonds Zero Coupon Series 1997C (FSA Insured) 09-01-25 5.61 2,170,000(f) 597,944 Anaheim Public Financing Authority Revenue Bonds Electric Utilities San Juan 2nd Series 1993 (FGIC Insured) 10-01-22 5.75 11,100,000 11,677,976 Antelope Valley Unified High School District Unlimited General Obligation Bonds Series 2002A (MBIA Insured) 08-01-18 5.38 2,270,000 2,411,262 Arcade Certificate of Participation Water District Revenue Bonds Series 1997 (FGIC Insured) 11-01-27 5.00 500,000 491,570 Beaumont Financing Authority Local Agency Revenue Bonds Series 2000A 09-01-32 7.38 1,955,000 2,042,310 Brea Public Financing Authority Water Refunding Bonds Series 1998 (FGIC Insured) 07-01-21 4.75 1,000,000 968,360 Brea Redevelopment Agency Tax Allocation Refunding Bonds Redevelopment Project AB Series 1993 (MBIA Insured) 08-01-17 5.50 1,800,000 1,845,072 Burbank Redevelopment Agency Tax Allocation Bonds Golden State Series 1993A 12-01-23 6.00 2,000,000 2,058,340 Commonwealth of Puerto Rico Public Improvement Unlimited General Obligation Refunding Bonds Series 2001A (MBIA Insured) 07-01-15 5.50 1,880,000(c) 2,099,001 Commonwealth of Puerto Rico Public Improvement Unlimited General Obligation Refunding Bonds Series 2001A (XLCA Insured) 07-01-17 5.50 1,000,000(c) 1,102,500 Community Development Authority Health Facilities Unihealth America Certificate of Participation Series 1993 Inverse Floater (AMBAC Insured) 10-01-11 9.70 5,000,000(g) 6,284,999 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(e) 1,742,720 Encinitas Unified School District Unlimited General Obligation Bonds Zero Coupon Series 1996 (MBIA Insured) 08-01-15 5.85 2,500,000(f) 1,321,400 08-01-16 5.85 1,000,000(f) 495,200 Folsom Special Tax Refunding Bonds Community Facilities District #10 Series 1999 09-01-24 7.00 3,000,000 3,206,790 Folsom Special Tax Bonds Community Facilities District #14 Series 2002 09-01-22 6.13 1,000,000 1,003,510 Fontana Redevelopment Agency Refunding Certificate of Participation Police Facility Series 1993 04-01-16 5.63 4,500,000 4,600,305 Fontana Unified School District Unlimited General Obligation Bonds Series 1995C (FGIC Insured) 05-01-20 6.15 3,470,000 3,764,395 Fontana Unified School District Unlimited Tax General Obligation Bonds Series1997D (FGIC Insured) 05-01-22 5.75 2,000,000 2,138,420 Foothill/Eastern Transportation Corridor Agency Toll Road Senior Lien Revenue Bonds Series 1995A 01-01-34 6.00 1,775,000 2,018,832 Fremont Unified School District Unlimited General Obligation Bonds Alameda County Series 2002A (FGIC Insured) 08-01-19 5.38 2,250,000 2,374,043 Fresno Unified School District Fresno County Refunding General Obligation Bonds Series 1999C (MBIA Insured) 08-01-22 5.90 2,000,000 2,259,260 Garden Grove Agency Community Development Tax Allocation Refunding Bonds Garden Grove Community Series 1993 10-01-23 5.88 2,750,000 2,778,573 Garden Grove Certificate of Participation Bahia Village/Emerald Isle Series 1993 (FSA Insured) 08-01-23 5.70 2,660,000 2,723,441 Infrastructure & Economic Development Bank Revenue Bonds American Center for Wine, Foods & Arts Series 1999 (ACA Insured) 12-01-19 5.70 2,500,000 2,568,100 Inglewood Redevelopment Agency Revenue Bonds Series 1998A (AMBAC Insured) 05-01-23 5.25 1,100,000 1,146,475 Intercommunity Hospital Finance Authority Certificate of Participation Series 1998 (ACA Insured) 11-01-19 5.25 1,250,000 1,238,675 Irwindale Redevelopment Agency Sub Lien Tax Allocation Bonds Series 1996 12-01-19 7.00 1,700,000 1,823,352 Janesville Union School District Lassen County General Obligation Bonds Series 1996 08-01-21 6.45 855,000 904,821 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 53 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,d) La Mirada Redevelopment Agency Special Tax Refunding Revenue Bonds Community Facilities District #89-1 Series 1998 10-01-20 5.70% $1,000,000 $985,850 La Palma Community Development Commission Refunding Tax Allocation Bonds Series 2001 (ACA Insured) 06-01-21 5.50 1,830,000 1,844,878 Lake Elsinore Public Finance Authority Local Agency Revenue Bonds Series 1997F 09-01-20 7.10 2,945,000 3,141,726 Lake Elsinore Public Finance Authority Tax Allocation Revenue Bonds Series 1999A 09-01-30 5.50 2,500,000 2,433,475 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 1,960,040 Lake Elsinore School Finance Authority Revenue Bonds Series 1997 09-01-19 6.13 1,235,000 1,287,290 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(f) 627,876 11-01-22 5.68 2,300,000(f) 755,274 11-01-23 5.68 2,945,000(f) 908,002 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(f) 590,546 Los Angeles Department of Water & Power Revenue Bonds Series 2001A (FSA Insured) 07-01-18 5.25 2,000,000 2,081,520 Los Angeles Department of Water & Power Waterworks Refunding Revenue Bonds 2nd Issue Series1993 (Secondary FGIC Insured) 05-15-18 4.50 3,000,000 2,903,880 Los Angeles Multi-family Housing Revenue Bonds Park Parthenia Series 1986 (GNMA Insured) A.M.T. 01-20-22 7.40 1,000,000 1,007,730 Los Angeles Single Family Home Mortgage Revenue Bonds Series 1991A (GNMA/FNMA Insured) A.M.T. 06-01-25 6.88 600,000 607,686 Los Angeles State Harbor Revenue Bonds Series 1988 Escrowed to Maturity 10-01-18 7.60 1,000,000 1,276,790 Los Angeles State Harbor Revenue Bonds Series 1996B (MBIA Insured) A.M.T. 11-01-19 5.38 2,000,000 2,045,640 11-01-23 5.38 1,300,000 1,310,738 Los Angeles Unified School District General Obligation Bonds Series 2001A (FSA Insured) 07-01-21 5.00 2,000,000 2,002,600 Los Angeles Unified School District Unlimited General Obligation Refunding Bonds Series 2002 (MBIA Insured) 07-01-14 5.75 2,000,000 2,287,980 07-01-15 5.75 2,000,000 2,286,640 Millbrae Residential Facility Revenue Bonds Magnolia of Millbrae Series 1997A A.M.T. 09-01-27 7.38 2,500,000 2,583,925 Modesto Irrigation District Finance Authority Refunding Revenue Bonds Domestic Water Series 1998D (AMBAC Insured) 09-01-22 4.75 2,000,000 1,926,940 Northern California Transmission Select Auction Variable Rate Security & Residual Interest Revenue Bonds Series 1993 (MBIA Insured) 04-29-24 5.50 4,500,000(i) 4,590,720 Novato Community Facility District #1 Vintage Oaks Public Improvement Special Tax Refunding Bonds Series 1994 08-01-21 7.25 2,000,000 2,098,360 Orange County Special Tax Community Facilities Pre-refunded Bonds Aliso Veijo District 88-1 Series 1992A 08-15-18 7.35 3,000,000 3,083,160 Pittsburg Redevelopment Agency Tax Allocation Bonds Los Medanos Community Development Zero Coupon Series 1999 (AMBAC Insured) 08-01-24 6.05 2,100,000(f) 614,607 Pleasanton Joint Powers Financing Authority Reassessment Revenue Bonds Series 1993A 09-02-12 6.15 1,765,000 1,836,588 Port of Oakland Miscellaneous Revenue Bonds Series 2000K (FGIC Insured) A.M.T. 11-01-18 5.63 1,000,000 1,051,910 Port of Oakland Refunding Revenue Bonds Series 1997G (MBIA Insured) A.M.T. 11-01-25 5.38 3,080,000 3,129,403 Puerto Rico Electric Power Authority Refunding Revenue Bonds Series 2002-683 Inverse Floater (MBIA Insured) 07-01-17 14.20 3,000,000(c,g,j) 4,016,100 Redding Redevelopment Agency Tax Allocation Refunding Bonds Canby Hilltop Cypress Series 1993D (CGIC Insured) 09-01-23 5.00 4,700,000 4,663,293 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(f) 2,073,328 Richmond Elementary School District Lassen County General Obligation Bonds Series 1996 08-01-21 6.50 649,000 683,196 Richmond Joint Powers Financing Authority Lease & Gas Tax Refunding Revenue Bonds Series 1995A 05-15-13 5.25 2,000,000 2,082,940 Riverside County Certificate of Participation Series 1998 (MBIA Insured) 12-01-21 5.00 1,530,000 1,529,939 Rural Home Mortgage Financing Authority Single Family Mortgage Revenue Bonds 5th Series 1998B (FNMA/GNMA Insured) A.M.T. 12-01-29 6.35 1,210,000 1,319,977 Rural Home Mortgage Finance Authority Refunding Revenue Bonds Single Family Mortgage 2nd Series 1997A (GNMA/FNMA Insured) A.M.T. 09-01-29 7.00 1,260,000 1,342,265 Sacramento City Financing Authority Revenue Bonds City Hall Redevelopment Series 2002A (FSA Insured) 12-01-19 5.38 1,580,000(j) 1,663,045 Sacramento Cogeneration Authority Pre-refunded Revenue Bonds Procter & Gamble Series 1995 07-01-10 6.38 500,000 570,595 Sacramento Cogeneration Authority Un-refunded Revenue Bonds Procter & Gamble Series 1995 07-01-10 6.38 500,000 535,435 Sacramento Power Authority Cogeneration Revenue Bonds Campbell Soup Series 1995 07-01-22 6.00 1,000,000 1,045,020 Salinas High School District Unlimited General Obligation Bonds Series 2002A (MBIA Insured) 06-01-13 5.25 1,055,000 1,156,512 San Bernardino Joint Powers Financing Authority Tax Allocation Refunding Revenue Bonds Series 2002 04-01-26 6.63 2,000,000 2,027,780 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 54 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,d) San Diego Convention Center Expansion Financing Authority Revenue Bonds Series 1998A (AMBAC Insured) 04-01-28 4.75% $3,250,000 $3,069,885 San Diego County Capital Asset Lease Certificate of Participation Series 1993 Inverse Floater (AMBAC Insured) 09-01-07 9.22 3,200,000(g) 3,924,672 San Diego County Water Authority Revenue Bonds Certificates of Participation Series 1998A (FGIC Insured) 05-01-24 4.50 6,475,000 5,934,467 San Diego Water Utility Systems Undivided Interest Revenue Bonds Series 1998 (FGIC Insured) 08-01-28 4.75 2,695,000 2,544,781 San Francisco City & County Airport Commission International Airport Refunding Revenue Bonds Issue 20 2nd Series 1998 05-01-26 4.50 2,250,000 2,044,620 San Jose Redevelopment Agency Merged Area Redevelopment Tax Allocation Bonds Series 1999 (AMBAC Insured) 08-01-23 4.75 3,000,000 2,876,370 San Jose Redevelopment Agency Merged Area Redevelopment Tax Allocation Refunding Bonds Series 1993 (MBIA Insured) 08-01-24 4.75 3,055,000 2,914,134 San Jose Redevelopment Agency Merged Area Tax Allocation Bonds Series 1993 Inverse Floater (MBIA Insured) 08-01-14 8.76 3,000,000(g) 3,256,860 San Juan Unified School District Unlimited Tax General Obligation Bonds Zero Coupon Series 1999 08-01-21 5.68 820,000(f) 289,952 08-01-23 5.70 1,820,000(f) 568,914 08-01-24 5.70 1,810,000(f) 530,855 San Mateo Community College District Unlimited General Obligation Bonds Series 2002A (FGIC Insured) 09-01-18 5.38 1,000,000 1,058,170 San Ramon Certificate of Participation Refunding Bonds Series 2001 (AMBAC Insured) 03-01-21 5.00 1,835,000 1,834,872 San Ysidro School District General Obligation Bonds San Diego County Series 1997 (AMBAC Insured) 08-01-21 6.13 1,000,000 1,131,180 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 1,271,940 Santa Cruz Certificate of Participation Series 1987 08-01-07 8.38 845,000 849,546 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(f) 2,430,243 South Tahoe Joint Powers Financing Authority Refunding Revenue Bonds Series 1995B 10-01-20 6.25 2,700,000 2,784,888 Southern California Metropolitan Water District Waterworks Revenue Bonds Series 1997A 07-01-26 5.00 2,500,000 2,448,650 Southern California Public Power Authority Transmission Special Bonds Series 1992 07-01-12 6.00 2,700,000 2,762,559 Southern California Tobacco Securitization Authority Asset Backed Revenue Bonds Series 2002A 06-01-36 5.50 1,500,000 1,395,840 State Department Water Resource Water Systems Revenue Bonds Center Valley Series 1993L 12-01-23 5.50 3,000,000 3,037,830 State Department Water Resource Water Systems Revenue Bonds Center Valley Series 1995O 12-01-18 4.75 2,000,000 1,995,400 State Department Water Resources Water Systems Revenue Bonds Center Valley Series 2002X (FGIC Insured) 12-01-16 5.50 2,000,000 2,235,320 State Educational Facilities Authority Revenue Bonds Keck Graduate Institute of Applied Life Sciences Series 2000 06-01-20 6.63 1,490,000 1,598,874 State Educational Facilities Authority Revenue Bonds Series 1997B 04-01-21 6.30 1,000,000 1,063,070 State for Previous Veterans Unlimited General Obligation Bonds Series 2000B A.M.T. 12-01-12 4.95 2,250,000 2,327,378 12-01-13 5.05 1,435,000 1,477,462 12-01-14 5.15 2,535,000 2,605,777 State General Obligation Bonds Series 2000 05-01-30 5.75 2,000,000 2,108,920 State Public Works Board California Community Colleges Lease Pre-refunded Revenue Bonds Series 1994 03-01-19 7.00 2,000,000 2,211,720 State Public Works Board Lease Revenue Bonds Department of Corrections Series 1996A (AMBAC Insured) 01-01-21 5.25 1,870,000 1,883,427 State University Multi-purpose Revenue Bonds Series 2000K (FGIC Insured) 09-01-20 5.00 1,830,000 1,842,078 State University Refunding Revenue Bonds Series 1993C (AMBAC Insured) 09-01-23 5.00 2,000,000 1,989,520 State Unlimited General Obligation Bonds Series 2002 02-01-15 6.00 1,000,000 1,146,060 State Unlimited General Obligation Refunding Bonds Series 2002 (FSA Insured) 02-01-11 5.25 2,955,000 3,230,229 State Unlimited Tax General Obligation Bonds Series 1993 (FGIC Insured) 09-01-23 4.75 1,075,000 1,027,894 Statewide Communities Development Authority Multi-family Housing Revenue Bonds Magnolia City Lights Series 1999X A.M.T. 07-01-30 6.65 1,590,000 1,434,291 Statewide Communities Development Authority Certificates of Participation St. Joseph Health System Group Series 1994 07-01-15 6.50 3,500,000 3,891,300 Statewide Communities Development Authority College Revenue Bonds Thomas Jefferson School of Law Series 2001 10-01-31 7.75 2,500,000 2,537,025 Statewide Community Development Authority Refunding Revenue Bonds Bentley School Series 2002 07-01-32 6.75 2,000,000 2,040,440 Stockton Single Family Mortgage Revenue Bonds Series 1990A (GNMA Insured) A.M.T. 02-01-23 7.50 70,000 74,654 Upland Certificate of Participation Water System Refunding Bonds Series 1992 (FGIC Insured) 08-01-16 6.60 1,000,000 1,024,810 Vallejo Certificate of Participation Touro University Series 1999 06-01-29 7.38 2,000,000 2,027,840 West Contra Costa Unified School District Unlimited General Obligation Refunding Bonds Series 2001A (MBIA Insured) 02-01-21 5.70 1,710,000 1,891,089 02-01-23 5.70 1,920,000 2,112,134 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 55 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,d) West Sacramento Financing Authority Special Tax Revenue Bonds Series 1999F 09-01-29 6.10% $3,000,000 $2,940,420 Western Hills Water District Special Tax Bonds Diablo Grande Community Facilities Series 2001 09-01-31 6.88 2,500,000 2,510,800 Windsor Civic Center Joint Powers Financing Authority Lease Revenue Bonds Series 2001A (FSA Insured) 10-01-24 5.00 2,555,000 2,521,044 Total Municipal bonds (Cost: $240,480,554) $258,804,660 Municipal notes (3.7%) Issuer(b,d,h) Effective Amount Value(a) yield payable at maturity Los Angeles Regional Airport Improvement Lease Revenue Bonds Los Angeles Intl LAX V.R. Series 1985 12-01-25 2.03% $3,800,000 $3,800,000 Orange County Water District Certificate of Participation V.R. Series 1990B 08-15-15 1.93 1,300,000 1,300,000 Rancho Mirage Health Facilities Financing Authority Revenue Bonds (Eisenhower Medical Center) V.R. Series 2001B 01-01-26 1.96 1,100,000 1,100,000 State Health Facilities Financing Authority Refunding Revenue Bonds (Adventist Health Systems/West) V.R. Series 1998A (MBIA Insured) 09-01-28 1.85 1,200,000 1,200,000 State Health Facilities Financing Authority Refunding Revenue Bonds V.R. (Sutter Health) Series 1996B 03-01-12 1.75 1,200,000 1,200,000 State Housing Finance Agency Revenue Bonds Multi-family Housing V.R. Series 2000C V.R. 02-01-33 2.05 900,000 900,000 Statewide Community Development Authority Solid Waste Facilities Revenue Bonds (Chevron USA) V.R. Series 1994 A.M.T. 12-15-24 1.90 400,000 400,000 Total Municipal notes (Cost: $9,900,000) $9,900,000 Total investments in securities (Cost: $250,380,554)(k) $268,704,660 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 XLCA -- XL Capital Assurance (c) Municipal obligations include debt obligations issued by or on behalf of territories, possessions, or sovereign nations within the territorial boundaries of the United States. These securities represented 2.7% of net assets as of June 30, 2002. (d) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- As of June 30, 2002, the value of securities subject to alternative minimum tax represented 9.3% 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 (e) Non-income producing. For long-term debt securities, item identified is in default as to payment of interest and/or principal. (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, 2002. As of June 30, 2002, the value of inverse floaters represented 6.6% of net assets. (h) 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, 2002. (i) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on June 30, 2002. (j) At June 30, 2002, the cost of securities purchased, including interest purchased, on a when-issued basis was $7,888,767. (k) At June 30, 2002, the cost of securities for federal income tax purposes was $250,380,554 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $18,936,297 Unrealized depreciation (612,191) -------- Net unrealized appreciation $18,324,106 ----------- -------------------------------------------------------------------------------- 56 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT Investments in Securities AXP Massachusetts Tax-Exempt Fund June 30, 2002 (Percentages represent value of investments compared to net assets) Municipal bonds (97.6%) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,d) Bay Transportation Authority Pre-refunded Revenue Bonds Series 1992B (FSA Insured) 03-01-21 5.50% $15,000 $15,404 Bay Transportation Authority Refunding Revenue Bonds Series 1992B 03-01-16 6.20 1,500,000 1,761,570 Boston City Hospital Refunding Revenue Bonds Series 1993B (FHA Insured) 02-15-23 5.75 3,000,000 3,000,930 Boston Industrial Development Financing Authority Revenue Bonds Massachusetts College of Pharmacy Series 1994A (Connie Lee Insured) 10-01-26 5.25 1,000,000 993,130 Boston Unlimited General Obligation Refunding Bonds Series 1993A (AMBAC Insured) 02-01-09 5.65 1,500,000 1,564,140 Commonwealth of Puerto Rico Public Improvement Unlimited General Obligation Bonds Series 1998 (FSA Insured) 07-01-17 5.25 635,000(c) 689,458 Commonwealth of Puerto Rico Public Improvement Unlimited General Obligation Refunding Bonds Series 2001A (MBIA Insured) 07-01-16 5.50 2,000,000(c) 2,230,460 East Longmeadow Limited General Obligation Bonds Series 2001 (AMBAC Insured) 08-01-03 4.00 1,160,000 1,191,854 Greater Lawrence Vocational Technical High School District Limited General Obligation Bonds State Qualified Series 2001 (MBIA Insured) 03-15-03 5.00 2,500,000 2,563,525 Haverhill Unlimited General Obligation Bonds Series 1997 (FGIC Insured) 06-15-17 5.00 250,000 256,795 Lynn Limited General Obligation Bonds Series 2001 (FGIC Insured) 08-15-03 4.00 1,000,000 1,028,260 Lynn Water & Sewer Commission General Refunding Revenue Bonds Series 2002A (MBIA Insured) 06-01-14 5.00 950,000 1,015,113 Municipal Wholesale Electric Power Supply System Pre-refunded Revenue Bonds Series 1992B 07-01-17 6.75 1,395,000 1,423,514 Municipal Wholesale Electric Power Supply System Pre-refunded Revenue Bonds Series 1994B (MBIA Insured) 07-01-11 4.75 1,750,000 1,879,343 Municipal Wholesale Electric Power Supply System Refunding Revenue Bonds Nuclear Project #5 Series 2001A (MBIA Insured) 07-01-10 5.00 1,000,000 1,065,830 Municipal Wholesale Electric Power Supply System Refunding Revenue Bonds Parts & Inflows Series 1993 Inverse Floater (AMBAC Insured) 07-01-18 5.45 1,600,000(g) 1,638,224 Nantucket Unlimited General Obligation Bonds Series 1991 12-01-11 6.80 60,000 61,461 New England Education Loan Marketing Refunding Revenue Bonds Massachusetts Student Loan Series 1993G 08-01-02 5.20 1,000,000 1,003,088 Pioneer Valley Regional School District Unlimited General Obligation Bonds Series 2002 (AMBAC Insured) 06-15-18 5.38 1,000,000 1,065,250 Pittsfield Limited General Obligation Bonds Series 2002 (MBIA Insured) 04-15-17 5.50 1,930,000 2,087,507 Puerto Rico Electric Power Authority Refunding Revenue Bonds 2nd Series 2002A Inverse Floater (MBIA Insured) 07-01-17 14.20 1,000,000(c,f,g) 1,338,700 Puerto Rico Public Buildings Authority Refunding Revenue Bonds Government Facilities Series 2002C (XLCA Insured) 07-01-13 5.50 900,000(c) 1,005,651 Route 3 North Transit Improvement Lease Revenue Bonds Inverse Floater Series 2000 (MBIA Insured) 06-15-19 10.14 500,000(g) 624,380 South Hadley Unlimited General Obligation Refunding Bonds Series 2001 (AMBAC Insured) 06-15-03 4.00 1,440,000 1,475,467 Southeastern University Building Authority Refunding Revenue Bonds Series 1995A (AMBAC Insured) 05-01-16 5.75 1,250,000 1,350,513 Springfield Municipal Purpose Loan Limited General Obligation Refunding Bonds Series 2001 (FGIC Insured) 08-01-04 4.00 1,000,000 1,042,700 State Development Finance Agency Refunding Revenue Bonds Boston University Series 1999P 05-15-29 6.00 1,400,000 1,459,290 State Development Finance Agency Refunding Revenue Bonds Briarwood/Salem Retirement Community Series 2001B 12-01-30 8.25 750,000 786,540 State Development Finance Agency Refunding Revenue Bonds May Institute Issue Series 1999 (Radian Group Financial Guaranty) 09-01-29 5.75 1,000,000 1,021,350 State Development Finance Agency Refunding Revenue Bonds New England Center for Children Series 1998 11-01-18 5.88 475,000 417,535 State Development Finance Agency Refunding Revenue Bonds SeMass System Series 2001A (MBIA Insured) 01-01-16 5.63 1,125,000 1,217,306 State Development Finance Agency Revenue Bonds 1st Mortgage Berkshire Retirement Community Series 1999 07-01-29 5.63 1,500,000 1,300,080 State Development Finance Agency Revenue Bonds Boston Biomedical Research Series 1999 02-01-29 5.75 1,000,000 925,170 State Development Finance Agency Revenue Bonds Devens Electric System Series 2001 12-01-30 6.00 1,000,000 1,004,620 State Development Finance Agency Revenue Bonds Landmark School Series 1999 (Radian Group Financial Guaranty) 06-01-29 5.25 1,000,000 980,180 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 57 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,d) State Development Finance Agency Revenue Bonds Massachusetts College of Pharmacy Series 1999B 07-01-20 6.63% $1,000,000 $1,048,500 State Development Finance Agency Revenue Bonds SeMass System Series 2001B (MBIA Insured) A.M.T. 01-01-05 5.00 2,000,000 2,101,400 State Development Finance Agency Revenue Bonds Suffolk University Series 1999 07-01-29 5.85 1,000,000 1,005,970 State Development Finance Agency Revenue Bonds WGBH Educational Foundation Series 2002A (AMBAC Insured) 01-01-12 5.00 500,000 534,325 State Education Loan Authority Educational Loan Revenue Bonds Issue E Series 1994B (AMBAC Insured) A.M.T. 01-01-12 6.00 605,000 655,360 State Federal Highway Grant Anticipation Notes Revenue Bonds Series 1998A (FSA Insured) 06-15-09 5.25 1,500,000 1,646,385 State Federal Highway Grant Anticipation Notes Revenue Bonds Series 1998A (MBIA Insured) 06-15-13 5.50 1,000,000 1,111,410 State Health & Educational Facilities Authority Pre-refunded Revenue Bonds Melrose-Wakefield Hospital Series 1992B 07-01-16 6.38 1,000,000 1,079,430 State Health & Educational Facilities Authority Pre-refunded Revenue Bonds South Shore Hospital Series 1992D (MBIA Insured) 07-01-22 6.50 495,000 505,108 State Health & Educational Facilities Authority Pre-refunded Revenue Bonds Suffolk University Series 1992B (Connie Lee Insured) 07-01-22 6.35 2,495,000 2,545,923 State Health & Educational Facilities Authority Refunding Revenue Bonds Berkshire Health Systems Series 1994C 10-01-11 5.90 900,000 909,855 State Health & Educational Facilities Authority Refunding Revenue Bonds Boston College Series 1998L 06-01-31 4.75 1,000,000 917,660 State Health & Educational Facilities Authority Refunding Revenue Bonds Cape Cod Health System Series 1993A (Connie Lee Insured) 11-15-21 5.25 2,500,000 2,508,275 State Health & Educational Facilities Authority Refunding Revenue Bonds Caritas Christi Obligated Group Series 1999A 07-01-15 5.70 500,000 496,150 State Health & Educational Facilities Authority Refunding Revenue Bonds Christopher House Series 1999A 01-01-29 6.88 1,000,000 939,380 State Health & Educational Facilities Authority Refunding Revenue Bonds Harvard Pilgrim Health Series 1998A (FSA Insured) 07-01-22 4.75 1,000,000 922,220 State Health & Educational Facilities Authority Refunding Revenue Bonds Holyoke Hospital Series 1994B 07-01-15 6.50 1,000,000 983,230 State Health & Educational Facilities Authority Refunding Revenue Bonds North Adams Regional Hospital Series 1996C 07-01-18 6.63 1,000,000 979,270 State Health & Educational Facilities Authority Refunding Revenue Bonds Northeastern University Series 1992E (MBIA Insured) 10-01-22 6.55 1,000,000 1,031,780 State Health & Educational Facilities Authority Refunding Revenue Bonds Southcoast Health System Series 1998A (MBIA Insured) 07-01-27 4.75 1,000,000 914,580 State Health & Educational Facilities Authority Un-refunded Balance Revenue Bonds South Shore Hospital Series 1992D (MBIA Insured) 07-01-22 6.50 505,000 516,958 State Health & Educational Facilities Authority Un-refunded Revenue Bonds Boston College Series 1991J (FGIC Insured) 07-01-21 6.63 60,000 60,839 State Housing Finance Agency Refunding Revenue Bonds Residential Development Series 1992A (FNMA Insured) 11-15-11 6.88 1,000,000 1,022,350 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 1,034,870 State Industrial Finance Agency Assisted Living Facility Revenue Bonds Newton Group LLC Series 1997 A.M.T. 09-01-27 8.00 1,160,000 1,249,076 State Limited General Obligation Bonds Consolidated Loan Series 2002A (FGIC Insured) 01-01-14 5.00 2,500,000 2,702,975 State Limited General Obligation Refunding Bonds Consolidated Loans Series 2001B 05-01-03 4.75 1,000,000 1,026,890 State Residuals Unlimited General Obligation Refunding Bonds Series 2002-692 Inverse Floater (FSA Insured) 11-01-15 14.18 3,330,000(f,g) 4,440,088 State Special Obligation Consolidated Loan Refunding Revenue Bonds Series 2002A (FGIC Insured) 06-01-16 5.50 2,600,000 2,889,588 State Turnpike Authority Metro Highway System Senior Lien Refunding Revenue Bonds Series 1997A (MBIA Insured) 01-01-37 5.00 2,000,000 1,887,320 State Unlimited General Obligation Pre-refunded Bonds Consolidated Loans Series 1995B (AMBAC Insured) 07-01-13 5.50 1,500,000 1,645,380 State Water Resources Authority Pre-refunded Revenue Bonds Series 1992A (MBIA Insured) 07-15-22 5.50 1,100,000 1,102,145 State Water Resources Authority Revenue Bonds Series 1992A (FGIC Insured) 07-15-19 6.50 2,000,000 2,403,160 Taunton Limited General Obligation Refunding Notes Series 1999 (FSA Insured) 05-01-19 4.75 1,000,000 998,790 University of Massachusetts Building Authority Refunding Revenue Bonds Series 1976 Escrowed to Maturity 05-01-11 7.50 80,000 94,701 Westfield Limited General Obligation Refunding Bonds Series 2001 (MBIA Insured) 12-15-04 4.00 750,000 787,050 Worcester Limited General Obligation Bonds Series 2001A (FGIC Insured) 08-15-03 4.50 1,000,000 1,032,700 Total Municipal bonds (Cost: $87,214,020) $90,215,429 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 58 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Massachusetts Tax-Exempt Fund Municipal notes (8.3%) Issuer(b,d,e) Effective Amount Value(a) yield payable at maturity State Central Artery Limited General Obligation Bonds V.R. Series 2000A 12-01-30 1.90% $800,000 $800,000 State Central Artery Limited General Obligation Bonds V.R. Series 2000B 12-01-30 1.90 2,300,000 2,300,000 State Health & Educational Facilities Authority Refunding Revenue Bonds (Capital Asset) V.R. Series 1985B (MBIA Insured) 07-01-10 1.70 1,600,000 1,600,000 State Health & Educational Facilities Authority Refunding Revenue Bonds (Capital Asset) V.R. Series 1985C (MBIA Insured) 07-01-05 1.70 2,500,000 2,500,000 State Health & Educational Facilities Authority Revenue Bonds (Capital Asset) V.R. Series 1985D (MBIA Insured) 01-01-35 1.70 100,000 100,000 State Limited General Obligation Refunding Bonds V.R. Series 1997B 08-01-15 1.20 400,000 400,000 Total Municipal notes (Cost: $7,700,000) $7,700,000 Total investments in securities (Cost: $94,914,020)(h) $97,915,429 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 XLCA -- XL Capital Assurance (c) Municipal obligations include debt obligations issued by or on behalf of territories, possessions, or sovereign nations within the territorial boundaries of the United States. These securities represented 5.7% of net assets as of June 30, 2002. (d) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- As of June 30, 2002, the value of securities subject to alternative minimum tax represented 5.5% 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 (e) 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, 2002. (f) At June 30, 2002, the cost of securities purchased, including interest purchased, on a when-issued basis was $5,777,335. (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, 2002. As of June 30, 2002, the value of inverse floaters represented 8.7% of net assets. (h) At June 30, 2002, the cost of securities for federal income tax purposes was $94,914,020 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $3,506,134 Unrealized depreciation (504,725) -------- Net unrealized appreciation $3,001,409 ---------- ------------------------------------------------------------------------------- 59 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT Investments in Securities AXP Michigan Tax-Exempt Fund June 30, 2002 (Percentages represent value of investments compared to net assets) Municipal bonds (97.8%) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Allegan Hospital Finance Authority Refunding Revenue Bonds Allegan General Hospital Series 1999 11-15-21 7.00% $1,000,000 $1,001,250 Auburn Hills Limited Tax General Obligation Street Improvement Bonds Series 1989 05-01-04 6.00 200,000 202,778 Battle Creek Calhoun County Downtown Development Authority Pre-refunded Bonds Series 1994 05-01-22 7.65 1,250,000 1,399,763 Big Rapids Public School District Unlimited General Obligation Bonds Series 1999 (FSA Insured) 05-01-25 4.75 1,500,000 1,402,665 Central University Pre-refunded Revenue Bonds Series 1997 (FGIC Insured) 10-01-26 5.50 750,000 835,860 Chippewa Valley Schools Unlimited General Obligation Bonds Series 2002 05-01-13 5.50 1,000,000 1,106,410 Commonwealth of Puerto Rico Public Improvement Unlimited General Obligation Refunding Bonds Series 2001A (MBIA Insured) 07-01-15 5.50 1,000,000(h) 1,116,490 Commonwealth of Puerto Rico Public Improvement Unlimited General Obligation Refunding Bonds Series 2001A (XLCA Insured) 07-01-17 5.50 1,000,000(h) 1,102,500 Concord Academy Certificates of Participation Series 1998 10-01-19 7.00 1,000,000 913,200 Detroit Downtown Development Authority Development Area Project #1 Junior Lien Tax Increment Pre-refunded Bonds Series 1996D 07-01-25 6.50 1,000,000 1,154,770 Detroit Sewer Disposal Pre-refunded Revenue Bonds Series 1993 Inverse Floater (FGIC Insured) 07-01-23 5.70 1,600,000(c) 1,697,520 Detroit Sewer Disposal Un-refunded Revenue Bonds Series 1993 Inverse Floater (FGIC Insured) 07-01-23 5.70 400,000(c) 409,196 Detroit Unlimited Tax General Obligation Pre-refunded Bonds Series 1995A 04-01-15 6.80 1,000,000 1,123,210 Detroit Water Supply System Second Lien Revenue Bonds Series 1995A (MBIA Insured) 07-01-25 5.50 1,500,000 1,522,575 Ferris State University Board of Trustees General Refunding Revenue Bonds Series 1995 (MBIA Insured) 10-01-20 5.25 1,000,000 1,012,460 Garden City Hospital Finance Authority Hospital Revenue Bonds Series 1998A 09-01-17 5.75 1,000,000 726,140 Genesee County General Obligation Bonds Sewer Disposal System Series 1996A (AMBAC Insured) 04-01-15 5.40 1,000,000 1,050,620 Gogebic County Hospital Finance Authority Hospital Refunding Revenue Bonds Grandview Health System Series 1999 10-01-16 5.88 1,000,000 906,110 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 2,024,040 Grand Rapids & Kent County Joint Building Authority Revenue Bonds Devos Place Series 2001 12-01-11 5.25 1,000,000 1,094,030 Grand Rapids Building Authority Revenue Bonds Series 2002A (AMBAC Insured) 10-01-13 5.50 1,045,000(g) 1,159,971 10-01-17 5.50 1,270,000(g) 1,366,850 Grand Rapids Community College Limited Tax General Obligation Bonds Series 1996 (MBIA Insured) 05-01-19 5.38 1,000,000 1,027,510 Grand Rapids Sanitary Sewer System Refunding & Improvement Revenue Bonds Series 1998A (FGIC Insured) 01-01-28 4.75 1,000,000 920,930 Grand Rapids Tax Increment Revenue Bonds Series 1994 (MBIA Insured) 06-01-24 6.88 380,000 417,833 Iosco County Water Supply System Limited Tax General Obligation Bonds Series 1990 (AMBAC Insured) 05-01-09 5.50 200,000 203,174 05-01-10 5.50 200,000 203,078 Jackson General Obligation Capital Appreciation Downtown Development Bonds Zero Coupon Series 2001 (FSA Insured) 06-01-21 5.58 1,450,000(b) 523,726 Lake Fenton Community Schools Unlimited General Obligation Bonds Series 2002 05-01-13 5.50 615,000 680,442 Lake Orion School District General Obligation Bonds Series 1995 (AMBAC Insured) 05-01-20 5.50 1,000,000 1,023,870 Lansing Community College Limited General Obligation Bonds Series 2002 (FGIC Insured) 05-01-12 5.00 1,000,000 1,073,070 Lincoln Park School District Pre-refunded Unlimited General Obligation Bonds Series 1996 (FGIC Insured) 05-01-26 5.90 1,000,000 1,121,110 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 1,020,920 Ovid-Elsie School District Unlimited Tax General Obligation Pre-refunded Bonds Series 1995 (MBIA Insured) 05-01-21 5.60 1,000,000 1,094,680 Plymouth Educational Center Certificates of Participation Series 1999 07-01-29 7.00 1,250,000 1,160,438 Plymouth-Canton Community School District Unlimited General Obligation Bonds Series 1999 (FSA Insured) 05-01-23 4.75 1,000,000 947,960 Pontiac Tax Increment Finance Authority Refunding Revenue Bonds Development Area #2 Series 2002 (ACA Insured) 06-01-22 5.63 1,000,000 1,000,350 Puerto Rico Electric Power Authority Revenue Bonds Series 2002B Inverse Floater (MBIA Insured) 07-01-17 14.20 1,000,000(c,g,h) 1,338,700 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 60 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(d,e) Puerto Rico Public Buildings Authority Refunding Revenue Bonds Government Facilities Series 2002C 07-01-18 5.75% $1,000,000(h) $1,108,850 Puerto Rico Public Buildings Authority Refunding Revenue Bonds Government Facilities Series 2002C (XLCA Insured) 07-01-13 5.50 1,000,000(h) 1,117,390 Puerto Rico Public Finance Revenue Bonds Series 1998A 06-01-18 5.38 1,500,000(h) 1,642,635 Redford General Obligation Bonds Series 1995 (MBIA Insured) 04-01-16 5.25 1,450,000 1,490,644 Richmond Limited Obligation Refunding Revenue Bonds Kmart Series 1994 01-01-07 6.63 530,000 319,993 Rochester Community School District Unlimited General Obligation Bonds Series 1997 (MBIA Insured) 05-01-19 5.00 1,250,000 1,281,488 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 South Redford School District Unlimited Tax General Obligation Un-refunded Bonds Series 1996 (FGIC Insured) 05-01-22 5.50 690,000 706,408 State Hospital Finance Authority Hospital Refunding Revenue Bonds Memorial Healthcare Center Obligated Group Series 1999 11-15-21 5.88 1,000,000 951,230 State Hospital Finance Authority Refunding Revenue Bonds Presbyterian Villages Obligated Group Series 1995 01-01-25 6.50 1,000,000 987,200 State Hospital Finance Authority Revenue Bonds Central Michigan Community Hospital Series 1996 10-01-27 6.25 1,000,000 899,620 State Hospital Finance Authority Revenue Bonds Presbyterian Villages of Michigan Obligated Group Series 1997 01-01-25 6.38 700,000 682,066 State Municipal Bond Authority Revenue Bonds Public School Academy YMCA Service Learning Academy Series 2001 10-01-21 7.63 750,000 763,545 State Public Power Agency Belle River Refunding Revenue Bonds Series 1993A 01-01-18 5.25 1,000,000 1,008,870 State Strategic Fund Limited Tax Obligation Refunding Revenue Bonds Detroit Edison Series 1990BB (MBIA Insured) 07-15-08 7.00 1,000,000 1,187,150 State Strategic Fund Limited Tax Obligation Refunding Revenue Bonds Detroit Edison Series 1992BB (FGIC Insured) 02-15-16 6.50 1,500,000 1,535,565 State Strategic Fund Limited Tax Obligation Refunding Revenue Bonds Ford Motor Series 1991A 02-01-06 7.10 1,650,000 1,820,973 State Strategic Fund Limited Tax Obligation Refunding Revenue Bonds Oxford Institute Series 1987A Escrowed to Maturity 08-15-05 7.88 95,000 103,379 State Trunk Line Bonds Series 1994A (FGIC Insured) 11-15-20 5.75 1,065,000 1,176,889 State Trunk Line Refunding Revenue Bonds Series 1998A (MBIA Insured) 11-01-20 4.75 1,000,000 972,490 State University Pre-refunded Revenue Bonds Series 1992A 08-15-22 5.50 560,000 563,002 State Unlimited General Obligation Refunding Revenue Bonds Series 2001 12-01-15 5.50 1,000,000 1,111,660 State Unlimited General Obligation Refunding Revenue Bonds Series 2002 12-01-16 5.50 2,000,000(g) 2,214,959 State Utility Unlimited Tax General Obligation Revenue Bonds Series 2001 12-01-14 5.50 2,000,000 2,229,079 Summit Academy Certificates of Participation Pre-refunded Revenue Bonds Junior High School Facility Series 1999 09-01-29 7.00 695,000 813,379 Summit Academy Certificates of Participation Series 1998 08-01-18 7.00 1,110,000 1,023,276 Summit Academy Certificates of Participation Series 2001 07-01-30 7.38 750,000 753,045 Taylor Tax Increment Finance Authority Bonds Series 2001 (FSA Insured) 05-01-19 5.00 1,000,000 1,005,610 Troy City Downtown Development Authority County of Oakland Development Pre-refunded Revenue Bonds Series 1995A (Radian Group Financial Guaranty) 11-01-18 6.38 1,500,000 1,709,655 Van Buren Township Tax Increment Revenue Bonds Series 1994 10-01-16 8.40 980,000 1,065,182 Wayne County Charter Airport Revenue Bonds Detroit Metropolitan Airport Series 1990A (AMBAC Insured) A.M.T. 12-01-20 7.00 1,080,000 1,095,120 Wayne County Charter Airport Revenue Bonds Detroit Metropolitan Airport Series 1998B (MBIA Insured) 12-01-23 4.88 1,000,000 955,780 Wayne State University Revenue Bonds University Board of Governors Series 1999 (FGIC Insured) 11-15-29 5.13 1,000,000 984,890 Woodhaven & Brownstown School Districts Unlimited General Obligation Bonds Series 2002 05-01-18 5.38 1,875,000 1,973,681 Total Municipal bonds (Cost: $74,115,206) $77,898,451 Municipal notes (8.5%) Issuer(e,f) Effective Amount Value(a) yield payable at maturity Delta County Economic Development Environmental Improvement Refunding Revenue Bonds (Mead/Escanaba Paper) V.R. Series 1985E 12-01-23 2.10% $200,000 $200,000 State Strategic Fund Limited Obligation Revenue Bonds (Dow Chemical) V.R. Series 1992 A.M.T. 12-01-14 1.85 400,000 400,000 State Strategic Fund Pollution Control Refunding Revenue Bonds (Consumers Power) V.R. Series 1988 04-15-18 1.85 800,000 800,000 University of Michigan Refunding Revenue Bonds (Medical Service Plan) V.R. Series 1998A-1 12-01-21 1.80 2,400,000 2,400,000 University of Michigan Refunding Revenue Bonds (University of Michigan Hospitals) V.R. Series 1992A 12-01-19 1.80 3,000,000 3,000,000 Total Municipal notes (Cost: $6,800,000) $6,800,000 Total investments in securities (Cost: $80,915,206)(i) $84,698,451 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 61 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) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (c) Inverse floaters represent securities that pay interest at a rate that increases (decreases) in the same magnitude as, or in a multiple of, a decline (increase) in market short-term rates. Interest rate disclosed is the rate in effect on June 30, 2002. As of June 30, 2002, the value of inverse floaters represented 4.3% of net assets. (d) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- American Municipal Bond Association Corporation BIG -- Bond Investors Guarantee CGIC -- Capital Guaranty Insurance Company FGIC -- Financial Guarantee Insurance Corporation FHA -- Federal Housing Authority FNMA -- Federal National Mortgage Association FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association MBIA -- Municipal Bond Investors Assurance XLCA -- XL Capital Assurance (e) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- As of June 30, 2002, the value of securities subject to alternative minimum tax represented 3.2% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note (f) The Fund is entitled to receive principal 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. (g) At June 30, 2002, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $6,082,279. (h) Municipal obligations include debt obligations issued by or on behalf of territories, possessions, or sovereign nations within the territorial boundaries of the United States. These securities represented 9.3% of net assets as of June 30, 2002. (i) At June 30, 2002, the cost of securities for federal income tax purposes was $80,915,206 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $4,710,147 Unrealized depreciation (926,902) -------- Net unrealized appreciation $3,783,245 ---------- -------------------------------------------------------------------------------- 62 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT Investments in Securities AXP Minnesota Tax-Exempt Fund June 30, 2002 (Percentages represent value of investments compared to net assets) Municipal bonds (98.4%) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,d) Albert Lea Independent School District #241 Unlimited Tax General Obligation Bonds Series 1998 (MBIA Insured) 02-01-16 4.80% $1,555,000 $1,567,378 Anoka County Housing & Redevelopment Authority Revenue Bonds Epiphany Assisted Living LLC Series 1999 12-01-29 7.40 3,560,000 3,502,257 Anoka-Hennepin Independent School District #11 Unlimited General Obligation Bonds Series 2001A 02-01-13 5.00 4,175,000 4,407,506 02-01-15 5.00 1,990,000 2,068,804 02-01-16 5.00 2,000,000 2,064,760 Austin Housing & Redevelopment Authority Revenue Bonds Courtyard Residence Series 2000A 01-01-32 7.25 3,000,000 3,048,450 Big Lake Independent School District #727 Unlimited General Obligation Bonds Series 2001D (FSA Insured) 02-01-04 3.00 1,220,000 1,240,350 Bloomington Housing & Redevelopment Authority Housing Revenue Bonds Senior Summerhouse Bloomington Series 1998 05-01-35 6.13 3,400,000 2,922,878 Brooklyn Center Tax Credit Investor Refunding Revenue Bonds Four Courts Apartments Series 1995B A.M.T. 06-15-09 7.58 2,450,000 2,477,122 Buffalo Independent School District #877 Unlimited Tax General Obligation Refunding Bonds Series 1999 (MBIA Insured) 02-01-18 4.80 1,710,000 1,713,574 Carlton Health Care & Housing Facilities Revenue Bonds Inter-Faith Social Services Series 2000 04-01-29 7.75 2,500,000 2,610,800 Centennial Independent School District #12 Unlimited General Obligation Refunding Bonds Series 2002B (FSA Insured) 02-01-05 4.00 1,445,000 1,500,040 Chaska Multi-family Housing Revenue Bonds West Suburban Housing Partners Series 1999 A.M.T. 09-01-19 5.75 175,000 155,071 03-01-31 5.88 2,115,000 1,803,735 Commonwealth of Puerto Rico Highway & Transportation Authority Refunding Revenue Bonds Series 2002E (FSA Insured) 07-01-18 5.50 1,000,000(c) 1,109,590 07-01-23 5.50 6,000,000(c) 6,522,719 Commonwealth of Puerto Rico Public Improvement Unlimited General Obligation Refunding Bonds Series 2001A (MBIA Insured) 07-01-17 5.50 4,745,000(c) 5,280,711 07-01-20 5.50 1,370,000(c) 1,503,931 Duluth Economic Development Authority Health Care Facilities Revenue Bonds BSM Properties Series 1998A 12-01-28 5.88 500,000 429,990 Eden Prairie Multi-family Housing Refunding Revenue Bonds Sterling Ponds Series 1999A A.M.T. 12-01-29 6.25 5,150,000 4,624,082 Eden Prairie Multi-family Housing Refunding Revenue Bonds Sterling Ponds Series 1999B A.M.T. 12-01-29 6.25 590,000 529,749 Faribault Independent School District #656 Unlimited General Obligation School Building Bonds Series 1995 (FSA Insured) 06-01-15 5.75 6,900,000 7,360,437 Faribault Single Family Housing Mortgage Refunding Revenue Bonds Series 1991A 12-01-11 7.50 200,000 203,926 Fergus Falls Health Care Facilities Revenue Bonds LRHC Long-term Care Facility Series 1995 12-01-25 6.50 1,500,000 1,520,370 Fridley Senior Housing Revenue Bonds Banfill Crossing Homes Series 1999 09-01-34 6.75 3,090,000 2,905,311 Golden Valley Governmental Facilities Local Government Information Systems Association Revenue Bonds Series 1997 12-01-17 6.10 1,125,000 1,150,695 Golden Valley Revenue Bonds Covenant Retirement Communities Series 1999A 12-01-29 5.50 5,500,000 5,311,130 Harmony Multi-family Housing Refunding Revenue Bonds Zedakah Foundation Series 1997A 09-01-20 5.95 1,240,000 1,249,226 Hastings Healthcare Tax-Exempt Nursing Home Revenue Bonds Regina Medical Center Series 1998 (ACA Insured) 09-15-28 5.30 4,100,000 3,841,905 Hastings Housing & Redevelopment Authority Housing & Health Care Revenue Bonds Arbor Oaks Assisted Living Series 2000A 01-01-32 8.25 2,000,000 2,049,160 Hennepin County Regional Railroad Authority Limited General Obligation Bonds Series 2001 12-01-03 3.00 840,000 855,221 12-01-04 3.00 865,000 883,857 12-01-05 3.25 895,000 915,200 Hopkins Pre-refunded Revenue Bonds Blake School Series 1994 09-01-24 6.70 3,120,000 3,423,888 Hubbard County Solid Waste Disposal Revenue Bonds Potlatch Series 1989 A.M.T. 08-01-13 7.38 5,610,000 5,612,468 International Falls Solid Waste Disposal Refunding Revenue Bonds Boise Cascade Series 1999 A.M.T. 12-01-29 6.85 4,000,000 4,107,160 Lakeville Independent School District #194 Unlimited General Obligation Bonds Capital Appreciation Zero Coupon Series 2002B (FGIC Insured) 02-01-13 4.56 3,515,000(e,g) 2,193,922 Lakeville Independent School District #194 Unlimited General Obligation Bonds Series 1997A 02-01-22 5.13 2,400,000 2,409,840 Little Canada Multi-family Housing Revenue Bonds Housing Alternatives Development Company Series 1997A 12-01-27 6.25 4,900,000 4,449,837 Little Canada Multi-family Housing Revenue Bonds Little Canada Series 1996 A.M.T. 02-01-27 7.00 3,675,000 3,695,690 Mahtomedi Multi-family Housing Refunding Revenue Bonds Briarcliff Series 1996 A.M.T. 06-01-36 7.35 2,200,000 2,220,768 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 63 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,d) Mankato Improvement Unlimited General Obligation Bonds Series 2001A (FGIC Insured) 02-01-04 3.50% $1,085,000 $1,111,561 02-01-05 3.50 1,065,000 1,092,275 Maplewood Elder Care Facilities Revenue Bonds Care Institute Series 1994 01-01-24 7.75 3,775,000 3,029,966 Maplewood Multi-family Housing Refunding Revenue Bonds Carefree Cottages of Maplewood III Series 1995 A.M.T. 11-01-32 7.20 2,855,000 2,908,274 Metropolitan Council Minneapolis & St. Paul Unlimited General Obligation Bonds Series 2001B 02-01-03 4.00 4,300,000 4,363,812 02-01-04 4.00 7,440,000 7,678,154 Minneapolis & St. Paul Housing & Redevelopment Authority Health Care System Revenue Bonds Group Health Plan Series 1992 12-01-13 6.75 10,500,000 10,736,565 Minneapolis & St. Paul Housing & Redevelopment Authority Health Care System Revenue Bonds Healthspan Series 1993A (AMBAC Insured) 11-15-18 4.75 13,500,000 13,423,319 Minneapolis & St. Paul Metropolitan Airports Commission Revenue Bonds Series 1998A (AMBAC Insured) 01-01-22 5.00 3,730,000 3,697,885 Minneapolis & St. Paul Metropolitan Airports Commission Revenue Bonds Series 2001B (FGIC Insured) A.M.T. 01-01-04 5.00 1,000,000 1,039,950 Minneapolis & St. Paul Metropolitan Airports Commission Revenue Bonds Series 2001C (FGIC Insured) 01-01-18 5.50 2,000,000 2,112,580 Minneapolis & St. Paul Metropolitan Airports Commission Revenue Bonds Series 2001D (FGIC Insured) A.M.T. 01-01-05 5.00 2,680,000 2,817,859 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 1,785,880 Minneapolis & St. Paul Metropolitan Airports Commission Unlimited General Obligation Bonds Series 2001 A.M.T. 01-01-04 5.50 2,415,000 2,532,224 Minneapolis Community Development Agency Limited Tax Supported Development Refunding Revenue Bonds 2nd Series 2001A A.M.T. 06-01-19 5.88 1,000,000 1,032,380 Minneapolis Community Development Agency Limited Tax Supported Development Refunding Revenue Bonds Common Bond Fund 7th Series 1997A 06-01-12 5.50 250,000 261,173 Minneapolis Community Development Agency Limited Tax Supported Development Revenue Bonds Common Bond Fund 1st Series 1996 06-01-11 6.00 980,000 1,031,587 Minneapolis Community Development Agency Tax Increment Capital Appreciation Revenue Bonds Zero Coupon Series 1990 (MBIA Insured) 09-01-04 2.95 3,000,000(g) 2,865,060 Minneapolis Health Care Systems Revenue Bonds Fairview Health Services Series 2002B (MBIA Insured) 05-15-14 5.50 2,050,000 2,242,352 05-15-15 5.50 2,160,000 2,344,572 05-15-16 5.50 2,200,000 2,369,708 05-15-17 5.50 1,295,000 1,384,251 05-15-21 5.00 825,000 819,176 Minneapolis Improvement Unlimited General Obligation Bonds Series 2001 12-01-21 5.00 1,125,000 1,127,475 Minneapolis Nursing Home Pre-refunded Revenue Bonds Walker Cityview & Southview Series 1992 07-01-22 8.50 5,040,000 5,194,022 Minneapolis Special School District #1 Certificates of Participation Series 2001B (FGIC Insured) 02-01-04 3.50 2,475,000 2,535,588 Minneapolis Unlimited General Obligation Bonds Series 2001 12-01-03 5.00 2,000,000 2,093,180 12-01-11 5.00 3,035,000 3,281,169 Minnetonka Senior Housing Revenue Bonds Westridge Senior Housing Series 1997 09-01-27 7.00 1,775,000 1,731,743 Monticello Independent School District #882 Unlimited General Obligation Refunding Bonds Series 2001D 02-01-04 3.25 1,015,000 1,033,808 Moorhead Economic Development Authority Multi-family Housing Development Refunding Revenue Bonds Eventide Senior Housing Series 1999B 06-01-19 5.90 500,000 459,505 06-01-29 6.00 1,400,000 1,233,106 New Brighton Tax Credit Investor Revenue Bonds Polynesian Village Apartments Series 1995B A.M.T. 07-15-09 7.75 2,355,000 2,417,290 New Hope Housing & Healthcare Facilities Revenue Bonds Minnesota Masonic Home North Ridge Series 1999 03-01-29 5.88 3,750,000 3,446,063 Northern Minnesota Municipal Power Agency Electric System Refunding Revenue Bonds Series 1998B (AMBAC Insured) 01-01-20 4.75 5,000,000 4,883,800 Oakdale Multi-family Housing Refunding Revenue Bonds Oakdale Village Apartments Series 1998 A.M.T. 11-01-28 6.00 3,650,000 3,377,783 Olmsted County Health Care Facilities Refunding Revenue Bonds Olmsted Medical Center Series 1998 07-01-19 5.55 1,125,000 1,009,564 Olmsted County Housing & Redevelopment Authority Public Facilities Refunding Revenue Bonds Series 2002B 02-01-05 4.00 1,215,000 1,261,279 Olmsted County Resource Recovery Unlimited General Obligation Refunding Bonds Series 2002A 02-01-05 4.00 1,900,000 1,972,371 Osseo Independent School District #279 Unlimited General Obligation Bonds Series 2000A 02-01-14 5.75 1,100,000 1,212,728 Osseo Independent School District #279 Unlimited General Obligation Bonds Series 2002A (FSA Insured) 02-01-11 5.00 1,570,000 1,683,150 02-01-12 5.00 3,455,000 3,699,441 Park Rapids Independent School District #309 Unlimited Tax General Obligation Bonds Series 1999 (MBIA Insured) 02-01-21 4.75 2,500,000 2,433,650 Plymouth Multi-family Housing Revenue Bonds Harbor Lane Apartments Series 1993 (Radian Group Financial Guaranty) A.M.T. 09-01-13 5.90 2,325,000 2,389,379 Prior Lake Independent School District #719 Unlimited General Obligation Bonds Series 2002A (FGIC Insured) 02-01-05 4.00 640,000 664,378 Puerto Rico Electric Power Authority Refunding Revenue Bonds Series 2002 Inverse Floater (MBIA Insured) 07-01-17 14.18 4,000,000(c,e,h) 5,354,800 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 64 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,d) Puerto Rico Public Buildings Authority Refunding Revenue Bonds Government Facilities Series 2002C 07-01-18 5.75% $3,170,000(c) $3,515,055 Richfield Independent School District #280 Unlimited General Obligation Bonds Series 1993 Inverse Floater (FGIC Insured) 02-01-10 5.30 6,600,000(h) 6,650,160 02-01-12 5.35 5,020,000(h) 5,127,026 Richfield Multi-family Housing Refunding Revenue Bonds Village Shores Apartments Series 1996 08-01-31 7.63 2,945,000 3,038,651 Richfield Senior Housing Revenue Bonds Series 2000A 02-01-35 7.75 3,000,000 3,066,780 Robbinsdale Multi-family Housing Revenue Bonds Copperfield Hill Series 1996A 12-01-31 7.35 3,260,000 3,183,129 Rochester Multi-family Housing Development Revenue Bonds Wedum Shorewood Campus Series 1999 06-01-36 6.60 5,000,000 4,550,750 Roseville Housing Facilities Nursing Home Refunding Revenue Bonds College Properties Series 1998 10-01-28 5.88 5,000,000 4,314,400 Sartell Health Care & Housing Facilities Revenue Bonds Series 1999A 09-01-29 6.63 3,000,000 2,684,250 Sartell Health Care & Housing Facilities Revenue Bonds Series 2001A 09-01-30 8.00 1,000,000 1,008,120 Shoreview Senior Housing Revenue Bonds Series 1996 02-01-26 7.25 3,200,000 3,271,712 South Washington County Independent School District #833 Unlimited General Obligation Bonds Series 2001B (FSA Insured) 02-01-04 3.50 990,000 1,014,235 Southern Minnesota Municipal Power Agency Power Supply System Refunding Revenue Bonds Series 1992A 01-01-18 5.75 370,000 384,948 Southern Minnesota Municipal Power Agency Power Supply System Refunding Revenue Bonds Series 1992A (MBIA Insured) 01-01-18 5.75 1,600,000 1,664,640 Southern Minnesota Municipal Power Agency Power Supply System Refunding Revenue Bonds Series 1993A (MBIA Insured) 01-01-16 4.75 7,665,000 7,669,139 Southern Minnesota Municipal Power Agency Power Supply System Refunding Revenue Bonds Capital Appreciation Zero Coupon Series 1994A (MBIA Insured) 01-01-19 6.67 19,500,000(g) 8,559,915 01-01-22 6.88 12,000,000(g) 4,366,320 01-01-24 6.08 5,150,000(g) 1,661,339 Southern Minnesota Municipal Power Agency Power Supply System Un-refunded Revenue Bonds Series 1992A 01-01-18 5.75 1,895,000 1,933,033 St. Cloud Housing & Redevelopment Authority Revenue Bonds Series 2002 05-01-18 5.13 3,000,000 3,075,810 St. Cloud Infrastructure Management Fund Unlimited General Obligation Bonds Series 2001B (FSA Insured) 02-01-05 3.50 1,130,000 1,155,877 St. Louis Park Health Care Facilities Regular Fixed Revenue Bonds Series 1993 Inverse Floater (AMBAC Insured) 07-01-13 5.10 9,000,000(h) 9,119,970 St. Louis Park Multi-Family Housing Refunding Revenue Bonds Park Boulevard Towers Series 1996 04-01-31 7.00 3,880,000 3,888,497 St. Paul Housing & Redevelopment Authority Health Care Facilities Refunding Revenue Bonds Lyngblomsten Care Center Series 1993 11-01-06 7.13 665,000 680,927 11-01-17 7.13 1,720,000 1,725,796 St. Paul Housing & Redevelopment Authority Revenue Bonds Lyngblomsten Multi-family Series 1993 11-01-24 7.00 1,815,000 1,776,685 St. Paul Housing & Redevelopment Authority Health Care Facilities Revenue Bonds Regions Hospital Series 1998 05-15-28 5.30 875,000 813,811 St. Paul Housing & Redevelopment Authority Lease Revenue Bonds Community of Peace Academy Series 2001A 12-01-30 7.88 2,390,000 2,441,696 St. Paul Housing & Redevelopment Authority Lease Revenue Bonds Minnesota Business Academy Series 2000 03-01-30 8.00 3,745,000 3,389,000 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 3,536,133 St. Paul Port Authority Revenue Bonds Hotel Facilities Radisson Kellogg 2nd Series 1999 08-01-29 7.38 3,500,000 3,514,105 St. Paul Port Authority Unlimited Tax General Obligation Bonds Series 1994 03-01-24 5.13 3,270,000 3,271,112 State Agricultural & Economic Development Board Health Care Facilities Refunding Revenue Bonds Benedictine Health System St. Mary's Health System Duluth Clinic Obligated Group Series 1999A (MBIA Insured) 02-15-16 4.75 1,000,000 1,003,460 State Higher Education Facilities Authority Gustavus Adolphus College Revenue Bonds 4th Series 1998X 10-01-24 4.80 2,340,000 2,184,484 State Housing Finance Agency Revenue Bonds 2nd Series 2002R Inverse Floater A.M.T. 07-01-33 14.32 4,000,000(h) 4,151,920 State Housing Finance Agency Single Family Housing Mortgage Revenue Bonds Series 1994L A.M.T. 07-01-20 6.70 530,000 550,023 State Housing Finance Agency Single Family Housing Mortgage Revenue Bonds Series 1996J A.M.T. 07-01-21 5.60 255,000 257,127 State Housing Finance Agency Single Family Housing Mortgage Revenue Bonds Series 1997K A.M.T. 01-01-26 5.75 2,935,000 2,966,992 State Public Facilities Authority Water Pollution Control Refunding Revenue Bonds Series 1997 03-01-04 5.00 1,285,000 1,350,329 State Public Facilities Authority Water Pollution Control Refunding Revenue Bonds Series 1998A 03-01-16 4.75 3,500,000 3,537,940 State Public Facilities Authority Water Pollution Control Revenue Bonds Series 2001A 03-01-05 4.00 1,500,000 1,560,720 State Unlimited General Obligation Bonds Series 1996 11-01-03 5.00 1,500,000 1,566,495 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 65 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,d) State Unlimited General Obligation Bonds Series 2001 10-01-10 5.00% $10,000,000 $10,828,400 10-01-15 5.00 9,455,000 9,911,298 State Unlimited General Obligation Bonds Series 2002 08-01-10 5.00 9,075,000 9,814,068 Steele County Health Care Facilities Revenue Bonds Elderly Housing Project Series 2000 06-01-30 6.88 2,205,000 2,398,996 Suburban Hennepin Regional Park District Unlimited General Obligation Bonds Series 2001 02-01-05 4.50 1,025,000 1,076,824 University of Minnesota Refunding Revenue Bonds Inverse Floater Series 1993 08-15-03 7.90 5,000,000(h) 5,352,500 University of Minnesota Refunding Revenue Bonds Inverse Floater Series 2002 07-01-21 13.94 4,500,000(h) 5,564,070 University of Minnesota Refunding Revenue Bonds Series 1986A 02-01-11 6.00 4,625,000 4,642,344 University of Minnesota Refunding Revenue Bonds Series 1996A 07-01-13 5.75 2,000,000 2,271,000 Vadnais Heights Multi-family Housing Refunding Revenue Bonds Cottages of Vadnais Heights Series 1995 A.M.T. 12-01-31 7.00 3,040,000 3,058,939 Vadnais Heights Tax Credit Refunding Revenue Bonds Cottages of Vadnais Heights Series 1997 A.M.T. 07-15-09 7.00 1,080,000 1,120,478 Washington County Housing & Redevelopment Authority Refunding Revenue Bonds Woodbury Multi-family Housing Series 1996 12-01-23 6.95 1,855,000 1,869,154 Western Minnesota Municipal Power Agency Refunding Revenue Bonds Series 1987A 01-01-15 5.50 5,000,000 5,002,450 Western Minnesota Municipal Power Agency Refunding Revenue Bonds Series 1987A (MBIA Insured) 01-01-15 5.50 6,250,000 6,265,938 White Bear Lake Independent School District #624 Unlimited General Obligation Bonds Series 2002B (FGIC Insured) 02-01-13 5.00 1,405,000 1,490,663 02-01-14 5.00 1,480,000 1,557,108 Woodbury Senior Housing Revenue Bonds Summer House of Woodbury Series 1999 07-01-34 6.40 5,145,000 4,545,916 Total Municipal bonds (Cost: $427,685,054) $436,572,000 Municipal notes (1.1%) Issuer(d,f) Effective Amount Value(a) yield payable at maturity Arden Hills Housing & Health Care Facilities Refunding Revenue Bonds (Presbyterian Homes) V.R. Series 1999A 09-01-29 1.95% $1,725,000 $1,725,000 Arden Hills Housing & Health Care Facilities Revenue Bonds (Presbyterian Homes) V.R. Series 1999B 09-01-29 1.95 700,000 700,000 North Suburban Hospital Revenue Bonds Anoka & Ramsey County Health Centers V.R. Series 1985 08-01-14 1.50 2,600,000 2,600,000 Total Municipal notes (Cost: $5,025,000) $5,025,000 Total investments in securities (Cost: $432,710,054)(i) $441,597,000 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 66 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 XLCA -- XL Capital Assurance (c) Municipal obligations include debt obligations issued by or on behalf of territories, possessions, or sovereign nations within the territorial boundaries of the United States. These securities represented 5.3% of net assets as of June 30, 2002. (d) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- As of June 30, 2002, the value of securities subject to alternative minimum tax represented 13.0% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note (e) At June 30, 2002, the cost of securities purchased, including interest purchased, on a when-issued basis was $7,480,597. (f) The Fund is entitled to receive principal amount from issuer or corporate guarantor, if indicated in parentheses, after a day or a week's notice. The maturity date disclosed represents the final maturity. Interest rate varies to reflect current market conditions; rate shown is the effective rate on June 30, 2002. (g) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (h) Inverse floaters represent securities that pay interest at a rate that increases (decreases) in the same magnitude as, or in a multiple of, a decline (increase) in market short-term rates. Interest rate disclosed is the rate in effect on June 30, 2002. As of June 30, 2002, the value of inverse floaters represented 9.3% of net assets. (i) At June 30, 2002, the cost of securities for federal income tax purposes was $432,710,054 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $15,273,256 Unrealized depreciation (6,386,310) ---------- Net unrealized appreciation $ 8,886,946 ----------- -------------------------------------------------------------------------------- 67 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT Investments in Securities AXP New York Tax-Exempt Fund June 30, 2002 (Percentages represent value of investments compared to net assets) Municipal bonds (98.1%) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,d) Albany County Airport Authority Revenue Bonds Series 1997 (FSA Insured) A.M.T. 12-15-19 5.50% $250,000 $258,173 Commonwealth of Puerto Rico Highway & Transportation Authority Refunding Revenue Bonds Series 2002E (FSA Insured) 07-01-21 5.50 2,670,000(c) 2,922,368 Commonwealth of Puerto Rico Public Improvement Unlimited General Obligation Refunding Bonds Series 2001A (MBIA Insured) 07-01-15 5.50 1,000,000(c) 1,116,490 Commonwealth of Puerto Rico Public Improvement Unlimited General Obligation Refunding Bonds Series 2001A (XLCA Insured) 07-01-17 5.50 1,000,000(c) 1,102,500 Erie County Unlimited Tax General Obligation Bonds Series 1995B (FGIC Insured) 06-15-25 5.50 700,000 715,820 Erie County Water Authority Refunding Revenue Bonds Series 1990A Escrowed to Maturity (AMBAC Insured) 12-01-08 6.00 1,765,000 1,995,456 Huntington Housing Authority Revenue Bonds Senior Housing Facilities Gurwin Jewish Senior Residences Series 1999A 05-01-39 6.00 1,750,000 1,495,428 Kenmore Housing Authority Student Housing Revenue Bonds State University Buffalo Student Apartments Series 1999A (Radian Group Financial Guaranty) 08-01-24 5.50 1,000,000 1,018,560 Long Island Power Authority Refunding Revenue Bonds Electronic Systems Sub Series 1998A (AMBAC Insured) 04-01-09 5.25 1,000,000 1,089,380 Metropolitan Transportation Authority Refunding Revenue Bonds Commuter Facilities Service Contract 5th Series 1991 07-01-16 6.50 1,775,000 1,800,489 Metropolitan Transportation Authority Refunding Revenue Bonds Series 2002 Inverse Floater (AMBAC Insured) 11-15-19 14.19 1,330,000(g) 1,569,759 Metropolitan Transportation Authority Refunding Revenue Bonds Service Contract Series 2002A (FGIC Insured) 07-01-25 5.00 2,000,000 1,949,300 Metropolitan Transportation Authority Refunding Revenue Bonds Transportation Facilities Series 1998A Escrowed to Maturity (MBIA Insured) 07-01-24 4.75 1,500,000 1,452,240 Metropolitan Transportation Authority Revenue Bonds Dedicated Tax Fund Series 1998A (FGIC Insured) 04-01-28 4.75 1,000,000 944,850 Monroe County Airport Authority Refunding Revenue Bonds Greater Rochester International Airport Series 1999 (MBIA Insured) A.M.T. 01-01-16 5.88 1,500,000 1,671,585 Monroe County Unlimited General Obligation Refunding Bonds Public Improvement Series 1996 03-01-15 6.00 1,250,000 1,449,250 Mount Vernon Industrial Development Agency Revenue Bonds Civic Facilities Wartburg Senior Housing Meadowview Series 1999 06-01-29 6.20 1,000,000 876,390 Municipal Assistance for City of Troy Refunding Revenue Bonds Series 1996A (MBIA Insured) 01-15-22 5.00 1,250,000 1,240,725 New York City Industrial Development Agency Refunding Revenue & Improvement Bonds Civic Facilities Lighthouse Intl Series 1998 (MBIA Insured) 07-01-23 4.50 200,000 182,232 New York City Industrial Development Agency Revenue Bonds Civic Facilities Riverdale Country School Series 1997 (MBIA Insured) 06-01-17 5.25 1,000,000 1,033,940 New York City Industrial Development Agency Revenue Bonds Civic Facilities Touro College Series 1999A 06-01-29 6.35 1,000,000 890,810 New York City Industrial Development Agency Revenue Bonds Civic Facilities YMCA of Greater New York Series 1997 08-01-16 5.80 1,000,000 1,032,320 New York City Municipal Water Finance Authority Refunding Revenue Bonds Water & Sewer System Series 1993 Inverse Floater (MBIA Insured) 06-15-09 8.92 2,000,000(g) 2,181,800 New York City Municipal Water Finance Authority Revenue Bonds Water & Sewer System Series 1996B (MBIA Insured) 06-15-26 5.75 500,000 547,675 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 1,043,080 New York City Transitional Finance Authority Future Secured Sales Tax Pre-refunded Revenue Bonds Series 1999C 05-01-25 5.50 1,000,000 1,028,830 New York City Transitional Finance Authority Future Secured Sales Tax Revenue Bonds Series 2001C 02-01-08 5.50 1,500,000 1,643,925 New York City Transitional Finance Authority Public Improvement Revenue Bonds Series 2002C 02-15-16 5.50 5,000,000 5,382,949 New York City Unlimited General Obligation Bonds Series 1996J 02-15-19 5.88 1,000,000 1,039,840 New York City Unlimited General Obligation Bonds Series 2000R Inverse Floater (FGIC Insured) 05-15-16 12.99 1,000,000(g) 1,252,150 New York City Unlimited General Obligation Bonds Series 2002C (XLCA Insured) 03-15-12 5.00 1,000,000 1,052,610 New York City Unlimited General Obligation Pre-refunded Bonds Series 1994B-1 08-15-16 7.00 1,500,000 1,675,035 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 68 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,d) New York City Unlimited General Obligation Refunding Bonds Series 1996G 02-01-17 5.75% $1,000,000 $1,051,730 New York City Unlimited General Obligation Refunding Bonds Series 2002E 08-01-16 5.75 3,000,000 3,205,890 New York City Unlimited General Obligation Refunding Bonds Series 2002E (MBIA Insured) 08-01-15 5.63 2,000,000 2,187,600 North Hempstead Unlimited General Obligation Bonds Series 1998A (FGIC Insured) 01-15-23 4.75 1,000,000 953,280 Oneida County Industrial Development Agency Revenue Bonds Civic Facilities Mohawk Valley Handicapped Services Series 1999 (ACA Insured) 03-15-19 5.30 500,000 489,435 Port Authority Special Obligation Refunding Revenue Bonds KIAC Partners 4th Series 1996 A.M.T. 10-01-19 6.75 1,500,000 1,548,495 Puerto Rico Electric Power Authority Refunding Revenue Bonds 2nd Series 2002D-179 Inverse Floater (MBIA Insured) 07-01-17 14.20 1,500,000(c,f,g) 2,008,050 Rockland Tobacco Asset Backed Revenue Bonds Series 2001 08-15-35 5.63 1,000,000 977,170 State Dormitory Authority Pre-refunded Revenue Bonds City University 3rd General Resolution 2nd Series 1994 (MBIA Insured) 07-01-19 6.25 1,500,000 1,630,155 State Dormitory Authority Pre-refunded Revenue Bonds Series 1990B 05-15-11 7.50 415,000 524,178 State Dormitory Authority Refunding Revenue Bonds Consolidated City University System Series 1993A 07-01-13 5.75 3,000,000 3,335,340 State Dormitory Authority Refunding Revenue Bonds Cooper Union Series 1996 (AMBAC Insured) 07-01-20 5.38 860,000 881,939 State Dormitory Authority Refunding Revenue Bonds Long Island University Series 1999 (Radian Group Financial Guaranty) 09-01-28 5.25 1,400,000 1,393,966 State Dormitory Authority Refunding Revenue Bonds St. Francis Hospital Series 1999A (MBIA Insured) 07-01-29 5.50 1,000,000 1,022,800 State Dormitory Authority Refunding Revenue Bonds St. Thomas Aquinas College Series 1998 (Radian Group Financial Guaranty) 07-01-14 5.00 1,125,000 1,154,104 State Dormitory Authority Refunding Revenue Bonds State University Educational Facilities Series 1993A (AMBAC Insured) 05-15-15 5.25 2,030,000 2,204,438 05-15-19 5.50 2,000,000 2,177,580 State Dormitory Authority Revenue Bonds Barnard College Series 1996 (AMBAC Insured) 07-01-16 5.25 1,140,000 1,184,483 State Dormitory Authority Revenue Bonds Culinary Institute of America Series 1997 (MBIA Insured) 07-01-17 5.00 500,000 509,915 State Dormitory Authority Revenue Bonds Frances Schervier Home Series 1997 (Radian Group Financial Guaranty) 07-01-17 5.50 1,000,000 1,039,430 State Dormitory Authority Revenue Bonds New York University Series 1998A (MBIA Insured) 07-01-17 6.00 2,975,000 3,443,979 State Dormitory Authority Revenue Bonds Pratt Institute Series 1999 (Radian Group Financial Guaranty) 07-01-20 6.00 1,500,000 1,643,565 State Dormitory Authority Revenue Bonds Rockefeller University Series 2002A1 07-01-32 5.00 1,500,000 1,459,110 State Dormitory Authority Revenue Bonds School Districts Financing Series 2002A (MBIA Insured) 10-01-17 5.75 5,000,000(f) 5,498,599 State Dormitory Authority Un-refunded Balance Revenue Bonds Series 1990B 05-15-11 7.50 1,485,000 1,797,251 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 2,552,850 State Energy Research & Development Authority Revenue Bonds Gas Facilities Brooklyn Union Gas Series 1996 (MBIA Insured) 01-01-21 5.50 1,000,000 1,027,680 State Energy Research & Development Authority Revenue Bonds Gas Facilities Residual Certificates Brooklyn Union Gas Series 2000 Inverse Floater (MBIA Insured) 01-01-21 14.20 330,000(g) 352,836 State Energy Research & Development Authority Revenue Bonds Solid Waste Disposal State Electric & Gas Series 1993A (MBIA Insured) A.M.T. 12-01-28 5.70 3,000,000 3,057,390 State Environmental Facilities Pollution Control Revenue Bonds State Water Revolving Fund Series 1990A 06-15-12 7.50 295,000 300,959 State Local Government Assistance Revenue Bonds Series 1992C 04-01-22 5.50 1,500,000 1,501,665 State Local Government Assistance Revenue Bonds Series 1997B (MBIA Insured) 04-01-20 4.88 1,000,000 989,970 State Mortgage Agency Revenue Bonds 2nd Series 2002B-181 Inverse Floater 04-01-32 13.54 1,000,000(f,g) 999,730 State Urban Development Capital Correctional Facilities Revenue Bonds 5th Series 1995 (MBIA Insured) 01-01-25 5.50 750,000 762,548 State Urban Development Revenue Bonds Personal Income Tax Series 2002A 03-15-16 5.38 1,360,000 1,449,406 03-15-17 5.38 1,405,000 1,487,164 Suffolk County Industrial Development Agency Revenue Bonds Continuing Care Retirement Jefferson's Ferry Series 1999A 11-01-28 7.25 1,500,000 1,564,875 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 69 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,d) Syracuse Unlimited General Obligation Bonds Series 2002C (FGIC Insured) A.M.T. 01-01-05 4.25% $1,150,000 $1,190,963 Ulster County Independent Development Agency Revenue Bonds Civic Facilities Benedictine Hospital Series 1999A 06-01-24 6.45 1,950,000 1,744,607 Utica Industrial Development Agency Pre-refunded Revenue Bonds Civic Facilities Munson-Williams-Proctor Series 1996A (MBIA Insured) 07-15-16 5.50 750,000 781,103 Westchester County Industrial Development Agency Revenue Bonds Continuing Care Retirement Hebrew Hospital Senior Housing Series 2000A 07-01-30 7.38 1,000,000 1,009,910 Yonkers Unlimited General Obligation Refunding Bonds Series 2001B (AMBAC Insured) 12-15-07 3.88 1,010,000 1,046,532 Total Municipal bonds (Cost: $104,440,222) $109,798,629 Municipal notes (2.9%) Issuer(b,d,e) Effective Amount Value(a) yield payable at maturity New York City Transitional Finance Authority Revenue Bonds Future Tax Secured V.R. Series 1999B-2 11-01-26 1.75% $500,000 $500,000 New York City Unlimited General Obligation Bonds V.R. Series 1994B2 (MBIA Insured) 08-15-09 1.75 100,000 100,000 New York City Unlimited General Obligation Refunding Bonds V.R. Series 1994H-2 08-01-13 1.75 600,000 600,000 State Job Development Authority Refunding Revenue Bonds State Guarantee Special Purpose V.R. Series 1992 A1-25 03-01-07 1.80 2,000,000 2,000,000 Total Municipal notes (Cost: $3,200,000) $3,200,000 Total investments in securities (Cost: $107,640,222)(h) $112,998,629 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 XLCA -- XL Capital Assurance (c) Municipal obligations include debt obligations issued by or on behalf of territories, possessions, or sovereign nations within the territorial boundaries of the United States. These securities represented 6.4% of net assets as of June 30, 2002. (d) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- As of June 30, 2002, the value of securities subject to alternative minimum tax represented 9.2% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note (e) 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, 2002. (f) At June 30, 2002, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $8,503,275. (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, 2002. As of June 30, 2002, the value of inverse floaters represented 7.5% of net assets. (h) At June 30, 2002, the cost of securities for federal income tax purposes was $107,640,222 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $6,118,578 Unrealized depreciation (760,171) -------- Net unrealized appreciation $5,358,407 ---------- -------------------------------------------------------------------------------- 70 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT Investments in Securities AXP Ohio Tax-Exempt Fund June 30, 2002 (Percentages represent value of investments compared to net assets) Municipal bonds (98.6%) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Akron Bath Copley Joint Township Hospital District Revenue Bonds Summa Hospital Series 1998A 11-15-24 5.38% $1,500,000 $1,319,925 Barberton Limited Tax Various Purpose General Obligation Bonds Series 1989 12-01-09 7.35 560,000 562,526 Bellefontaine Hospital Facility Refunding Revenue Bonds Mary Rutan Health Association of Logan County Series 1993 12-01-13 6.00 1,000,000 1,029,840 Buckeye Valley Local School District School Improvement Unlimited Tax General Obligation Bonds Series 1995A (MBIA Insured) 12-01-20 5.25 1,000,000 1,015,980 Carroll Water & Sewer District Unlimited Tax General Obligation Bonds Series 1998 12-01-10 6.25 385,000 401,436 Carroll Water & Sewer District Water System Improvement Unlimited Tax General Obligation Bonds Series 1996 12-01-10 6.25 830,000 861,449 Celina Local School District Unlimited General Obligation Bonds Series 1996 (FGIC Insured) 12-01-20 5.25 1,000,000 1,016,930 Cincinnati School District School Improvement General Obligation Bonds Series 2001 (MBIA Insured) 12-01-02 4.00 805,000 813,638 Cleveland Airport Systems Revenue Bonds Series 1997A (FSA Insured) A.M.T. 01-01-17 5.13 1,000,000 1,009,610 Cleveland Regional Transit Authority Limited General Obligation Bonds Capital Improvement Series 2002R (MBIA Insured) 12-01-10 5.00 2,500,000 2,693,924 Commonwealth of Puerto Rico Public Improvement Unlimited General Obligation Refunding Bonds Series 2001A (MBIA Insured) 07-01-16 5.50 2,000,000(c) 2,230,460 Coshocton County Solid Waste Disposal Refunding Revenue Bonds Stone Container Series 1992 08-01-13 7.88 1,000,000 1,030,550 Cuyahoga County Health Care Facilities Refunding Revenue Bonds Judson Retirement Community Series 1996A 11-15-18 7.25 1,000,000 1,055,080 Cuyahoga County Hospital Facilities Revenue Bonds Canton Series 2000 01-01-30 7.50 1,000,000 1,077,380 Cuyahoga County Hospital Refunding Revenue Bonds Cleveland Clinic Foundation Series 1992C (MBIA Insured) 11-15-11 5.50 1,500,000 1,550,760 Cuyahoga County Hospital Revenue Bonds University Hospitals Health System Series 1999 (AMBAC Insured) 01-15-19 5.40 1,000,000 1,039,730 Cuyahoga County Limited Tax General Obligation Bonds Series 1993 05-15-13 5.60 500,000 561,075 Cuyahoga County Port Authority Special Assessment Tax Increment Revenue Bonds Series 2001 12-01-31 7.35 1,000,000 1,004,510 Dayton Water System Refunding Revenue Bonds Series 1999 (FSA Insured) 12-01-02 4.00 1,000,000 1,010,730 Delaware County Sewer Improvement Limited Tax General Obligation Bonds Series 1995 12-01-15 5.25 1,000,000 1,032,590 Dover Limited Tax Improvement General Obligation Bonds Municipal Sewer System Series 1989 12-01-09 7.10 855,000 874,007 Eaton Local School District Unlimited Tax General Obligation Bonds Series 2002 (FGIC Insured) 12-01-17 5.38 835,000 892,740 Franklin County Health Care Facilities Refunding Revenue Bonds Lutheran Senior City Incorporated Series 1999 12-15-28 6.13 1,250,000 1,063,525 Franklin County Multi-family Housing Refunding Revenue Bonds Jefferson Chase Apartments Series 1998B A.M.T. 11-01-35 6.40 1,000,000 863,640 Franklin County Multi-family Housing Refunding Revenue Bonds West Bay Apartments Series 1998 A.M.T. 12-01-25 6.38 990,000(b) 643,500 Gateway Economic Development Greater Cleveland Excise Tax Refunding Revenue Bonds Senior Lien Series 2001 (FSA Insured) A.M.T. 09-01-05 5.13 1,750,000 1,869,420 Hamilton County Sales Tax Revenue Bonds Hamilton County Football Series 1998A (MBIA Insured) 12-01-17 4.75 1,000,000 1,004,360 Hamilton County Sewer System Refunding Revenue Bonds Series 2001A (MBIA Insured) 12-01-09 5.00 450,000 487,971 Hamilton General Obligation Bonds One Renaissance Center Series 2001A (AMBAC Insured) 11-01-02 2.40 150,000 150,482 Hamilton General Obligation Bonds One Renaissance Center Series 2001B (AMBAC Insured) 11-01-02 2.40 255,000 255,819 11-01-03 2.60 275,000 278,361 Hilliard County School District Unlimited Tax General Obligation Bonds Series 1996A (FGIC Insured) 12-01-20 5.00 1,000,000 1,003,730 Jackson County Hospital Facilities Revenue Bonds Consolidated Health System Jackson Hospital Series 1999 (Radian Group Financial Guaranty) 10-01-20 6.13 1,000,000 1,075,310 Lakota Local School District Unlimited Tax Improvement General Obligation Pre-refunded Bonds Series 1994 (AMBAC Insured) 12-01-14 6.25 2,000,000 2,239,439 Lorain County Hospital Facilities Refunding Revenue Bonds EMH Regional Medical Center Series 1995 (AMBAC Insured) 11-01-21 5.38 2,000,000 2,032,760 Lorain County Independent Living & Hospital Facilities Refunding Revenue Bonds Elyria United Methodist Series 1996C 06-01-22 6.88 1,000,000 1,034,230 Mahoning Valley Sanitary District Water Refunding Revenue Bonds Series 1999 (FSA Insured) 11-15-18 5.75 1,000,000 1,077,720 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 71 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(d,e) Marion County Health Care Facilities Improvement Refunding Revenue Bonds United Church Homes Series 1993 11-15-10 6.38% $820,000 $816,515 Marysville Sewer System 1st Mortgage Revenue Bonds Series 1988 (BIG Insured) 02-15-08 7.85 265,000 265,856 Montgomery County Hospital Facilities Refunding Revenue Bonds Kettering Medical Center Series 1999 04-01-22 6.75 1,000,000 1,051,790 Montgomery County Limited Tax General Obligation Bonds Series 2000 12-01-16 5.38 1,250,000 1,337,188 Montgomery County Water Revenue Bonds Greater Moraine-Beavercreek District Series 1992 (FGIC Insured) 11-15-17 6.25 1,000,000 1,035,510 North Olmstead County General Obligation Bonds Series 1996 (AMBAC Insured) 12-01-16 5.00 1,500,000 1,542,075 12-01-21 5.00 200,000 200,116 Orrville Electric System Refunding Revenue & Improvement Mortgage Bonds Series 1997 (AMBAC Insured) 12-01-17 5.10 1,000,000 1,026,680 Plain Local School District Unlimited Tax General Obligation Bonds Series 2002 (FGIC Insured) 12-01-14 5.50 1,000,000 1,096,930 Puerto Rico Electric Power Authority Revenue Bonds Series 2002C Inverse Floater (MBIA Insured) 07-01-17 14.20 1,000,000(c,g,h) 1,338,700 Puerto Rico Public Buildings Authority Refunding Revenue Bonds Government Facilities Series 2002C (XLCA Insured) 07-01-13 5.50 710,000(c) 793,347 Stark County Local School District Unlimited Tax General Obligation Bonds Series 2000 (FGIC Insured) 12-01-16 5.65 1,100,000 1,194,270 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 2,180,739 04-01-29 6.38 500,000 545,185 State Air Quality Development Authority Revenue Bonds Columbus & Southern Series 1985A (FGIC Insured) 12-01-20 6.38 1,000,000 1,037,300 State Building Facilities Authority Administration Building Fund Series 2002A (FSA Insured) 04-01-16 5.50 2,010,000 2,173,795 State Building Facilities Authority Refunding Revenue Bonds Series 2001A (FSA Insured) 10-01-14 5.50 2,000,000 2,183,159 State Conservation Projects Unlimited Tax General Obligation Bonds Series 2002A 09-01-09 4.00 1,415,000 1,445,960 State Infrastructure Revenue Bonds Series 2001 06-15-03 4.50 1,000,000 1,028,080 State Public Facilities Commissions Higher Education Capital Facilities Revenue Bonds 2nd Series 1999A 11-01-03 4.50 1,000,000 1,037,050 State Schools Capital Facilities Unlimited Tax General Obligation Bonds Series 2001A 06-15-13 5.00 1,500,000 1,580,490 State Turnpike Commission Revenue Bonds Series 1998B (FGIC Insured) 02-15-24 4.50 1,000,000 906,660 State Turnpike Pre-refunded Revenue Bonds Series 1994A 02-15-24 5.75 1,000,000 1,079,200 State Turnpike Pre-refunded Revenue Bonds Series 1996A (MBIA Insured) 02-15-26 5.50 1,000,000 1,110,640 State University General Receipts Revenue Bonds Series 2002A 12-01-03 4.00 500,000 515,925 12-01-05 3.50 500,000 515,060 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 2,025,320 State Water Development Authority Pollution Control Refunding Revenue Bonds Cleveland Electric Illuminating Series 1995 08-01-25 7.70 1,000,000 1,077,570 State Water Development Authority Pollution Control Refunding Revenue Bonds Toledo Edison Series 1994A A.M.T. 10-01-23 8.00 1,000,000 1,073,630 State Water Development Authority Refunding & Improvement Revenue Bonds Pure Water Series 1992 (AMBAC Insured) 12-01-18 5.50 750,000 764,430 State Water Development Authority Solid Waste Disposal Revenue Bonds Northstar BHP Steel Cargill Series 1995 A.M.T. 09-01-20 6.30 500,000 521,180 State Water Development Authority Water Pollution Control Refunding Revenue Bonds Series 2001 06-01-03 3.50 1,150,000 1,170,585 State Water Development Authority Water Pollution Control Refunding Revenue Bonds Series 2002 12-01-13 5.25 1,000,000 1,095,430 Summit County Unlimited Tax Refunding Bonds Series 2002R (FGIC Insured) 12-01-16 5.50 1,000,000 1,107,480 Swanton Local School District School Improvement Unlimited Tax General Obligation Bonds Series 2001 (FGIC Insured) 12-01-02 3.10 550,000 553,812 University of Cincinnati General Receipts Revenue Bonds Series 2001A (FGIC Insured) 06-01-14 5.50 1,000,000 1,094,190 University of Cincinnati General Receipts Revenue Bonds Series 2002F 06-01-17 5.38 1,000,000(g) 1,061,980 Warren County Various Purpose Limited Tax General Obligation Bonds Series 1992 12-01-12 6.10 500,000 584,865 Youngstown State University General Receipts College Revenue Bonds Series 1998 (AMBAC Insured) 12-15-16 4.75 1,000,000 1,011,260 Total Municipal bonds (Cost: $78,029,326) $81,345,089 Municipal notes (2.1%) Issuer(e,f) Effective Amount Value(a) yield payable at maturity State Air Quality Development Authority Pollution Control Revenue Bonds V.R. Series 1998C A.M.T. 09-01-18 1.85% $200,000 $200,000 State Higher Education Facilities Revenue Bonds Case Western V.R. Series 2002A 10-01-31 1.80 1,500,000 1,500,000 Total Municipal notes (Cost: $1,700,000) $1,700,000 Total investments in securities (Cost: $79,729,326)(i) $83,045,089 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 72 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) Non-income producing. For long-term debt securities, item identified is in default as to payment of interest and/or principal. (c) Municipal obligations include debt obligations issued by or on behalf of territories, possessions, or sovereign nations within the territorial boundaries of the United States. These securities represented 5.3% of net assets as of June 30, 2002. (d) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- American Municipal Bond Association Corporation BIG -- Bond Investors Guarantee CGIC -- Capital Guaranty Insurance Company FGIC -- Financial Guarantee Insurance Corporation FHA -- Federal Housing Authority FNMA -- Federal National Mortgage Association FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association MBIA -- Municipal Bond Investors Assurance XLCA -- XL Capital Assurance (e) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- As of June 30, 2002, the value of securities subject to alternative minimum tax represented 10.8% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note (f) The Fund is entitled to receive principal amount from issuer or corporate guarantor, if indicated in parentheses, after a day or a week's notice. The maturity date disclosed represents the final maturity. (g) At June 30, 2002, the cost of securities purchased, including interest purchased, on a when-issued basis was $2,385,059. (h) Inverse floaters represent securities that pay interest at a rate that increases (decreases) in the same magnitude as, or in a multiple of, a decline (increase) in market short-term rates. Interest rate disclosed is the rate in effect on June 30, 2002. As of June 30, 2002, the value of inverse floaters represented 1.6% of net assets. (i) At June 30, 2002, the cost of securities for federal income tax purposes was $79,729,326 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $4,096,626 Unrealized depreciation (780,863) -------- Net unrealized appreciation $3,315,763 ---------- -------------------------------------------------------------------------------- 73 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, 2002 Class A Exempt-interest dividends -- taxable status explained below. Payable date Per share July 26, 2001 $0.01944 Aug. 27, 2001 0.02067 Sept. 26, 2001 0.01914 Oct. 26, 2001 0.01947 Nov. 26, 2001 0.01953 Dec. 20, 2001 0.01528 Jan. 25, 2002 0.02366 Feb. 26, 2002 0.02118 March 26, 2002 0.01851 April 26, 2002 0.02061 May 24, 2002 0.01870 June 26, 2002 0.02220 Total distributions $0.23839 Class B Exempt-interest dividends -- taxable status explained below. Payable date Per share July 26, 2001 $0.01621 Aug. 27, 2001 0.01720 Sept. 26, 2001 0.01585 Oct. 26, 2001 0.01619 Nov. 26, 2001 0.01613 Dec. 20, 2001 0.01269 Jan. 25, 2002 0.01978 Feb. 26, 2002 0.01772 March 26, 2002 0.01550 April 26, 2002 0.01731 May 24, 2002 0.01570 June 26, 2002 0.01865 Total distributions $0.19893 -------------------------------------------------------------------------------- 74 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT Class C Exempt-interest dividends -- taxable status explained below. Payable date Per share July 26, 2001 $0.01624 Aug. 27, 2001 0.01721 Sept. 26, 2001 0.01586 Oct. 26, 2001 0.01629 Nov. 26, 2001 0.01620 Dec. 20, 2001 0.01265 Jan. 25, 2002 0.01982 Feb. 26, 2002 0.01777 March 26, 2002 0.01552 April 26, 2002 0.01730 May 24, 2002 0.01569 June 26, 2002 0.01865 Total distributions $0.19920 Source of distributions 99.63% of exempt-interest distributions during the fiscal year ended June 30, 2002 were from interest on California Municipal securities. For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50% of its assets in tax-exempt obligations at the end of each fiscal quarter. Federal taxation Exempt-interest dividends are exempt from federal income taxes and should not be included in shareholders' gross income. The income from this Fund is subject to the alternative minimum tax (AMT). The AMT percentage as of June 30, 2002 was 10.06%. 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 Massachusetts Tax-Exempt Fund Fiscal year ended June 30, 2002 Class A Exempt-interest dividends -- taxable status explained below. Payable date Per share July 26, 2001 $0.01862 Aug. 27, 2001 0.02056 Sept. 26, 2001 0.01899 Oct. 26, 2001 0.01897 Nov. 26, 2001 0.01910 Dec. 20, 2001 0.01437 Jan. 25, 2002 0.02130 Feb. 26, 2002 0.01889 March 26, 2002 0.01625 April 26, 2002 0.01780 May 24, 2002 0.01571 June 26, 2002 0.01860 Total distributions $0.21916 Class B Exempt-interest dividends -- taxable status explained below. Payable date Per share July 26, 2001 $0.01534 Aug. 27, 2001 0.01704 Sept. 26, 2001 0.01567 Oct. 26, 2001 0.01565 Nov. 26, 2001 0.01566 Dec. 20, 2001 0.01174 Jan. 25, 2002 0.01736 Feb. 26, 2002 0.01537 March 26, 2002 0.01318 April 26, 2002 0.01442 May 24, 2002 0.01264 June 26, 2002 0.01495 Total distributions $0.17902 Class C Exempt-interest dividends -- taxable status explained below. Payable date Per share July 26, 2001 $0.01535 Aug. 27, 2001 0.01711 Sept. 26, 2001 0.01569 Oct. 26, 2001 0.01571 Nov. 26, 2001 0.01565 Dec. 20, 2001 0.01174 Jan. 25, 2002 0.01738 Feb. 26, 2002 0.01553 March 26, 2002 0.01322 April 26, 2002 0.01442 May 24, 2002 0.01265 June 26, 2002 0.01494 Total distributions $0.17939 Source of distributions 99.89% of exempt-interest distributions during the fiscal year ended June 30, 2002 were from interest on Massachusetts Municipal securities. For dividends paid by the Fund to be exempt, the Fund must have at least 50% of its assets in tax-exempt obligations at the end of each fiscal quarter. Federal taxation Exempt-interest dividends are exempt from federal income taxes and should not be included in shareholders' gross income. The income from this Fund is subject to the alternative minimum tax (AMT). The AMT percentage as of June 30, 2002 was 5.64%. 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. -------------------------------------------------------------------------------- 76 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Michigan Tax-Exempt Fund Fiscal year ended June 30, 2002 Class A Exempt-interest dividends -- taxable status explained below. Payable date Per share July 26, 2001 $0.02011 Aug. 27, 2001 0.02263 Sept. 26, 2001 0.02071 Oct. 26, 2001 0.01980 Nov. 26, 2001 0.02005 Dec. 20, 2001 0.01535 Jan. 25, 2002 0.02288 Feb. 26, 2002 0.02064 March 26, 2002 0.01819 April 26, 2002 0.02020 May 24, 2002 0.01902 June 26, 2002 0.02222 Total distributions $0.24180 Class B Exempt-interest dividends -- taxable status explained below. Payable date Per share July 26, 2001 $0.01684 Aug. 27, 2001 0.01911 Sept. 26, 2001 0.01742 Oct. 26, 2001 0.01649 Nov. 26, 2001 0.01663 Dec. 20, 2001 0.01274 Jan. 25, 2002 0.01896 Feb. 26, 2002 0.01715 March 26, 2002 0.01515 April 26, 2002 0.01684 May 24, 2002 0.01598 June 26, 2002 0.01862 Total distributions $0.20193 Class C Exempt-interest dividends -- taxable status explained below. Payable date Per share July 26, 2001 $0.01698 Aug. 27, 2001 0.01913 Sept. 26, 2001 0.01744 Oct. 26, 2001 0.01644 Nov. 26, 2001 0.01670 Dec. 20, 2001 0.01259 Jan. 25, 2002 0.01900 Feb. 26, 2002 0.01713 March 26, 2002 0.01516 April 26, 2002 0.01683 May 24, 2002 0.01597 June 26, 2002 0.01862 Total distributions $0.20199 Source of distributions 99.46% of exempt-interest distributions during the fiscal year ended June 30, 2002 were from interest on Michigan Municipal securities. For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50% of its assets in tax-exempt obligations at the end of each fiscal quarter. Federal taxation Exempt-interest dividends are exempt from federal income taxes and should not be included in shareholders' gross income. The income from this Fund is subject to the alternative minimum tax (AMT). The AMT percentage as of June 30, 2002 was 4.43%. 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 Minnesota Tax-Exempt Fund Fiscal year ended June 30, 2002 Class A Exempt-interest dividends -- taxable status explained below. Payable date Per share July 26, 2001 $0.02187 Aug. 27, 2001 0.02243 Sept. 26, 2001 0.02063 Oct. 26, 2001 0.01994 Nov. 26, 2001 0.02317 Dec. 20, 2001 0.01717 Jan. 25, 2002 0.02295 Feb. 26, 2002 0.02066 March 26, 2002 0.01887 April 26, 2002 0.02084 May 24, 2002 0.01941 June 26, 2002 0.02201 Total distributions $0.24995 Class B Exempt-interest dividends -- taxable status explained below. Payable date Per share July 26, 2001 $0.01868 Aug. 27, 2001 0.01902 Sept. 26, 2001 0.01742 Oct. 26, 2001 0.01672 Nov. 26, 2001 0.01985 Dec. 20, 2001 0.01462 Jan. 25, 2002 0.01913 Feb. 26, 2002 0.01725 March 26, 2002 0.01589 April 26, 2002 0.01756 May 24, 2002 0.01644 June 26, 2002 0.01848 Total distributions $0.21106 Class C Exempt-interest dividends -- taxable status explained below. Payable date Per share July 26, 2001 $0.01876 Aug. 27, 2001 0.01903 Sept. 26, 2001 0.01741 Oct. 26, 2001 0.01674 Nov. 26, 2001 0.01983 Dec. 20, 2001 0.01461 Jan. 25, 2002 0.01914 Feb. 26, 2002 0.01728 March 26, 2002 0.01589 April 26, 2002 0.01755 May 24, 2002 0.01642 June 26, 2002 0.01847 Total distributions $0.21113 Source of distributions 97.85% of exempt-interest distributions during the fiscal year ended June 30, 2002 were from interest on Minnesota Municipal securities. For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50% of its assets in tax-exempt obligations at the end of each fiscal quarter. Federal taxation Exempt-interest dividends are exempt from federal income taxes and should not be included in shareholders' gross income. The income from this Fund is subject to the alternative minimum tax (AMT). The AMT percentage as of June 30, 2002 was 15.31%. 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 New York Tax-Exempt Fund Fiscal year ended June 30, 2002 Class A Exempt-interest dividends -- taxable status explained below. Payable date Per share July 26, 2001 $0.01870 Aug. 27, 2001 0.01956 Sept. 26, 2001 0.01812 Oct. 26, 2001 0.01805 Nov. 26, 2001 0.01852 Dec. 20, 2001 0.01430 Jan. 25, 2002 0.02153 Feb. 26, 2002 0.01982 March 26, 2002 0.01747 April 26, 2002 0.01953 May 24, 2002 0.01763 June 26, 2002 0.02135 Total distributions $0.22458 Class B Exempt-interest dividends -- taxable status explained below. Payable date Per share July 26, 2001 $0.01553 Aug. 27, 2001 0.01615 Sept. 26, 2001 0.01491 Oct. 26, 2001 0.01484 Nov. 26, 2001 0.01521 Dec. 20, 2001 0.01178 Jan. 25, 2002 0.01774 Feb. 26, 2002 0.01643 March 26, 2002 0.01451 April 26, 2002 0.01627 May 24, 2002 0.01467 June 26, 2002 0.01784 Total distributions $0.18588 Class C Exempt-interest dividends -- taxable status explained below. Payable date Per share July 26, 2001 $0.01545 Aug. 27, 2001 0.01616 Sept. 26, 2001 0.01486 Oct. 26, 2001 0.01490 Nov. 26, 2001 0.01526 Dec. 20, 2001 0.01174 Jan. 25, 2002 0.01773 Feb. 26, 2002 0.01640 March 26, 2002 0.01448 April 26, 2002 0.01626 May 24, 2002 0.01466 June 26, 2002 0.01780 Total distributions $0.18570 Source of distributions 99.66% of exempt-interest distributions during the fiscal year ended June 30, 2002 were from interest on New York Municipal securities. For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50% of its assets in tax-exempt obligations at the end of each fiscal quarter. Federal taxation Exempt-interest dividends are exempt from federal income taxes and should not be included in shareholders' gross income. The income from this Fund is subject to the alternative minimum tax (AMT). The AMT percentage as of June 30, 2002 was 10.96%. 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. -------------------------------------------------------------------------------- 79 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP Ohio Tax-Exempt Fund Fiscal year ended June 30, 2002 Class A Exempt-interest dividends -- taxable status explained below. Payable date Per share July 26, 2001 $0.02003 Aug. 27, 2001 0.02144 Sept. 26, 2001 0.01930 Oct. 26, 2001 0.01860 Nov. 26, 2001 0.01880 Dec. 20, 2001 0.01438 Jan. 25, 2002 0.02103 Feb. 26, 2002 0.01852 March 26, 2002 0.01649 April 26, 2002 0.01844 May 24, 2002 0.01691 June 26, 2002 0.02003 Total distributions $0.22397 Class B Exempt-interest dividends -- taxable status explained below. Payable date Per share July 26, 2001 $0.01676 Aug. 27, 2001 0.01794 Sept. 26, 2001 0.01598 Oct. 26, 2001 0.01530 Nov. 26, 2001 0.01538 Dec. 20, 2001 0.01176 Jan. 25, 2002 0.01710 Feb. 26, 2002 0.01502 March 26, 2002 0.01343 April 26, 2002 0.01506 May 24, 2002 0.01386 June 26, 2002 0.01640 Total distributions $0.18399 Class C Exempt-interest dividends -- taxable status explained below. Payable date Per share July 26, 2001 $0.01679 Aug. 27, 2001 0.01794 Sept. 26, 2001 0.01610 Oct. 26, 2001 0.01532 Nov. 26, 2001 0.01539 Dec. 20, 2001 0.01179 Jan. 25, 2002 0.01711 Feb. 26, 2002 0.01504 March 26, 2002 0.01342 April 26, 2002 0.01502 May 24, 2002 0.01383 June 26, 2002 0.01639 Total distributions $0.18414 Source of distributions 99.84% of exempt-interest distributions during the fiscal year ended June 30, 2002 were from interest on Ohio Municipal securities. For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50% of its assets in tax-exempt obligations at the end of each fiscal quarter. Federal taxation Exempt-interest dividends are exempt from federal income taxes and should not be included in shareholders' gross income. The income from this Fund is subject to the alternative minimum tax (AMT). The AMT percentage as of June 30, 2002 was 12.59%. 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. -------------------------------------------------------------------------------- 80 AXP STATE TAX-EXEMPT FUNDS -- ANNUAL REPORT AXP State Tax-Exempt Fund 70100 AXP Financial Center Minneapolis, MN 55474 americanexpress.comTicker Symbol AXP California Tax-Exempt Fund Class A: ICALX Class B: ACABX 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 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 W (8/02)