-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QOGt5u6+OTZ5xNBYnWqUjkXmpOVs0seUWoI0ZWb3I7D3nIoy3xbdY9EimFYVu3a9 agy1uFkqp5u9A6LIFT5zZw== 0000820027-05-000257.txt : 20050304 0000820027-05-000257.hdr.sgml : 20050304 20050304091101 ACCESSION NUMBER: 0000820027-05-000257 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050304 DATE AS OF CHANGE: 20050304 EFFECTIVENESS DATE: 20050304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP CALIFORNIA TAX-EXEMPT TRUST CENTRAL INDEX KEY: 0000792717 IRS NUMBER: 411560213 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-04646 FILM NUMBER: 05659737 BUSINESS ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 612-671-7981 MAIL ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: IDS CALIFORNIA TAX EXEMPT TRUST DATE OF NAME CHANGE: 19920703 N-CSRS 1 california-ncsrs.txt AXP CALIFORNIA TAX-EXEMPT TRUST UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-4646 ------------ AXP CALIFORNIA TAX-EXEMPT TRUST - -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 50606 AXP Financial Center, Minneapolis, Minnesota 55474 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Leslie L. Ogg - 901 S. Marquette Avenue, Suite 2810, Minneapolis, MN 55402-3268 - -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (612) 330-9283 ----------------- Date of fiscal year end: 6/30 -------------- Date of reporting period: 12/31 -------------- AXP(R) California Tax-Exempt Fund AXP(R) Massachusetts Tax-Exempt Fund AXP(R) Michigan Tax-Exempt Fund AXP(R) Minnesota Tax-Exempt Fund AXP(R) New York Tax-Exempt Fund AXP(R) Ohio Tax-Exempt Fund Semiannual Report for the Period Ended Dec. 31, 2004 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. (logo) (logo) American AMERICAN Express(R) EXPRESS Funds Table of Contents Fund Snapshot 3-9 AXP California Tax-Exempt Fund 3 AXP Massachusetts Tax-Exempt Fund 4 AXP Michigan Tax-Exempt Fund 5 AXP Minnesota Tax-Exempt Fund 6 AXP New York Tax-Exempt Fund 7 AXP Ohio Tax-Exempt Fund 8 Performance Summary 10-21 AXP California Tax-Exempt Fund 10 AXP Massachusetts Tax-Exempt Fund 12 AXP Michigan Tax-Exempt Fund 14 AXP Minnesota Tax-Exempt Fund 16 AXP New York Tax-Exempt Fund 18 AXP Ohio Tax-Exempt Fund 20 Questions & Answers with Portfolio Management 22 Investments in Securities 26-63 AXP California Tax-Exempt Fund 26 AXP Massachusetts Tax-Exempt Fund 33 AXP Michigan Tax-Exempt Fund 38 AXP Minnesota Tax-Exempt Fund 43 AXP New York Tax-Exempt Fund 53 AXP Ohio Tax-Exempt Fund 59 Financial Statements 64 Notes to Financial Statements 71 Fund Expenses Example 98 Proxy Voting 102 (logo) Dalbar American Express(R) Funds' reports to shareholders have been awarded the Communications Seal from Dalbar Inc., an independent financial services research firm. The Seal recognizes communications demonstrating a level of excellence in the industry. - -------------------------------------------------------------------------------- 2 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Fund Snapshot AT DEC. 31, 2004 AXP California Tax-Exempt Fund PORTFOLIO MANAGER Portfolio manager Since Years in industry Dave Kerwin, CFA* 8/04 19 * The Fund is managed by a team of portfolio managers led by Dave Kerwin. FUND OBJECTIVE For California investors, this Fund seeks to provide a high level of income generally exempt from federal income tax as well as from the respective state and local taxes. Inception dates by class A: 8/18/86 B: 3/20/95 C: 6/26/00 Ticker symbols by class A: ICALX B: ACABX C: -- Total net assets $215.1 million Number of holdings 106 Effective maturity(1) 17.4 years Effective duration(2) 7.3 years Weighted average bond rating(3) AA (1) Effective maturity measures a bond's maturity, which takes into consideration the possibility that the issuer may call the bond before its maturity date. (2) Effective duration measures the sensitivity of a security's price to parallel shifts in the yield curve (the graphical depiction of the levels of interest rates from two years out to 30 years). Positive duration means that as rates rise, the price decreases, and negative duration means that as rates rise, the price increases. (3) Weighted average bond rating represents the average credit quality of the underlying bonds in the portfolio. STYLE MATRIX Shading within the style matrix indicates areas in which the Fund generally invests. DURATION SHORT INT. LONG X X HIGH X X MEDIUM QUALITY LOW CREDIT QUALITY SUMMARY Percentage of portfolio assets excluding cash equivalents AAA bonds 53.7% AA bonds 7.5 A bonds 25.4 BBB bonds 7.2 Non-investment grade bonds 6.2 Individual security ratings are based on information from Standard & Poor's Corp. and Moody's Investors Service. If a rating is unavailable, the rating is determined through an internal analysis, if appropriate. 2.8% of the portfolio rating above was determined through internal analysis. INSURED/NON-INSURED COMPOSITION Percentage of portfolio assets Insured 52.8% Non-insured 47.2 Certain income may be subject to the alternative minimum tax or state or local tax. Fund holdings are subject to change. - -------------------------------------------------------------------------------- 3 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Fund Snapshot AT DEC. 31, 2004 AXP Massachusetts Tax-Exempt Fund PORTFOLIO MANAGER Portfolio manager Since Years in industry Dave Kerwin, CFA* 8/04 19 * The Fund is managed by a team of portfolio managers led by Dave Kerwin. FUND OBJECTIVE For Massachusetts investors, this Fund seeks to provide a high level of income generally exempt from federal income tax as well as from respective state and local tax. Inception dates by class A: 7/2/87 B: 3/20/95 C: 6/26/00 Ticker symbols by class A: IDMAX B: AXMBX C: -- Total net assets $80.1 million Number of holdings 54 Effective maturity(1) 14.4 years Effective duration(2) 6.5 years Weighted average bond rating(3) AAA (1) Effective maturity measures a bond's maturity, which takes into consideration the possibility that the issuer may call the bond before its maturity date. (2) Effective duration measures the sensitivity of a security's price to parallel shifts in the yield curve (the graphical depiction of the levels of interest rates from two years out to 30 years). Positive duration means that as rates rise, the price decreases, and negative duration means that as rates rise, the price increases. (3) Weighted average bond rating represents the average credit quality of the underlying bonds in the portfolio. STYLE MATRIX Shading within the style matrix indicates areas in which the Fund generally invests. DURATION SHORT INT. LONG X X HIGH X X MEDIUM QUALITY LOW CREDIT QUALITY SUMMARY Percentage of portfolio assets excluding cash equivalents AAA bonds 70.1% AA bonds 22.2 A bonds 1.4 BBB bonds 5.0 Non-investment grade bonds 1.3 Individual security ratings are based on information from Standard & Poor's Corp. and Moody's Investors Service. If a rating is unavailable, the rating is determined through an internal analysis, if appropriate. INSURED/NON-INSURED COMPOSITION Percentage of portfolio assets Insured 54.6% Non-insured 45.4 Certain income may be subject to the alternative minimum tax or state or local tax. Fund holdings are subject to change. - -------------------------------------------------------------------------------- 4 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Fund Snapshot AT DEC. 31, 2004 AXP Michigan Tax-Exempt Fund PORTFOLIO MANAGER Portfolio manager Since Years in industry Dave Kerwin, CFA* 8/04 19 * The Fund is managed by a team of portfolio managers led by Dave Kerwin. FUND OBJECTIVE For Michigan investors, this Fund seeks to provide a high level of income generally exempt from federal income tax as well as from the respective state and local tax. Inception dates by class A: 7/2/87 B: 3/20/95 C: 6/26/00 Ticker symbols by class A: INMIX B: -- C: -- Total net assets $62.7 million Number of holdings 59 Effective maturity(1) 14.1 years Effective duration(2) 6.6 years Weighted average bond rating(3) AA (1) Effective maturity measures a bond's maturity, which takes into consideration the possibility that the issuer may call the bond before its maturity date. (2) Effective duration measures the sensitivity of a security's price to parallel shifts in the yield curve (the graphical depiction of the levels of interest rates from two years out to 30 years). Positive duration means that as rates rise, the price decreases, and negative duration means that as rates rise, the price increases. (3) Weighted average bond rating represents the average credit quality of the underlying bonds in the portfolio. STYLE MATRIX Shading within the style matrix indicates areas in which the Fund generally invests. DURATION SHORT INT. LONG X X HIGH X X MEDIUM QUALITY LOW CREDIT QUALITY SUMMARY Percentage of portfolio assets excluding cash equivalents AAA bonds 60.0% AA bonds 28.0 A bonds 5.9 BBB bonds 2.1 Non-investment grade bonds 4.0 Individual security ratings are based on information from Standard & Poor's Corp. and Moody's Investors Service. If a rating is unavailable, the rating is determined through an internal analysis, if appropriate. 5.5% of the portfolio rating above was determined through internal analysis. INSURED/NON-INSURED COMPOSITION Percentage of portfolio assets Insured 50.6% Non-insured 49.4 Certain income may be subject to the alternative minimum tax or state or local tax. Fund holdings are subject to change. - -------------------------------------------------------------------------------- 5 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Fund Snapshot AT DEC. 31, 2004 AXP Minnesota Tax-Exempt Fund PORTFOLIO MANAGER Portfolio manager Since Years in industry Dave Kerwin, CFA* 8/04 19 * The Fund is managed by a team of portfolio managers led by Dave Kerwin. FUND OBJECTIVE For Minnesota investors, this Fund seeks to provide a high level of income generally exempt from federal income tax as well as from the respective state and local tax. Inception dates by class A: 8/18/86 B: 3/20/95 C: 6/26/00 Ticker symbols by class A: IMNTX B: IDSMX C: -- Total net assets $416.4 million Number of holdings 158 Effective maturity(1) 12.1 years Effective duration(2) 6.8 years Weighted average bond rating(3) AA (1) Effective maturity measures a bond's maturity, which takes into consideration the possibility that the issuer may call the bond before its maturity date. (2) Effective duration measures the sensitivity of a security's price to parallel shifts in the yield curve (the graphical depiction of the levels of interest rates from two years out to 30 years). Positive duration means that as rates rise, the price decreases, and negative duration means that as rates rise, the price increases. (3) Weighted average bond rating represents the average credit quality of the underlying bonds in the portfolio. STYLE MATRIX Shading within the style matrix indicates areas in which the Fund generally invests. DURATION SHORT INT. LONG X X HIGH X X MEDIUM QUALITY LOW CREDIT QUALITY SUMMARY Percentage of portfolio assets excluding cash equivalents AAA bonds 65.6% AA bonds 17.5 A bonds 5.0 BBB bonds 4.7 Non-investment grade bonds 7.2 Individual security ratings are based on information from Standard & Poor's Corp. and Moody's Investors Service. If a rating is unavailable, the rating is determined through an internal analysis, if appropriate. 8.2% of the portfolio rating above was determined through internal analysis. INSURED/NON-INSURED COMPOSITION Percentage of portfolio assets Insured 37.5% Non-insured 62.5 Certain income may be subject to the alternative minimum tax or state or local tax. Fund holdings are subject to change. - -------------------------------------------------------------------------------- 6 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Fund Snapshot AT DEC. 31, 2004 AXP New York Tax-Exempt Fund PORTFOLIO MANAGER Portfolio manager Since Years in industry Dave Kerwin, CFA* 8/04 19 * The Fund is managed by a team of portfolio managers led by Dave Kerwin. FUND OBJECTIVE For New York investors, this Fund seeks to provide a high level of income generally exempt from federal income tax as well as from the respective state and local taxes. Inception dates by class A: 8/18/86 B: 3/20/95 C: 6/26/00 Ticker symbols by class A: INYKX B: -- C: -- Total net assets $94.0 million Number of holdings 75 Effective maturity(1) 15.5 years Effective duration(2) 6.4 years Weighted average bond rating(3) AA (1) Effective maturity measures a bond's maturity, which takes into consideration the possibility that the issuer may call the bond before its maturity date. (2) Effective duration measures the sensitivity of a security's price to parallel shifts in the yield curve (the graphical depiction of the levels of interest rates from two years out to 30 years). Positive duration means that as rates rise, the price decreases, and negative duration means that as rates rise, the price increases. (3) Weighted average bond rating represents the average credit quality of the underlying bonds in the portfolio. STYLE MATRIX Shading within the style matrix indicates areas in which the Fund generally invests. DURATION SHORT INT. LONG X X HIGH X X MEDIUM QUALITY LOW CREDIT QUALITY SUMMARY Percentage of portfolio assets excluding cash equivalents AAA bonds 48.5% AA bonds 32.3 A bonds 14.6 BBB bonds 1.1 Non-investment grade bonds 3.5 Individual security ratings are based on information from Standard & Poor's Corp. and Moody's Investors Service. If a rating is unavailable, the rating is determined through an internal analysis, if appropriate. 3.5% of the portfolio rating above was determined through internal analysis. INSURED/NON-INSURED COMPOSITION Percentage of portfolio assets Insured 47.6% Non-insured 52.4 Certain income may be subject to the alternative minimum tax or state or local tax. Fund holdings are subject to change. - -------------------------------------------------------------------------------- 7 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Fund Snapshot AT DEC. 31, 2004 AXP Ohio Tax-Exempt Fund PORTFOLIO MANAGER Portfolio manager Since Years in industry Dave Kerwin, CFA* 8/04 19 * The Fund is managed by a team of portfolio managers led by Dave Kerwin. FUND OBJECTIVE For Ohio investors, this Fund seeks to provide a high level of income generally exempt from federal income tax as well as from the respective state and local taxes. Inception dates by class A: 7/2/87 B: 3/20/95 C: 6/26/00 Ticker symbols by class A: IOHIX B: -- C: -- Total net assets $65.1 million Number of holdings 55 Effective maturity(1) 13.3 years Effective duration(2) 6.3 years Weighted average bond rating(3) AA (1) Effective maturity measures a bond's maturity, which takes into consideration the possibility that the issuer may call the bond before its maturity date. (2) Effective duration measures the sensitivity of a security's price to parallel shifts in the yield curve (the graphical depiction of the levels of interest rates from two years out to 30 years). Positive duration means that as rates rise, the price decreases, and negative duration means that as rates rise, the price increases. (3) Weighted average bond rating represents the average credit quality of the underlying bonds in the portfolio. STYLE MATRIX Shading within the style matrix indicates areas in which the Fund generally invests. DURATION SHORT INT. LONG X X HIGH X X MEDIUM QUALITY LOW CREDIT QUALITY SUMMARY Percentage of portfolio assets excluding cash equivalents AAA bonds 57.3% AA bonds 32.4 A bonds 5.1 BBB bonds 3.4 Non-investment grade bonds 1.8 Individual security ratings are based on information from Standard & Poor's Corp. and Moody's Investors Service. If a rating is unavailable, the rating is determined through an internal analysis, if appropriate. 3.4% of the portfolio rating above was determined through internal analysis. INSURED/NON-INSURED COMPOSITION Percentage of portfolio assets Insured 53.4% Non-insured 46.6 Certain income may be subject to the alternative minimum tax or state or local tax. Fund holdings are subject to change. - -------------------------------------------------------------------------------- 8 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Yield Snapshot AXP California Tax-Exempt Fund SEC YIELDS Class A Class B Class C At Dec. 31, 2004 2.99% 2.38% 2.38% The Securities and Exchange Commission (SEC) yield is calculated by dividing anticipated net investment income during a 31-day period by the public offering price (POP) per share on the last day of the period, and converting the results to yearly figures. See Average Annual Total Returns on page 11 for additional performance information. AXP Massachusetts Tax-Exempt Fund SEC YIELDS Class A Class B Class C At Dec. 31, 2004 2.72% 2.10% 2.10% The Securities and Exchange Commission (SEC) yield is calculated by dividing anticipated net investment income during a 31-day period by the public offering price (POP) per share on the last day of the period, and converting the results to yearly figures. See Average Annual Total Returns on page 13 for additional performance information. AXP Michigan Tax-Exempt Fund SEC YIELDS Class A Class B Class C At Dec. 31, 2004 2.76% 2.14% 2.14% The Securities and Exchange Commission (SEC) yield is calculated by dividing anticipated net investment income during a 31-day period by the public offering price (POP) per share on the last day of the period, and converting the results to yearly figures. See Average Annual Total Returns on page 15 for additional performance information. AXP Minnesota Tax-Exempt Fund SEC YIELDS Class A Class B Class C At Dec. 31, 2004 2.98% 2.38% 2.38% The Securities and Exchange Commission (SEC) yield is calculated by dividing anticipated net investment income during a 31-day period by the public offering price (POP) per share on the last day of the period, and converting the results to yearly figures. See Average Annual Total Returns on page 17 for additional performance information. AXP New York Tax-Exempt Fund SEC YIELDS Class A Class B Class C At Dec. 31, 2004 2.82% 2.20% 2.20% The Securities and Exchange Commission (SEC) yield is calculated by dividing anticipated net investment income during a 31-day period by the public offering price (POP) per share on the last day of the period, and converting the results to yearly figures. See Average Annual Total Returns on page 19 for additional performance information. AXP Ohio Tax-Exempt Fund SEC YIELDS Class A Class B Class C At Dec. 31, 2004 2.60% 1.97% 1.97% The Securities and Exchange Commission (SEC) yield is calculated by dividing anticipated net investment income during a 31-day period by the public offering price (POP) per share on the last day of the period, and converting the results to yearly figures. See Average Annual Total Returns on page 21 for additional performance information. - -------------------------------------------------------------------------------- 9 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Performance Summary [bar chart] AXP CALIFORNIA TAX-EXEMPT FUND PERFORMANCE COMPARISON For the six-month period ended Dec. 31, 2004 (bar 1) (bar 2) (bar 3) (bar 4) +5.29% +5.75% +5.19% +5.44% (bar 1) AXP California Tax-Exempt Fund Class A (excluding sales charge) (bar 2) Lehman Brothers California Municipal Bond Index(1) (unmanaged) (bar 3) Lehman Brothers Municipal Bond Index(2) (unmanaged) (bar 4) Lipper California Municipal Debt Funds Index(3) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (800) 862-7919 or visiting www.americanexpress.com/funds. (1) The Lehman Brothers California Municipal Bond Index, an unmanaged index, is a subset of the Lehman Brothers Municipal Bond Index. The index is made up of investment-grade, tax-exempt, and fixed-rate bonds issued in the state of California. All securities have effective maturities greater than one year and are selected from issues larger than $50 million. (2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of a representative list of general obligation, revenue, insured and pre-refunded bonds. The index is frequently used as a general measure of tax-exempt bond market performance. The index reflects reinvestment of all distributions and changes in market prices, but 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. (3) The Lipper California Municipal Debt Funds Index includes the 30 largest municipal debt funds in California tracked by Lipper Inc. The index's returns include net reinvested dividends. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. - -------------------------------------------------------------------------------- 10 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Performance Summary AXP California Tax-Exempt Fund
AVERAGE ANNUAL TOTAL RETURNS Class A Class B Class C (Inception dates) (8/18/86) (3/20/95) (6/26/00) NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) at Dec. 31, 2004 6 months* +5.29% +0.29% +4.90% -0.10% +4.69% +3.69% 1 year +4.47% -0.50% +3.88% -0.09% +3.68% +3.68% 3 years +5.29% +3.59% +4.50% +3.58% +4.49% +4.49% 5 years +6.36% +5.34% +5.57% +5.41% N/A N/A 10 years +5.90% +5.39% N/A N/A N/A N/A Since inception +6.10% +5.82% +4.59% +4.59% +5.11% +5.11%
* Not annualized. (1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 4.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. - -------------------------------------------------------------------------------- 11 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Performance Summary [bar chart] AXP MASSACHUSETTS TAX-EXEMPT FUND PERFORMANCE COMPARISON For the six-month period ended Dec. 31, 2004 (bar 1) (bar 2) (bar 3) (bar 4) +4.97% +5.07% +5.19% +4.97% (bar 1) AXP Massachusetts Tax-Exempt Fund Class A (excluding sales charge) (bar 2) Lehman Brothers Massachusetts Municipal Bond Index(1) (unmanaged) (bar 3) Lehman Brothers Municipal Bond Index(2) (unmanaged) (bar 4) Lipper Massachusetts Municipal Debt Funds Index(3) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (800) 862-7919 or visiting www.americanexpress.com/funds. (1) The Lehman Brothers Massachusetts Municipal Bond Index, an unmanaged index, is a subset of the Lehman Brothers Municipal Bond Index. The index is made up of investment-grade, tax-exempt, and fixed-rate bonds issued in the state of Massachusetts. All securities have effective maturities greater than one year and are selected from issues larger than $50 million. (2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of a representative list of general obligation, revenue, insured and pre-refunded bonds. The index is frequently used as a general measure of tax-exempt bond market performance. The index reflects reinvestment of all distributions and changes in market prices, but 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. (3) The Lipper Massachusetts Municipal Debt Funds Index includes the 10 largest municipal debt funds in Massachusetts tracked by Lipper Inc. The index's returns include reinvested dividends. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. - -------------------------------------------------------------------------------- 12 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Performance Summary AXP Massachusetts Tax-Exempt Fund
AVERAGE ANNUAL TOTAL RETURNS Class A Class B Class C (Inception dates) (7/2/87) (3/20/95) (6/26/00) NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) at Dec. 31, 2004 6 months* +4.97% -0.01% +4.56% -0.44% +4.57% +3.57% 1 year +3.92% -1.01% +3.13% -0.87% +3.15% +3.15% 3 years +4.84% +3.15% +4.05% +3.11% +4.05% +4.05% 5 years +5.93% +4.91% +5.14% +4.97% N/A N/A 10 years +5.70% +5.19% N/A N/A N/A N/A Since inception +6.07% +5.78% +4.37% +4.37% +5.02% +5.02%
* Not annualized. (1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 4.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. - -------------------------------------------------------------------------------- 13 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Performance Summary [bar chart] AXP MICHIGAN TAX-EXEMPT FUND PERFORMANCE COMPARISON For the six-month period ended Dec. 31, 2004 (bar 1) (bar 2) (bar 3) (bar 4) +4.42% +4.86% +5.19% +4.60% (bar 1) AXP Michigan Tax-Exempt Fund Class A (excluding sales charge) (bar 2) Lehman Brothers Michigan Municipal Bond Index(1) (unmanaged) (bar 3) Lehman Brothers Municipal Bond Index(2) (unmanaged) (bar 4) Lipper Michigan Municipal Debt Funds Index(3) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (800) 862-7919 or visiting www.americanexpress.com/funds. (1) The Lehman Brothers Michigan Municipal Bond Index, an unmanaged index, is a subset of the Lehman Brothers Municipal Bond Index. The index is made up of investment-grade, tax-exempt, and fixed-rate bonds issued in the state of Michigan. All securities have effective maturities greater than one year and are selected from issues larger than $50 million. (2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of a representative list of general obligation, revenue, insured and pre-refunded bonds. The index is frequently used as a general measure of tax-exempt bond market performance. The index reflects reinvestment of all distributions and changes in market prices, but 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. (3) The Lipper Michigan Municipal Debt Funds Index includes the 10 largest municipal debt funds in Michigan tracked by Lipper Inc. The index's returns include reinvested dividends. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. - -------------------------------------------------------------------------------- 14 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Performance Summary AXP Michigan Tax-Exempt Fund
AVERAGE ANNUAL TOTAL RETURNS Class A Class B Class C (Inception dates) (7/2/87) (3/20/95) (6/26/00) NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) at Dec. 31, 2004 6 months* +4.42% -0.55% +4.02% -0.98% +4.02% +3.02% 1 year +3.88% -1.06% +3.10% -0.90% +3.09% +3.09% 3 years +5.39% +3.70% +4.60% +3.67% +4.59% +4.59% 5 years +6.08% +5.05% +5.28% +5.12% N/A N/A 10 years +5.73% +5.22% N/A N/A N/A N/A Since inception +6.23% +5.93% +4.41% +4.41% +5.27% +5.27%
* Not annualized. (1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 4.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. - -------------------------------------------------------------------------------- 15 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Performance Summary [bar chart] AXP MINNESOTA TAX-EXEMPT FUND PERFORMANCE COMPARISON For the six-month period ended Dec. 31, 2004 (bar 1) (bar 2) (bar 3) (bar 4) +4.58% +4.85% +5.19% +4.57% (bar 1) AXP Minnesota Tax-Exempt Fund Class A (excluding sales charge) (bar 2) Lehman Brothers Minnesota Municipal Bond Index(1) (unmanaged) (bar 3) Lehman Brothers Municipal Bond Index(2) (unmanaged) (bar 4) Lipper Minnesota Municipal Debt Funds Index(3) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (800) 862-7919 or visiting www.americanexpress.com/funds. (1) The Lehman Brothers Minnesota Municipal Bond Index, an unmanaged index, is a subset of the Lehman Brothers Municipal Bond Index. The index is made up of investment-grade, tax-exempt, and fixed-rate bonds issued in the state of Minnesota. All securities have effective maturities greater than one year and are selected from issues larger than $50 million. (2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of a representative list of general obligation, revenue, insured and pre-refunded bonds. The index is frequently used as a general measure of tax-exempt bond market performance. The index reflects reinvestment of all distributions and changes in market prices, but 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. (3) The Lipper Minnesota Municipal Debt Funds Index includes the 10 largest municipal debt funds in Minnesota tracked by Lipper Inc. The index's returns include reinvested dividends. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. - -------------------------------------------------------------------------------- 16 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Performance Summary AXP Minnesota Tax-Exempt Fund
AVERAGE ANNUAL TOTAL RETURNS Class A Class B Class C (Inception dates) (8/18/86) (3/20/95) (6/26/00) NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) at Dec. 31, 2004 6 months* +4.58% -0.38% +4.19% -0.81% +4.19% +3.19% 1 year +3.60% -1.31% +2.83% -1.16% +2.83% +2.83% 3 years +5.46% +3.76% +4.67% +3.75% +4.60% +4.60% 5 years +6.24% +5.21% +5.45% +5.29% N/A N/A 10 years +5.95% +5.43% N/A N/A N/A N/A Since inception +6.25% +5.97% +4.67% +4.67% +5.31% +5.31%
* Not annualized. (1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 4.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. - -------------------------------------------------------------------------------- 17 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Performance Summary [bar chart] AXP NEW YORK TAX-EXEMPT FUND PERFORMANCE COMPARISON For the six-month period ended Dec. 31, 2004 (bar 1) (bar 2) (bar 3) (bar 4) +4.38% +5.04% +5.19% +4.82% (bar 1) AXP New York Tax-Exempt Fund Class A (excluding sales charge) (bar 2) Lehman Brothers New York Municipal Bond Index(1) (unmanaged) (bar 3) Lehman Brothers Municipal Bond Index(2) (unmanaged) (bar 4) Lipper New York Municipal Debt Funds Index(3) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (800) 862-7919 or visiting www.americanexpress.com/funds. (1) The Lehman Brothers New York Municipal Bond Index, an unmanaged index, is a subset of the Lehman Brothers Municipal Bond Index. The index is made up of investment-grade, tax-exempt, and fixed-rate bonds issued in the state of New York. All securities have effective maturities greater than one year and are selected from issues larger than $50 million. (2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of a representative list of general obligation, revenue, insured and pre-refunded bonds. The index is frequently used as a general measure of tax-exempt bond market performance. The index reflects reinvestment of all distributions and changes in market prices, but 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. (3) The Lipper New York Municipal Debt Funds Index includes the 30 largest municipal debt funds in New York tracked by Lipper Inc. The index's returns include reinvested dividends. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. - -------------------------------------------------------------------------------- 18 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Performance Summary AXP New York Tax-Exempt Fund
AVERAGE ANNUAL TOTAL RETURNS Class A Class B Class C (Inception dates) (8/18/86) (3/20/95) (6/26/00) NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) at Dec. 31, 2004 6 months* +4.38% -0.59% +3.98% -1.02% +3.98% +2.98% 1 year +3.50% -1.41% +2.72% -1.23% +2.72% +2.72% 3 years +5.51% +3.82% +4.72% +3.80% +4.72% +4.72% 5 years +6.28% +5.25% +5.48% +5.32% N/A N/A 10 years +5.71% +5.19% N/A N/A N/A N/A Since inception +5.98% +5.70% +4.47% +4.47% +5.28% +5.28%
* Not annualized. (1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 4.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. - -------------------------------------------------------------------------------- 19 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Performance Summary [bar chart] AXP OHIO TAX-EXEMPT FUND PERFORMANCE COMPARISON For the six-month period ended Dec. 31, 2004 (bar 1) (bar 2) (bar 3) (bar 4) +4.53% +4.80% +5.19% +5.17% (bar 1) AXP Ohio Tax-Exempt Fund Class A (excluding sales charge) (bar 2) Lehman Brothers Ohio Municipal Bond Index(1) (unmanaged) (bar 3) Lehman Brothers Municipal Bond Index(2) (unmanaged) (bar 4) Lipper Ohio Municipal Debt Funds Index(3) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (800) 862-7919 or visiting www.americanexpress.com/funds. (1) The Lehman Brothers Ohio Municipal Bond Index, an unmanaged index, is a subset of the Lehman Brothers Municipal Bond Index. The index is made up of investment-grade, tax-exempt, and fixed-rate bonds issued in the state of Ohio. All securities have effective maturities greater than one year and are selected from issues larger than $50 million. (2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of a representative list of general obligation, revenue, insured and pre-refunded bonds. The index is frequently used as a general measure of tax-exempt bond market performance. The index reflects reinvestment of all distributions and changes in market prices, but 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. (3) The Lipper Ohio Municipal Debt Funds Index includes the 10 largest municipal debt funds in Ohio tracked by Lipper Inc. The index's returns include reinvested dividends. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. - -------------------------------------------------------------------------------- 20 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Performance Summary AXP Ohio Tax-Exempt Fund
AVERAGE ANNUAL TOTAL RETURNS Class A Class B Class C (Inception dates) (7/2/87) (3/20/95) (6/26/00) NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) at Dec. 31, 2004 6 months* +4.53% -0.43% +4.14% -0.86% +4.14% +3.14% 1 year +3.17% -1.74% +2.38% -1.62% +2.38% +2.38% 3 years +4.75% +3.06% +3.96% +3.02% +3.95% +3.95% 5 years +5.76% +4.74% +4.97% +4.80% N/A N/A 10 years +5.58% +5.07% N/A N/A N/A N/A Since inception +6.05% +5.76% +4.28% +4.28% +4.71% +4.71%
* Not annualized. (1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 4.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. - -------------------------------------------------------------------------------- 21 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT Below, Portfolio Manager David Kerwin discusses the Funds' positioning and results for the first half of the current fiscal year. On Aug. 20, 2004, Mr. Kerwin assumed leadership of the Funds' portfolio management team. Q: How did American Express Funds' state tax-exempt funds perform for the six months ended Dec. 31, 2004? A: All Fund returns are for Class A shares, excluding sales charge. All returns are for the six months ended Dec. 31, 2004. o AXP California Tax-Exempt Fund gained 5.29%, compared to the Lipper California Municipal Debt Funds Index, which rose 5.44%. The Lehman Brothers California Municipal Bond Index returned 5.75% for the same period. o AXP Massachusetts Tax-Exempt Fund rose 4.97%, tracking the Lipper Massachusetts Municipal Debt Funds Index, which also rose 4.97%. The Lehman Brothers Massachusetts Municipal Bond Index returned 5.07% for the same period. o AXP Michigan Tax-Exempt Fund gained 4.42%, compared to the Lipper Michigan Municipal Debt Funds Index, which produced a total return of 4.60%. The Lehman Brothers Michigan Municipal Bond Index returned 4.86% for the same period. o AXP Minnesota Tax-Exempt Fund increased 4.58%, edging out the Lipper Minnesota Municipal Debt Funds Index, which gained 4.57%. The Lehman Brothers Minnesota Municipal Bond Index returned 4.85% for the same period. o AXP New York Tax-Exempt Fund advanced 4.38%, while the Lipper New York Municipal Debt Funds Index increased 4.82%. The Lehman Brothers New York Municipal Bond Index returned 5.04% for the same period. o AXP Ohio Tax-Exempt Fund rose 4.53%, while the Lipper Ohio Municipal Debt Funds Index gained 5.17%. The Lehman Brothers Ohio Municipal Bond Index returned 4.80% for the same period. A broad barometer applicable to each of the Funds, the Lehman Brothers Municipal Bond Index, gained 5.19% for the same six-month period. Q: What factors most significantly affected performance during the annual period? A: We are pleased to report that each Fund provided positive returns during a rising interest rate environment. Results for AXP Massachusetts Tax-Exempt Fund and AXP Minnesota Tax-Exempt Fund were in line with their peer group indices. However, during the semiannual period, some of the Funds had strong exposure to the intermediate segment of the municipal yield curve, and this negatively affected their relative results. We believed bond prices would decline amid a - -------------------------------------------------------------------------------- 22 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Questions & Answers (begin callout quote)> Several Funds benefited from a reduction in exposure to shorter-term bonds as the yield curve flattended. (end callout quote) (begin callout quote)> We intend to maintain our focus on seeking higher-quality securities with good structure and on further diversifying the portfolios.(end callout quote) tightening Federal Reserve Board (Fed) monetary policy. Instead, most municipal bond prices rose, and long-term bonds rose by a greater degree than intermediate-term bonds. Specifically, the positive price impact of a strong bond market over the semiannual period was greater on 20- to 30-year higher quality municipal bonds than on the intermediate segment, where several Funds such as AXP Ohio Tax-Exempt Fund had relatively greater exposure. AXP California Tax-Exempt Fund and AXP New York Tax-Exempt Fund were also hurt by their avoidance of non-enhanced municipal tobacco bonds. This municipal fixed income sector significantly outpaced the Lehman Brothers Municipal Bond Index for the semiannual period. Other factors detracting from AXP California Tax-Exempt Fund's relative performance were a relatively lower exposure to bonds rated BBB, which overall outperformed higher-quality bonds during the six-month period, and a relatively higher position in cash, which meant the Fund did not fully participate in the municipal bond rally of July and August. Finally, AXP California Tax-Exempt Fund as well as the state tax-exempt funds focusing on Massachusetts, Michigan and Minnesota were hurt a bit by exposure to non-investment grade or non-rated bonds, which did not rally during the third quarter as much as investment grade bonds did. On the positive side, several Funds benefited from a reduction in exposure to shorter-term bonds as the yield curve flattened and this part of the curve underperformed. At the same time, we also changed the mix of our exposure on the front-end of the yield curve by selectively adding "mandatory put bonds" and high-quality zero coupon bonds, both of which offer significant additional yield. Mandatory put bonds, sometimes known as mandatory tenders, contain a - -------------------------------------------------------------------------------- 23 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Questions & Answers (graph) >> How changes in interest rates affect bond prices If interest rates increase, then bond prices decline (teeter totter graph illustration) If interest rates decrease, then bond prices increase. provision that a holder of the bonds must surrender the security to the issuer or its agent for purchase, usually at par, at some date prior to the final stated maturity. Zero coupon municipal bonds are securities that make no periodic interest payments but are sold at a deep discount from their face value and mature at par. The accretion of the bonds' price from a discount to par is usually considered as tax-exempt income for the Fund. Most of the Funds benefited from exposure to bonds that were advance refunded during the period; the only exceptions were AXP Minnesota Tax-Exempt Fund and AXP New York Tax-Exempt Fund. Advance refunding is a procedure in which a bond issuer floats a second bond at a lower interest rate, and the proceeds from the sale of the second bond are safely invested, usually in Treasury securities which, in turn, are held in escrow collateralizing the first bond. Given that the advance refunded bonds become, essentially, fully tax-exempt U.S. Treasury securities and no longer represent the credit risk profile of the original borrower, they often increase in value -- sometimes significantly. Also boosting several Funds' performance was the sale of select below investment grade credits when the securities appreciated in price to the targets we had established for them. The relative performance of AXP California Tax-Exempt Fund was also helped by its position in California general obligation tax-exempt bonds. Having increased the Fund's position in these bonds before the ratings upgrades took effect, the Fund benefited from their subsequent strong performance. Q: What changes did you make to the Funds and how are they currently positioned? A: Besides reducing exposure to short-term bonds as the municipal yield curve flattened during the semiannual period, we also aggressively sought opportunities to selectively sell non-rated and below investment grade securities in each portfolio and replace these holdings with A to BBB-rated bonds that still offer - -------------------------------------------------------------------------------- 24 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Questions & Answers higher yields than the highest quality bonds (i.e., AAA-rated), but with better liquidity and risk characteristics. To help manage risk, we also diversified by maturity, among sectors, type of obligation and structural attributes such as coupon and call features. We strongly believe that a disciplined adherence to portfolio diversification -- across multiple parameters -- should help to reduce the volatility and risks associated with interest rate movements. We opportunistically sought to reduce the portfolios' exposure to bonds that are subject to the alternative minimum tax (AMT) and generally avoided purchasing any bonds subject to the AMT during the semiannual period. As more and more investors become subject to the tax, we believe this is going to become an increasingly important advantage for our shareholders. In AXP California Tax-Exempt Fund, we established a modest exposure to non-enhanced municipal tobacco bonds. Not only does this municipal fixed income sector offer significant yield currently, but initiating this position also should help us to reduce portfolio volatility relative to both its benchmark index and its peers and to further diversify the structural attributes of each portfolio. We also incrementally added to this Fund's position in California general obligation tax-exempt bonds during the period. Q: How do you intend to manage the Funds in the coming months? A: We believe the U.S. economy will continue to expand, and the Fed may increase interest rates more vigorously than the market currently anticipates, despite its December statement that "inflation and longer-term inflation expectations remain well contained." Typically, rising rates are negative for the bond market. However municipal bonds have historically weathered this environment better than taxable bonds over time. It is important to note that we do not make significant Fund management decisions based on interest rate forecasts, but rather stick to our discipline of staying fully invested to maintain a high level of tax-exempt income. Given this view, we plan to maintain a neutral duration in the portfolios relative to their respective Lehman benchmark index for the near term. We also intend to maintain our focus on seeking higher-quality securities with good structure and on further diversifying the portfolios. In those Funds where applicable, we also intend to seek opportunities to increase holdings in non-enhanced municipal tobacco bonds. Each Fund's emphasis continues to be on generating a high level of income generally exempt from federal income tax as well as from the respective state and local taxes. - -------------------------------------------------------------------------------- 25 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Investments in Securities AXP California Tax-Exempt Fund Dec. 31, 2004 (Unaudited) (Percentages represent value of investments compared to net assets) Municipal bonds(96.1%) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) ABAG Finance Authority for Nonprofit Corporations Certificate of Participation National Center for International Schools Project Series 1996 05-01-26 7.38% $2,200,000 $2,275,218 ABAG Finance Authority for Nonprofit Corporations Revenue Bonds San Diego Hospital Association Series 2001A 08-15-20 6.13 2,500,000 2,700,475 Alhambra City Elementary School District Unlimited General Obligation Bonds Capital Appreciation Zero Coupon Series 1999A (FSA) 09-01-22 5.95 1,055,000(f) 446,497 Anaheim Public Financing Authority Revenue Bonds Capital Appreciation Public Improvements Project Zero Coupon Series 1997C (FSA) 09-01-25 5.61 2,170,000(f) 753,055 Anaheim Union High School District Unlimited General Obligation Bonds Series 2002A (FSA) 08-01-16 5.38 1,550,000 1,742,913 Beaumont Financing Authority Revenue Bonds Series 2000A 09-01-32 7.38 1,955,000 2,075,995 Beverly Hills Public Financing Authority Revenue Bonds Capital Improvements Project Series 1998A 06-01-23 5.00 3,000,000 3,110,040 California Educational Facilities Authority Revenue Bonds Stanford University Series 1997N 12-01-27 5.20 1,000,000 1,045,970 California Educational Facilities Authority Revenue Bonds University of Southern California Series 2003A 10-01-33 5.00 2,000,000 2,054,200 California Health Facilities Financing Authority Revenue Bonds Catholic Healthcare West Series 2004G 07-01-23 5.25 3,500,000 3,602,760 California Health Facilities Financing Authority Revenue Bonds Sutter Health Series 1999A (MBIA) 08-15-28 5.35 2,500,000 2,628,600 California Infrastructure & Economic Development Bank Revenue Bonds American Center for Wine, Food & Arts Series 1999 (ACA) 12-01-19 5.70 2,500,000 2,657,525 California Rural Home Mortgage Finance Authority Revenue Bonds Mortgage-backed Securities Program Series 1997A-2 (GNMA/FNMA/FHLMC) A.M.T. 09-01-29 7.00 160,000 163,459 California Rural Home Mortgage Finance Authority Revenue Bonds Mortgage-backed Securities Program Series 1998B-5 (GNMA/FNMA/FHLMC) A.M.T. 12-01-29 6.35 125,000 126,395 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 26 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP California Tax-Exempt Fund Municipal bonds(continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) California State Department of Transportation Revenue Bonds Federal Highway Grant Series 2004A (FGIC) 02-01-33 5.00% $1,000,000 $1,016,740 California State Department of Water Resources Revenue Bonds Series 2002A (MBIA) 05-01-09 5.25 3,200,000 3,545,824 05-01-10 5.25 3,000,000 3,354,660 05-01-15 6.00 2,000,000 2,327,440 California State Public Works Board Revenue Bonds Department of General Services Capital East End Series 2002A 12-01-06 5.00 1,000,000 1,049,270 California Statewide Communities Development Authority Revenue Bonds Thomas Jefferson School of Law Project Series 2001 10-01-31 7.75 2,500,000 2,677,975 Cerritos Public Financing Authority Tax Allocation Bonds Redevelopment Project Series 2002A (AMBAC) 11-01-24 5.00 2,000,000 2,134,040 City of Redlands Refunding Bonds Certificate of Participation Series 2003 (AMBAC) 09-01-12 5.00 1,100,000 1,228,700 Commonwealth of Puerto Rico Unlimited General Obligation Bonds Public Improvement Series 2004A 07-01-24 5.00 1,000,000(c) 1,039,050 Commonwealth of Puerto Rico Unlimited General Obligation Refunding Bonds Public Improvement Series 2001A (XLCA) 07-01-17 5.50 1,000,000(c) 1,160,220 Contra Costa County Revenue Bonds Cypress Meadows Project Series 1998E A.M.T. 09-01-28 7.00 2,000,000(b,j) 1,995,800 County of Riverside Certificate of Participation Series 1998 (MBIA) 12-01-21 5.00 1,530,000 1,610,922 County of San Diego Certificate of Participation Series 1993 Inverse Floater (AMBAC) 09-01-07 9.22 3,200,000(g) 3,731,328 Desert Sands Unified School District Refunding Bonds Certificate of Participation Series 2003 (MBIA) 03-01-17 5.25 1,135,000 1,259,510 Encinitas Union School District Unlimited General Obligation Bonds Capital Appreciation Zero Coupon Series 1996 (MBIA) 08-01-15 5.85 2,500,000(f) 1,592,750 Fontana Unified School District Pre-refunded Unlimited General Obligation Bonds Series 1995C (FGIC) 05-01-20 6.15 3,470,000 3,844,482 Fontana Unified School District Unlimited General Obligation Bonds Convertible Capital Appreciation Series 1997D (FGIC) 05-01-22 5.75 2,000,000 2,242,580 Golden State Tabacco Securitization Corporation Revenue Bonds Series 2003A-1 06-01-33 6.25 750,000 750,953 06-01-39 6.75 750,000 752,333 Golden State Tobacco Securitization Corporation Revenue Bonds Enhanced Asset-backed Series 2003B (FGIC) 06-01-28 5.38 2,500,000 2,633,225 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 27 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP California Tax-Exempt Fund Municipal bonds(continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Inglewood Redevelopment Agency Refunding Tax Allocation Bonds Merged Redevelopment Project Series 1998A (AMBAC) 05-01-23 5.25% $1,100,000 $1,241,988 La Palma Community Development Commission Refunding Tax Allocation Bonds La Palma Community Development Project #1 Series 2001 (ACA) 06-01-21 5.50 1,830,000 1,933,212 Lake Elsinore Public Financing Authority Revenue Bonds Series 1997F 09-01-20 7.10 2,815,000 3,039,862 Lancaster Redevelopment Agency Refunding Tax Allocation Bonds Combined Redevelopment Project Areas Series 2003 (MBIA) 08-01-17 5.13 1,840,000 2,062,272 Los Angeles County Public Works Financing Authority Revenue Bonds Multiple Capital Facilities Project Series 1997V-B (AMBAC) 12-01-29 5.13 1,000,000 1,042,420 Los Angeles County Sanitation Districts Financing Authority Revenue Bonds Capital Project Series 2003A (FSA) 10-01-13 5.00 2,000,000 2,233,660 Los Angeles Department of Water & Power Revenue Bonds Power System Series 2003B (FSA) 07-01-16 5.13 1,460,000 1,611,490 07-01-17 5.13 2,315,000 2,544,602 Los Angeles Harbor Department Revenue Bonds Series 1988 Escrowed to Maturity 10-01-18 7.60 965,000 1,222,008 Los Angeles Unified School District Certificate of Participation Multiple Properties Project Series 2002B (FSA) 10-01-08 5.00 1,000,000 1,092,040 Los Angeles Unified School District Certificate of Participation Multiple Properties Project Series 2002B Escrowed to Maturity (FSA) 10-01-06 5.00 1,000,000 1,049,060 Los Angeles Unified School District General Obligation Bonds Series 2001A (FSA) 07-01-21 5.00 2,000,000 2,128,380 Menlo Park Unlimited General Obligation Bonds Series 2002 08-01-32 5.30 1,900,000 2,002,619 Metropolitan Water District of Southern California Pre-refunded Revenue Bonds Series 1997A 07-01-26 5.00 3,000,000 3,267,060 Mountain View Los Altos Union High School District Pre-refunded Unlimited General Obligation Bonds Series 1995A 08-01-15 5.75 1,200,000 1,250,388 Oxnard School District Unlimited General Obligation Refunding Bonds Series 2001A (MBIA) 08-01-30 5.75 2,575,000 2,961,379 Paramount Redevelopment Agency Tax Allocation Bonds Redevelopment Project Area #1 Series 2003 (MBIA) 08-01-15 5.00 2,000,000 2,184,840 Pittsburg Redevelopment Agency Tax Allocation Bonds Los Medanos Community Development Project Zero Coupon Series 1999 (AMBAC) 08-01-24 6.05 2,100,000(f) 773,304 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 28 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP California Tax-Exempt Fund Municipal bonds(continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Port of Oakland Revenue Bonds Series 1997G (MBIA) A.M.T. 11-01-25 5.38% $3,080,000 $3,241,792 Port of Oakland Revenue Bonds Series 2000K (FGIC) A.M.T. 11-01-18 5.63 1,000,000 1,089,650 Puerto Rico Public Finance Corporation Revenue Bonds Commonwealth Appropriation Series 2004A (MBIA) 08-01-29 5.25 1,000,000(c,h) 1,107,450 Richmond Joint Powers Financing Authority Refunding Revenue Bonds Lease & Gas Tax Series 1995A 05-15-13 5.25 2,000,000 1,985,520 Sacramento City Financing Authority Revenue Bonds City Hall & Redevelopment Projects Series 2002A (FSA) 12-01-19 5.38 1,580,000 1,757,624 Sacramento Cogeneration Authority Pre-refunded Revenue Bonds Procter & Gamble Project Series 1995 07-01-10 6.38 500,000 520,920 Sacramento Municipal Utility District Refunding Revenue Bonds Series 2003S (FSA) 11-15-10 5.00 2,500,000 2,789,575 San Bernardino Joint Powers Financing Authority Refunding Tax Allocation Bonds Series 2002 04-01-26 6.63 2,000,000 2,075,940 San Diego Public Water Facilities Financing Authority Revenue Bonds Series 2002 (MBIA) 08-01-26 5.00 2,500,000 2,577,750 San Francisco Bay Area Rapid Transit District Revenue Bonds Series 2001 (AMBAC) 07-01-36 5.13 2,000,000 2,056,060 San Francisco City & County Airports Commission Refunding Revenue Bonds 2nd Series 2001B-27 (FGIC) 05-01-16 5.25 2,170,000 2,378,450 San Francisco State Building Authority Revenue Bonds San Francisco Civic Center Complex Series 1996A (AMBAC) 12-01-16 5.25 2,000,000 2,146,860 San Jose Financing Authority Revenue Bonds Civic Center Project Series 2002B (AMBAC) 06-01-37 5.00 3,000,000 3,057,480 San Juan Unified School District Unlimited General Obligation Bonds Capital Appreciation Zero Coupon Series 1999 (FSA) 08-01-21 5.68 820,000(f) 369,410 08-01-24 5.70 1,810,000(f) 679,347 San Mateo County Community College District Unlimited General Obligation Bonds Election of 2001 Series 2002A (FGIC) 09-01-18 5.38 1,000,000 1,118,510 San Ramon Refunding Bonds Certificate of Participation Series 2001 (AMBAC) 03-01-21 5.00 1,835,000 1,932,842 Santa Clara Valley Transportation Authority Revenue Bonds Series 2004A (AMBAC) 04-01-36 5.50 1,500,000(h) 1,579,590 Santa Maria Joint Union High School District Unlimited General Obligation Bonds Election of 2000 Series 2003B (FSA) 08-01-27 5.00 3,000,000 3,132,690 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 29 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP California Tax-Exempt Fund Municipal bonds(continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) South Tahoe Joint Powers Financing Authority Refunding Revenue Bonds Redevelopment Project Area #1 Series 1995B 10-01-20 6.25% $2,700,000 $2,833,137 Southern California Public Power Authority Revenue Bonds Series 1992 07-01-12 6.00 100,000 100,551 State of California Unlimited General Obligation Bonds Series 2000 05-01-19 5.63 3,000,000 3,359,820 10-01-25 5.38 2,500,000 2,666,625 State of California Unlimited General Obligation Bonds Series 2001 06-01-11 5.50 2,825,000 3,188,069 03-01-31 5.13 2,500,000 2,556,075 06-01-31 5.13 2,500,000 2,558,075 State of California Unlimited General Obligation Bonds Series 2002 02-01-15 6.00 1,000,000 1,176,240 State of California Unlimited General Obligation Bonds Series 2003 02-01-10 5.00 1,000,000 1,092,450 02-01-21 5.25 2,500,000 2,689,125 02-01-29 5.25 2,500,000 2,596,500 02-01-32 5.00 2,500,000 2,541,750 State of California Unlimited General Obligation Bonds Series 2004 03-01-14 5.25 2,000,000 2,242,100 04-01-34 5.25 2,200,000 2,286,328 State of California Unlimited General Obligation Bonds Series 2004 (FGIC) 02-01-33 5.00 2,500,000 2,569,675 State of California Unlimited General Obligation Bonds Series 2004A 01-01-11 5.25 5,000,000 5,578,249 State of California Unlimited General Obligation Bonds Series 2004B 07-01-23 5.00 2,500,000(h) 2,702,350 State of California Unlimited General Obligation Bonds Various Purpose Series 2003 11-01-22 5.00 2,000,000 2,095,780 11-01-23 5.13 2,500,000 2,634,925 11-01-24 5.13 2,000,000 2,097,480 State of California Unlimited General Obligation Bonds Veterans Series 2000B A.M.T. 12-01-12 4.95 2,250,000 2,324,768 12-01-13 5.05 1,435,000 1,487,722 12-01-14 5.15 2,535,000 2,613,484 State of California Unlimited General Obligation Refunding Bonds Series 2002 02-01-30 5.25 2,500,000 2,598,600 Stockton Revenue Bonds Mortgage-backed Securities Program Series 1990A (GNMA/FNMA/FHLMC) A.M.T. 02-01-23 7.50 40,000 42,772 University of California Revenue Bonds Multiple Purpose Series 2000K (FGIC) 09-01-20 5.00 1,010,000 1,064,712 University of California Revenue Bonds Multiple Purpose Projects Series 2003Q (FSA) 09-01-18 5.00 2,000,000 2,151,760 Walnut Energy Center Authority Revenue Bonds Series 2004A (AMBAC) 01-01-29 5.00 2,500,000 2,572,925 01-01-34 5.00 1,000,000 1,021,780 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 30 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP California Tax-Exempt Fund Municipal bonds(continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) West Contra Costa Unified School District Unlimited General Obligation Bonds Election of 2000 Series 2003C (FGIC) 08-01-06 3.00% $1,985,000 $2,010,626 08-01-12 4.00 1,000,000 1,049,280 Western Hills Water District Special Tax Bonds Diablo Grande Community Facilities #1 Series 2001 09-01-31 6.88 1,000,000 1,047,330 Whittier Union High School District Unlimited General Obligation Bonds Election of 1999 Series 2003D (FSA) 08-01-28 5.00 2,615,000 2,693,921 Total municipal bonds (Cost: $198,070,498) $206,813,931 Municipal notes (1.5%) Issue(d,e,h,i) Effective Amount Value(a) yield payable at maturity California Housing Finance Agency Revenue Bonds Home Mortgage V.R.D.N. Series 2002B (Lloyds TSB Bank) FSA A.M.T. 08-01-33 2.30% $1,600,000 $1,600,000 State of California Unlimited General Obligation Bond Daily-Kindergarten University V.R.D.N. Series 2004B-1 (Citibank N.A./State Street Bank & Trust/ National Australia Bank) 05-01-34 2.16 1,600,000 1,600,000 Total municipal notes (Cost: $3,200,000) $3,200,000 Total investments in securities (Cost: $201,270,498)(k) $210,013,931 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 states, territories, possessions, or sovereign nations within the territorial boundaries of the United States. The securities represented 1.5% of net assets at Dec. 31, 2004. (d) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- At of Dec. 31, 2004, the value of securities subject to alternative minimum tax represented 6.8% 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 - -------------------------------------------------------------------------------- 31 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP California Tax-Exempt Fund Notes to investments in securities (continued) (e) 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 Guaranty Insurance Company FHA -- Federal Housing Authority FNMA -- Federal National Mortgage Association FHLMC -- Federal Home Loan Mortgage Corporation FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association MBIA -- MBIA Insurance Corporation XLCA -- XL Capital Assurance (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 the LIBOR (London InterBank Offering Rate) Index. Interest rate disclosed is the rate in effect on Dec. 31, 2004. At Dec. 31, 2004, the value of inverse floaters represented 1.7% of net assets. (h) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Dec. 31, 2004. (i) The Fund is entitled to receive principal and interest from the party within parentheses after a day or a week's notice or upon maturity. The maturity date disclosed represents the final maturity. Interest rate varies to reflect current market conditions; rate shown is the effective rate on Dec. 31, 2004. (j) Identifies issues considered to be illiquid as to their marketability (see Note 1 to the financial statements). Information concerning such security holdings at Dec. 31, 2004, is as follows: Security Acquisition date Cost Contra Costa County Revenue Bonds Cypress Meadows Project Series 1998E A.M.T. 7.00% 2028 09-21-98 $2,000,000 (k) At Dec. 31, 2004, the cost of securities for federal income tax purposes was approximately $201,270,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $8,925,000 Unrealized depreciation (181,000) -------- Net unrealized appreciation $8,744,000 ---------- How to find information about the Fund's portfolio holdings (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at www.americanexpress.com/funds. - -------------------------------------------------------------------------------- 32 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Investments in Securities AXP Massachusetts Tax-Exempt Fund Dec. 31, 2004 (Unaudited) (Percentages represent value of investments compared to net assets) Municipal bonds(97.4%) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Boston Metropolitan District Unlimited General Obligation Refunding Bonds Series 2002A 12-01-11 5.13% $2,050,000 $2,284,643 City of Boston Revenue Bonds Series 2004A 11-01-22 5.00 1,000,000 1,061,310 City of Boston Unlimited General Obligation Refunding Bonds Series 2003A (MBIA) 02-01-07 2.63 2,185,000 2,197,935 02-01-23 5.00 1,000,000 1,054,960 City of Springfield Limited General Obligation Bonds State Qualified Series 2003 (MBIA) 01-15-20 5.25 1,405,000 1,545,823 Commonwealth of Massachusetts Limited General Obligation Refunding Bonds Series 1997A (AMBAC) 08-01-10 5.75 2,185,000 2,489,960 Commonwealth of Massachusetts Limited General Obligation Refunding Bonds Series 2002B 02-01-06 5.00 2,000,000 2,059,200 Commonwealth of Massachusetts Limited General Obligation Bonds Consolidated Loan Series 2002C (FSA) 11-01-15 5.50 2,500,000 2,878,875 Commonwealth of Massachusetts Limited General Obligation Bonds Consolidated Loan Series 2002E 01-01-10 5.50 3,000,000 3,350,999 Commonwealth of Massachusetts Pre-refunded Limited General Obligation Bonds Consolidated Loan Series 2002A (FGIC) 01-01-14 5.00 2,500,000 2,727,925 Commonwealth of Massachusetts Pre-refunded Limited General Obligation Bonds Consolidated Loan Series 2002C 11-01-30 5.25 2,000,000 2,239,040 Commonwealth of Massachusetts Pre-refunded Unlimited General Obligation Bonds Consolidated Loan Series 2003D 10-01-22 5.25 1,000,000 1,125,910 Commonwealth of Massachusetts Revenue Bonds Grant Anticipation Notes Series 1998A (FSA) 06-15-09 5.25 1,500,000 1,652,115 Commonwealth of Massachusetts Special Obligation Bonds Refunding Notes Federal Highway Grant Anticipation Series 2003A (FSA) 12-15-14 5.00 1,000,000 1,098,590 Freetown Lakeville Regional School District Unlimited General Obligation Bonds Series 2003 (MBIA) 01-01-13 5.00 1,865,000 2,063,977 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 33 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Massachusetts Tax-Exempt Fund Municipal bonds(continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Massachusetts Bay Transportation Authority Refunding Revenue Bonds Series 1992B 03-01-16 6.20% $1,500,000 $1,784,490 Massachusetts Development Finance Agency Pre-refunded Revenue Bonds Briarwood Series 2001B 12-01-30 8.25 750,000 964,140 Massachusetts Development Finance Agency Revenue Bonds 1st Mortgage Berkshire Retirement Series 1999 07-01-29 5.63 1,250,000 1,241,100 Massachusetts Development Finance Agency Revenue Bonds Boston University Series 1999P 05-15-29 6.00 1,400,000 1,576,624 Massachusetts Development Finance Agency Revenue Bonds Devens Electric System Series 2001 12-01-30 6.00 1,000,000 1,066,120 Massachusetts Development Finance Agency Revenue Bonds Massachusetts College of Pharmacy Series 1999B 07-01-20 6.63 1,000,000 1,106,260 Massachusetts Development Finance Agency Revenue Bonds May Institute Issue Series 1999 (Radian Group Financial Guaranty) 09-01-29 5.75 1,000,000 1,067,730 Massachusetts Development Finance Agency Revenue Bonds SeMass System Series 2001B (MBIA) A.M.T. 01-01-05 5.00 2,000,000 2,000,166 Massachusetts Education Loan Authority Revenue Bonds Issue E Series 1994B (AMBAC) A.M.T. 01-01-12 6.00 325,000 331,396 Massachusetts Health & Educational Facilities Authority Revenue Bonds Boston College Series 2003N 06-01-06 4.00 1,000,000 1,023,780 06-01-21 5.25 1,000,000 1,088,450 Massachusetts Health & Educational Facilities Authority Revenue Bonds Harvard University Series 2002FF 07-15-37 5.13 3,000,000 3,126,330 Massachusetts Health & Educational Facilities Authority Revenue Bonds Massachusetts Institute of Technology Series 2003L 07-01-13 5.00 1,000,000 1,113,220 Massachusetts Health & Educational Facilities Authority Revenue Bonds Massachusetts Institute of Technology Series 2004M 07-01-25 5.25 1,000,000 1,132,930 Massachusetts Health & Educational Facilities Authority Revenue Bonds New England Medical Center Hospital Series 2002H (FGIC) 05-15-08 5.00 1,655,000 1,785,877 Massachusetts Health & Educational Facilities Authority Revenue Bonds Williams College Series 2003H 07-01-33 5.00 1,750,000 1,793,785 Massachusetts Housing Finance Agency Revenue Bonds Single Family Series 2003-98 A.M.T. 06-01-23 4.88 985,000 980,814 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 34 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Massachusetts Tax-Exempt Fund Municipal bonds(continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Massachusetts Municipal Wholesale Electric Company Revenue Bonds Nuclear Project #5 Series 2001A (MBIA) 07-01-10 5.00% $1,000,000 $1,094,690 Massachusetts State College Building Authority Refunding Revenue Bonds Series 2003B (XLCA) 05-01-07 5.00 1,080,000 1,142,014 05-01-08 5.00 1,130,000 1,217,236 Massachusetts State Industrial Finance Agency Revenue Bonds Marina Bay LLC Project Series 1997 A.M.T. 12-01-27 7.50 1,000,000 1,018,830 Massachusetts State Industrial Finance Agency Revenue Bonds Tufts University Series 1998H (MBIA) 02-15-28 4.75 1,000,000 1,004,400 Massachusetts State Port Authority Revenue Bonds Series 2003A (MBIA) 07-01-18 5.00 1,000,000 1,077,340 Massachusetts State Water Pollution Abatement Revenue Bonds Pool Program Series 2004-10 08-01-34 5.00 1,000,000 1,025,980 Massachusetts State Water Pollution Abatement Revenue Bonds Pre-refunded Pool Program Series 2002-8 08-01-20 5.00 1,475,000 1,631,350 Massachusetts State Water Pollution Abatement Revenue Bonds Un-refunded Balance Pool Program Series 2002-8 08-01-20 5.00 25,000 26,585 Massachusetts State Water Resources Authority Refunding Revenue Bonds Series 1998B (FSA) 08-01-11 5.50 1,930,000 2,192,403 Massachusetts State Water Resources Authority Revenue Bonds Series 1992A (FGIC) 07-15-19 6.50 2,000,000 2,462,920 Massachusetts State Water Resources Authority Revenue Bonds Series 2004D (MBIA) 08-01-27 4.75 1,000,000 1,012,620 Puerto Rico Electric Power Authority Revenue Bonds Series 1998DD (FSA) 07-01-13 5.13 1,000,000(c) 1,091,430 Puerto Rico Electric Power Authority Revenue Bonds Series 2002A Inverse Floater (MBIA) 07-01-17 7.36 1,500,000(b,c) 2,013,180 Southeastern Massachusetts University Building Authority Pre-refunded Revenue Bonds Series 1995A (AMBAC) 05-01-16 5.75 1,250,000 1,290,063 University of Massachusetts Building Authority Refunding Revenue Bonds Series 2003-1 (AMBAC) 11-01-21 5.25 1,000,000 1,099,120 University of Massachusetts Building Authority Revenue Bonds Series 1976 Escrowed to Maturity 05-01-11 7.50 65,000 74,570 Westfield Limited General Obligation Refunding Bonds Series 2003 (MBIA) 09-01-12 5.00 1,000,000 1,113,420 09-01-17 5.00 940,000 1,018,716 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 35 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Massachusetts Tax-Exempt Fund Municipal bonds(continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Woods Hole Martha's Vineyard & Nantucket Steamship Authority Unlimited General Obligation Bonds Series 2004B (MBIA) 03-01-20 5.00% $750,000 $810,105 Worcester Limited General Obligation Bonds Series 2001A (FGIC) 08-15-12 5.50 1,400,000 1,580,656 Total municipal bonds (Cost: $75,420,566) $78,012,102 Municipal note (1.1%) Issuer(e,f,g) Effective Amount Value(a) yield payable at maturity Massachusetts Health & Educational Facilities Authority Revenue Bonds Capital Asset Program V.R.D.N. Series 1985E (Fleet National Bank) 01-01-35 2.15% $860,000 $860,000 Total municipal note (Cost: $860,000) $860,000 Total investments in securities (Cost: $76,280,566)(h) $78,872,102 Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Inverse floaters represent securities that pay interest at a rate that increases (decreases) in the same magnitude as, or in a multiple of, a decline (increase) in market short-term rates. Interest rate disclosed is the rate in effect on Dec. 31, 2004. At Dec. 31, 2004, the value of inverse floaters represented 2.5% of net assets. (c) Municipal obligations include debt obligations issued by or on behalf of states, territories, possessions, or sovereign nations within the territorial boundaries of the United States. The securities represented 3.9% of net assets at Dec. 31, 2004. (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 Guaranty Insurance Company FHA -- Federal Housing Authority FNMA -- Federal National Mortgage Association FHLMC -- Federal Home Loan Mortgage Corporation FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association MBIA -- MBIA Insurance Corporation XLCA -- XL Capital Assurance - -------------------------------------------------------------------------------- 36 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Massachusetts Tax-Exempt Fund Notes to investments in securities (continued) (e) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- At Dec. 31, 2004, the value of securities subject to alternative minimum tax represented 5.4% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note (f) The Fund is entitled to receive principal and interest from the party within parentheses after a day or a week's notice or upon maturity. The maturity date disclosed represents the final maturity. Interest rate varies to reflect current market conditions; rate shown is the effective rate on Dec. 31, 2004. (g) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Dec. 31, 2004. (h) At Dec. 31, 2004, the cost of securities for federal income tax purposes was approximately $76,281,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $2,713,000 Unrealized depreciation (122,000) -------- Net unrealized appreciation $2,591,000 ---------- How to find information about the Fund's portfolio holdings (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at www.americanexpress.com/funds. - -------------------------------------------------------------------------------- 37 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Investments in Securities AXP Michigan Tax-Exempt Fund Dec. 31, 2004 (Unaudited) (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(d,e) Allegan Hospital Finance Authority Refunding Revenue Bonds Allegan General Hospital Series 1999 11-15-21 7.00% $1,000,000 $1,030,750 Allen Park Public School District Unlimited General Obligation Bonds School Building & Site Series 2003 (Qualified School Bond Loan Fund) 05-01-12 5.00 1,000,000 1,102,890 05-01-18 5.00 1,000,000 1,078,220 Anchor Bay School District Unlimited General Obligation Bonds School Building & Site Series 2003 (Qualified School Bond Loan Fund) 05-01-29 5.00 1,000,000 1,031,600 Chippewa Valley Schools Unlimited General Obligation Refunding Bonds Series 2003 (Qualified School Bond Loan Fund) 05-01-21 5.00 745,000 791,831 Commonwealth of Puerto Rico Unlimited General Obligation Bonds Public Improvement Series 2004A 07-01-24 5.00 500,000(c) 519,525 Concord Academy/Boyne Certificate of Participation Series 1998 10-01-19 7.00 965,000 958,940 Detroit Pre-refunded Revenue Bonds Second Lien Series 1995A (MBIA) 07-01-25 5.50 500,000 513,595 Detroit Pre-refunded Unlimited General Obligation Bonds Series 1995A 04-01-15 6.80 1,000,000 1,021,800 Detroit Revenue Bonds Senior Lien Series 2003A (MBIA) 07-01-34 5.00 1,375,000 1,408,426 Detroit Revenue Bonds Series 2003B (MBIA) 07-01-32 5.25 1,500,000 1,585,140 Detroit Unlimited General Obligation Bonds Series 2001A-1 (MBIA) 04-01-15 5.38 1,000,000 1,112,270 Detroit City School District Unlimited General Obligation Bonds School Building & Site Improvement Series 2003B (FGIC) (Qualified School Bond Loan Fund) 05-01-11 5.25 1,000,000 1,118,270 Dickinson County Economic Development Corporation Refunding Revenue Bonds International Paper Company Projects Series 2004A 11-01-18 4.80 500,000 504,260 Eastern Michigan University Refunding Revenue Bonds Series 2003A (FGIC) 06-01-28 5.00 1,000,000 1,027,580 Genesee County Limited General Obligation Bonds Sewer Disposal System #3 Series 1996A (AMBAC) 04-01-15 5.40 1,000,000 1,055,530 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 38 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Michigan Tax-Exempt Fund Municipal bonds(continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Goodrich Area School District Unlimited General Obligation Bonds Series 2003B (Qualified School Bond Loan Fund) 05-01-27 5.00% $1,000,000 $1,039,710 Grand Rapids Building Authority Revenue Bonds Series 2002A (AMBAC) 10-01-17 5.50 1,270,000 1,429,817 Howell Public Schools Unlimited General Obligation Bonds School Building & Site Series 2003 (Qualified School Bond Loan Fund) 05-01-29 5.00 1,000,000 1,031,600 Hudsonville Public Schools Unlimited General Obligation Refunding Bonds Series 1997 (FGIC) (Qualified School Bond Loan Fund) 05-01-27 5.15 1,000,000 1,019,480 Jackson Limited General Obligation Bonds Capital Appreciation Downtown Development Zero Coupon Series 2001 (FSA) 06-01-21 5.58 1,450,000(b) 684,299 L'Anse Creuse Public Schools Unlimited General Obligation Refunding Bonds Building & Site Series 2003 (Qualified School Bond Loan Fund) 05-01-11 4.00 1,000,000 1,045,430 Lakeshore Public Schools Unlimited General Obligation Refunding Bonds Series 2000 (Qualified School Bond Loan Fund) 05-01-09 5.00 1,400,000 1,528,688 Lansing Community College Limited General Obligation Bonds Series 2002 (FGIC) 05-01-12 5.00 1,000,000 1,106,990 Lawton Community Schools Unlimited General Obligation Bonds Series 2001 (Qualified School Bond Loan Fund) 05-01-31 5.00 1,000,000 1,021,370 Lincoln Park School District Pre-refunded Unlimited General Obligation Bonds Series 1996 (FGIC) (Qualified School Bond Loan Fund) 05-01-26 5.90 1,000,000 1,059,130 Manchester Community Schools Unlimited General Obligation Refunding Bonds Building & Site Series 2001 (Qualified School Bond Loan Fund) 05-01-26 5.00 1,400,000 1,449,742 Michigan Municipal Bond Authority Revenue Bonds Clean Water State Revolving Fund Series 2002 10-01-07 5.25 1,000,000 1,076,180 10-01-20 5.38 1,000,000 1,109,640 10-01-21 5.38 1,000,000 1,103,980 Michigan Public Power Agency Refunding Revenue Bonds Belle River Project Series 2002A (MBIA) 01-01-09 5.25 2,000,000 2,194,019 Michigan State Building Authority Refunding Revenue Bonds Facilities Program Series 2003 II (MBIA) 10-15-29 5.00 1,000,000 1,030,740 Michigan State Building Authority Revenue Bonds Facilities Program Series 2000 I 10-15-16 5.25 1,000,000 1,092,410 Michigan State Building Authority Revenue Bonds Facilities Program Series 2001 I 10-15-08 5.50 500,000 553,540 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 39 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Michigan Tax-Exempt Fund Municipal bonds(continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Michigan State Building Authority Revenue Bonds State Police Communications System Series 2002 Escrowed to Maturity 10-01-07 4.00% $1,000,000 $1,043,760 Michigan State Hospital Finance Authority Revenue Bonds Oakwood Obligated Group Series 2003 11-01-18 5.50 1,000,000 1,072,460 Michigan State South Central Power Agency Refunding Revenue Bonds Series 2002 (AMBAC) 11-01-10 5.00 2,000,000 2,206,519 Michigan Strategic Fund Refunding Revenue Bonds Detroit Edison Series 1990BB (MBIA) 07-15-08 7.00 1,000,000 1,145,210 Michigan Strategic Fund Refunding Revenue Bonds The Oxford Institute Series 1987A Escrowed to Maturity 08-15-05 7.88 25,000 25,890 Plymouth-Canton Community School District Unlimited General Obligation Refunding Bonds Series 2003 (Qualified School Bond Loan Fund) 05-01-15 5.25 600,000 671,076 Pontiac Tax Increment Finance Authority Refunding Revenue Bonds Tax Increment Development Area #2 Series 2002 (ACA) 06-01-22 5.63 1,000,000 1,057,880 Puerto Rico Public Buildings Authority Refunding Revenue Bonds Government Facilities Series 2002C (XLCA) 07-01-13 5.50 1,000,000(c) 1,156,110 Redford Township Pre-refunded Limited General Obligation Bonds Series 1995 (MBIA) 04-01-16 5.25 1,450,000 1,505,695 Saline Area Schools Unlimited General Obligation Bonds Series 2000A (Qualified School Bond Loan Fund) 05-01-09 4.75 1,000,000 1,081,790 South Lyon Community Schools Unlimited General Obligation Bonds School Building & Site Series 2003 (FGIC) 05-01-28 5.00 1,000,000 1,029,280 Southfield Public Schools Unlimited General Obligation Bonds School Building & Site Series 2003A (Qualified School Bond Loan Fund) 05-01-22 5.25 1,025,000 1,125,532 State of Michigan Unlimited General Obligation Bonds Environmental Programs Series 2003A 05-01-10 5.00 1,000,000 1,100,250 Summit Academy Certificate of Participation Series 1998 08-01-18 7.00 500,000 493,500 Summit Academy North Public School Academy Certificate of Participation Series 2001 07-01-30 7.38 750,000 786,818 Van Buren Township Downtown Development Authority Tax Allocation Bonds Series 1994 10-01-16 8.40 920,000 945,401 Warren Consolidated School District Unlimited General Obligation Bonds School Building & Site Series 2003 (FGIC) 05-01-13 5.00 875,000 970,340 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 40 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Michigan Tax-Exempt Fund Municipal bonds(continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Waverly Community School Pre-refunded Unlimited General Obligation Bonds Series 2000 (FGIC) 05-01-17 5.25% $1,000,000 $1,116,650 Wayne State University Revenue Bonds Series 1999 (FGIC) 11-15-19 5.25 1,000,000 1,077,630 Western Michigan University Refunding Revenue Bonds Series 2003 (MBIA) 11-15-23 4.25 1,000,000 979,610 Western Township Utilities Authority Limited General Obligation Bonds Series 2002 (FGIC) 01-01-08 5.00 1,500,000 1,609,140 Williamston Community School District Unlimited General Obligation Bonds Series 1996 (MBIA) (Qualified School Bond Loan Fund) 05-01-25 5.50 1,000,000 1,154,040 Wyandotte City School District Unlimited General Obligation Refunding Bonds Building & Site Series 2002 (Qualified School Bond Loan Fund) 05-01-14 5.38 1,250,000 1,396,750 Total municipal bonds (Cost: $59,048,561) $61,188,723 Municipal notes (1.3%) Issue(d,e,f,g) Effective Amount Value(a) yield payable at maturity Detroit Revenue Bonds Senior Lien V.R.D.N. Series 2003B (Dexia Credit Local) FSA 07-01-33 2.15% $300,000 $300,000 University of Michigan Refunding Revenue Bonds V.R.D.N. Series 1992A 12-01-19 2.15 500,000 500,000 Total municipal notes (Cost: $800,000) $800,000 Total investments in securities (Cost: $59,848,561)(h) $61,988,723 Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (c) Municipal obligations include debt obligations issued by or on behalf of states, territories, possessions, or sovereign nations within the territorial boundaries of the United States. The securities represented 2.7% of net assets at Dec. 31, 2004. - -------------------------------------------------------------------------------- 41 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Michigan Tax-Exempt Fund Notes to investments in securities (continued) (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 Guaranty Insurance Company FHA -- Federal Housing Authority FNMA -- Federal National Mortgage Association FHLMC -- Federal Home Loan Mortgage Corporation FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association MBIA -- MBIA Insurance Corporation XLCA -- XL Capital Assurance (e) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax 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) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Dec. 31, 2004. (g) The Fund is entitled to receive principal and interest from the party within parentheses after a day or a week's notice or upon maturity. The maturity date disclosed represents the final maturity. (h) At Dec. 31, 2004, the cost of securities for federal income tax purposes was approximately $59,849,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $2,162,000 Unrealized depreciation (22,000) ------- Net unrealized appreciation $2,140,000 ---------- How to find information about the Fund's portfolio holdings (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at www.americanexpress.com/funds. - -------------------------------------------------------------------------------- 42 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Investments in Securities AXP Minnesota Tax-Exempt Fund Dec. 31, 2004 (Unaudited) (Percentages represent value of investments compared to net assets) Municipal bonds(95.5%) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Anoka County Housing & Redevelopment Authority Revenue Bonds Epiphany Assisted Living LLC Project Series 1999 12-01-29 7.40% $3,560,000(i) $3,161,280 Anoka County Housing & Redevelopment Authority Unlimited General Obligation Bonds Housing Development Series 2004 (AMBAC) 02-01-34 5.00 1,355,000 1,371,409 Anoka-Hennepin Independent School District #11 Unlimited General Obligation Bonds Series 2001A (School District Credit Enhancement Program) 02-01-09 5.00 1,040,000 1,133,735 02-01-10 5.00 1,000,000 1,094,420 02-01-13 5.00 4,175,000 4,524,322 02-01-15 5.00 1,990,000 2,136,205 02-01-16 5.00 2,000,000 2,132,340 Austin Housing & Redevelopment Authority Revenue Bonds Courtyard Residence Project Series 2000A 01-01-32 7.25 2,000,000 2,129,400 Bloomington Independent School District #271 Unlimited General Obligation Bonds Building Series 1999B (School District Credit Enhancement Program) 02-01-15 5.00 1,500,000 1,602,270 Bloomington Independent School District #271 Unlimited General Obligation Bonds Series 2001A (FSA) (School District Credit Enhancement Program) 02-01-24 5.13 2,000,000 2,122,160 Buffalo Independent School District #877 Unlimited General Obligation Refunding Bonds Series 1999 (MBIA) (School District Credit Enhancement Program) 02-01-18 4.80 1,710,000 1,774,553 Carlton Revenue Bonds Inter-Faith Social Services Income Project Series 2000 04-01-29 7.75 2,000,000 2,124,560 Centennial Independent School District #12 Unlimited General Obligation Refunding Bonds Series 2002B (FSA) (School District Credit Enhancement Program) 02-01-05 4.00 1,445,000 1,447,395 City of Breckenridge Revenue Bonds Catholic Health Initiatives Series 2004A 05-01-30 5.00 4,000,000 4,080,400 City of Brooklyn Center Refunding Revenue Bonds Four Courts Apartments Project Series 1995B A.M.T. 06-15-09 7.58 2,110,000 2,107,890 City of Chaska Unlimited General Obligation Refunding Bonds Tax Increment Series 2003B (AMBAC) 12-01-06 3.00 1,245,000 1,262,766 City of Minneapolis Revenue Bonds Fairview Health Services Series 2002B (MBIA) 05-15-14 5.50 2,050,000 2,334,110 05-15-15 5.50 2,160,000 2,444,321 05-15-16 5.50 2,200,000 2,475,880 05-15-17 5.50 1,295,000 1,450,271 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 43 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Minnesota Tax-Exempt Fund Municipal bonds(continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) City of Minneapolis Unlimited General Obligation Bonds Convention Center Series 2002 12-01-12 5.00% $1,500,000 $1,635,765 City of Minneapolis Unlimited General Obligation Bonds Convention Center Series 2002A 12-01-07 5.00 3,670,000 3,928,698 12-01-08 5.00 4,315,000 4,697,136 City of Minneapolis Unlimited General Obligation Bonds Various Purpose Series 2001 12-01-11 5.00 3,035,000 3,361,080 City of Sartell Revenue Bonds Foundation for Health Care Project Series 1999A 09-01-29 6.63 1,000,000 1,024,110 City of Sartell Revenue Bonds Foundation for Health Care Project Series 2001A 09-01-30 8.00 1,000,000 1,070,230 City of St. Paul Refunding Revenue Bonds Series 2003D (AMBAC) 12-01-08 4.00 3,500,000 3,698,135 City of St. Paul Unlimited General Obligation Bonds Capital Improvement Series 2003A 03-01-09 3.50 1,875,000 1,936,538 City of Vadnais Heights Refunding Revenue Bonds Cottages of Vadnais Heights Series 1997 A.M.T. 07-15-09 7.00 1,080,000 1,088,942 Commonwealth of Puerto Rico Unlimited General Obligation Bonds Public Improvement Series 2001 (FSA) 07-01-16 5.50 1,500,000(c) 1,756,965 County of Anoka Limited General Obligation Refunding Bonds Capital Improvement Series 2001C (MBIA) 02-01-09 4.60 2,960,000 3,184,930 County of Ramsey Unlimited General Obligation Refunding Bonds Capital Improvement Plan Series 2002B 02-01-10 5.25 2,150,000 2,386,672 02-01-13 5.25 3,560,000 3,918,492 02-01-14 5.25 3,840,000 4,202,458 County of Washington Unlimited General Obligation Bonds Capital Improvement Plan Series 2000A 02-01-20 5.50 1,000,000 1,100,970 Eden Prairie Refunding Revenue Bonds Sterling Ponds Project Series 1999A A.M.T. 12-01-29 6.25 5,320,000 4,910,945 Eden Prairie Refunding Revenue Bonds Sterling Ponds Project Series 1999B A.M.T. 12-01-29 6.25 515,000 475,402 Edina Independent School District #273 Unlimited General Obligation Bonds Series 2004 02-01-12 4.00 3,700,000 3,857,361 02-01-22 4.25 3,000,000 3,001,950 02-01-23 4.50 3,000,000 3,054,810 02-01-24 4.50 3,400,000 3,459,806 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 44 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Minnesota Tax-Exempt Fund Municipal bonds(continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Elk River Independent School District #728 Unlimited General Obligation Bonds Series 2002 II Inverse Floater (FSA) (School District Credit Enhancement Program) 02-01-18 9.20% $1,200,000(h) $1,588,872 02-01-19 9.20 1,150,000(h) 1,504,936 02-01-20 9.20 950,000(h) 1,230,725 02-01-21 9.22 1,285,000(h) 1,648,848 Elk River Independent School District #728 Unlimited General Obligation Bonds Series 2002A (FSA) (School District Credit Enhancement Program) 02-01-16 5.00 3,000,000 3,272,130 Hastings Housing & Redevelopment Authority Revenue Bonds Arbor Oaks Assisted Living Project Series 2000A 01-01-32 8.25 2,000,000(i) 2,023,300 Hennepin County Unlimited General Obligation Bonds Series 2003 12-01-06 4.00 2,000,000 2,066,780 12-01-23 4.75 2,000,000 2,061,640 Hopkins Independent School District #270 Unlimited General Obligation Refunding Bonds Series 2002B (School District Credit Enhancement Program) 02-01-09 4.00 2,925,000 3,076,427 02-01-14 5.25 3,680,000 4,023,123 Lake Superior Independent School District #381 Unlimited General Obligation Bonds Building Series 2002A (FSA) (School District Credit Enhancement Program) 04-01-13 5.00 1,795,000 1,986,168 Lakeville Independent School District #194 Unlimited General Obligation Bonds Series 1997A (School District Credit Enhancement Program) 02-01-22 5.13 2,400,000 2,499,096 Mankato Unlimited General Obligation Bonds Improvement Series 2001A (FGIC) 02-01-05 3.50 1,065,000 1,066,352 Maplewood Revenue Bonds Care Institute Series 1994 01-01-24 7.75 3,775,000(b,i) 2,453,750 Marshall Independent School District #413 Unlimited General Obligation Bonds Series 2003A (FSA) (School District Credit Enhancement Program) 02-01-19 4.13 1,560,000 1,567,597 Metropolitan Council Minneapolis-St. Paul Metropolitan Area Unlimited General Obligation Bonds Transportation Series 2002C 02-01-08 5.00 3,240,000 3,493,984 02-01-09 5.00 3,240,000 3,537,270 Metropolitan Council Minneapolis-St. Paul Metropolitan Area Unlimited General Obligation Refunding Bonds Waste Water Treatment Series 2003A 03-01-07 4.00 5,000,000 5,184,050 Minneapolis & St. Paul Housing & Redevelopment Authority Revenue Bonds HealthPartners Obligation Group Project Series 2003 12-01-10 5.25 1,050,000 1,118,954 12-01-12 5.25 1,000,000 1,065,130 12-01-15 5.13 1,500,000 1,570,350 12-01-16 5.25 1,250,000 1,315,300 Minneapolis & St. Paul Housing & Redevelopment Authority Revenue Bonds HealthSpan Series 1993A (AMBAC) 11-15-18 4.75 10,500,000 10,683,749 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 45 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Minnesota Tax-Exempt Fund Municipal bonds(continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Minneapolis & St. Paul Metropolitan Airports Commission Revenue Bonds Series 1998A (AMBAC) 01-01-24 5.20% $4,000,000 $4,153,440 Minneapolis & St. Paul Metropolitan Airports Commission Revenue Bonds Series 1999B (FGIC) A.M.T. 01-01-16 5.63 2,920,000 3,180,260 Minneapolis & St. Paul Metropolitan Airports Commission Revenue Bonds Series 2001B (FGIC) A.M.T. 01-01-16 5.75 2,940,000 3,244,496 Minneapolis & St. Paul Metropolitan Airports Commission Revenue Bonds Series 2001C (FGIC) 01-01-18 5.50 2,000,000 2,211,020 01-01-32 5.25 7,000,000 7,310,239 Minneapolis Community Development Agency Revenue Bonds Limited Tax - Common Bond Fund Series 1996-1 06-01-11 6.00 980,000 1,023,590 Minneapolis Community Development Agency Revenue Bonds Limited Tax - Common Bond Fund Series 1997A-7 06-01-12 5.50 250,000 266,685 Minneapolis Community Development Agency Revenue Bonds Limited Tax - Common Bond Fund Series 2001A-2 A.M.T. 06-01-19 5.88 1,000,000 1,079,780 Minneapolis Special School District #1 Certificate of Participation Series 1998B (School District Credit Enhancement Program) 02-01-07 4.10 1,000,000 1,036,210 Minneapolis Special School District #1 Refunding Revenue Bonds Certificate of Participation Series 2002B (FSA) (School District Credit Enhancement Program) 02-01-10 5.00 1,000,000 1,098,870 02-01-11 5.00 1,040,000 1,149,793 Minneapolis Special School District #1 Unlimited General Obligation Bonds Series 2001 (FSA) (School District Credit Enhancement Program) 02-01-09 5.00 1,325,000 1,446,026 Minneapolis Special School District #1 Unlimited General Obligation Refunding Bonds Series 2003 (FSA) (School District Credit Enhancement Program) 02-01-07 3.00 2,000,000 2,029,780 Minnesota Agricultural & Economic Development Board Revenue Bonds Health Care System Series 2000A 11-15-22 6.38 5,000,000 5,494,800 11-15-29 6.38 3,000,000 3,277,470 Minnesota Agricultural & Economic Development Board Revenue Bonds Health Care System - Benedictine Health Series 1999A (MBIA) 02-15-16 4.75 1,000,000 1,050,780 Minnesota Business Academy Taxable Capital Appreciation Notes Zero Coupon Series 2002 06-30-07 6.01 292,000(g,i) 250,997 Minnesota Higher Education Facilities Authority Revenue Bonds Macalester College 6th Series 2004B 03-01-17 5.00 2,395,000 2,598,000 Minnesota Higher Education Facilities Authority Revenue Bonds University of St. Thomas 5th Series 2004Y 10-01-34 5.25 2,800,000 2,914,576 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 46 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Minnesota Tax-Exempt Fund Municipal bonds(continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Minnesota Housing Finance Agency Revenue Bonds Series 2002R II Inverse Floater A.M.T. 07-01-33 9.86% $1,705,000(h) $1,836,115 Minnesota Housing Finance Agency Revenue Bonds Single Family Mortgage Series 1996J A.M.T. 07-01-21 5.60 145,000 148,606 Minnesota Housing Finance Agency Revenue Bonds Single Family Mortgage Series 1997K A.M.T. 01-01-26 5.75 1,420,000 1,450,899 Minnesota Public Facilities Authority Revenue Bonds Series 1998A 03-01-11 5.00 2,500,000 2,672,725 Minnesota Public Facilities Authority Revenue Bonds Series 2001A 03-01-05 4.00 1,500,000 1,504,972 03-01-08 5.00 3,000,000 3,238,440 03-01-20 5.00 4,000,000 4,230,320 Minnesota Public Facilities Authority Revenue Bonds Series 2002B 03-01-10 5.00 2,500,000 2,748,375 03-01-13 5.25 2,500,000 2,823,100 03-01-14 5.25 2,500,000 2,835,875 Minnesota State Municipal Power Agency Revenue Bonds Series 2004A 10-01-29 5.13 3,500,000 3,609,410 Monticello Big Lake Community Hospital District Revenue Bonds Health Care Facilities Series 1998A (Radian Group Financial Guaranty) 12-01-19 5.75 1,600,000 1,755,632 New Brighton Revenue Bonds Polynesian Village Apartments Project Series 1995B A.M.T. 07-15-09 7.75 2,355,000 2,358,603 Northern Municipal Power Agency Refunding Revenue Bonds Capital Appreciation Zero Coupon Series 1989A (AMBAC) 01-01-10 3.80 2,000,000(g) 1,696,200 Northern Municipal Power Agency Refunding Revenue Bonds Series 1998B (AMBAC) 01-01-20 4.75 5,000,000 5,158,950 Northern Municipal Power Agency Revenue Bonds Series 1997 (FSA) 01-01-08 5.50 1,250,000 1,362,250 Northern Municipal Power Agency Revenue Bonds Series 1998 (FSA) 01-01-14 5.38 1,100,000 1,211,804 Olmsted County Unlimited General Obligation Refunding Bonds Resource Recovery Series 2002A 02-01-05 4.00 1,900,000 1,903,150 Olmsted County Housing & Redevelopment Authority Refunding Revenue Bonds Series 2002B 02-01-05 4.00 1,215,000 1,217,014 Osseo Independent School District #279 Unlimited General Obligation Bonds School Building Series 2000A (School District Credit Enhancement Program) 02-01-13 5.75 3,200,000 3,629,088 02-01-14 5.75 1,100,000 1,245,695 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 47 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Minnesota Tax-Exempt Fund Municipal bonds(continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Osseo Independent School District #279 Unlimited General Obligation Bonds Series 2002A (FSA) (School District Credit Enhancement Program) 02-01-11 5.00% $1,570,000 $1,735,745 02-01-12 5.00 3,455,000 3,831,906 02-01-15 5.25 3,585,000 3,974,940 Osseo Independent School District #279 Unlimited General Obligation Refunding Bonds Series 2001B (School District Credit Enhancement Program) 02-01-09 5.00 2,860,000 3,117,772 Prior Lake Independent School District #719 Unlimited General Obligation Bonds Series 2002A (FGIC) (School District Credit Enhancement Program) 02-01-05 4.00 640,000 641,061 Puerto Rico Electric Power Authority Revenue Bonds Series 1998DD (FSA) 07-01-13 5.13 3,000,000(c) 3,274,290 Puerto Rico Electric Power Authority Revenue Bonds Series 2003NN (MBIA) 07-01-32 5.00 2,820,000(c) 2,922,592 Puerto Rico Public Finance Corporation Revenue Bonds Commonwealth Appropriation Series 2004A (MBIA) 08-01-29 5.25 2,000,000(c,j) 2,214,900 Richfield Refunding Revenue Bonds Richfield Senior Housing Project Series 2004A 12-01-39 6.63 1,650,000 1,654,505 Shakopee Revenue Bonds St. Francis Regional Medical Center Series 2004 09-01-25 5.10 3,300,000 3,352,602 Southern Minnesota Municipal Power Agency Revenue Bonds Capital Appreciation Zero Coupon Series 1994A (MBIA) 01-01-19 6.67 17,000,000(g) 9,147,019 Southern Minnesota Municipal Power Agency Revenue Bonds Series 2002A (AMBAC) 01-01-17 5.25 6,000,000 6,812,940 Southern Minnesota Municipal Power Agency Revenue Bonds Series 2003A (MBIA) 01-01-11 5.00 5,500,000 6,067,160 St. Cloud Housing & Redevelopment Authority Revenue Bonds State University Foundation Project Series 2002 05-01-18 5.13 3,000,000 3,235,920 St. Paul Housing & Redevelopment Authority Refunding Revenue Bonds FNMA Mortgage-backed Securities Program Series 1995 (FNMA) 03-01-28 6.80 405,000 414,173 St. Paul Housing & Redevelopment Authority Revenue Bonds Community of Peace Academy Project Series 2001A 12-01-30 7.88 2,390,000 2,579,288 St. Paul Housing & Redevelopment Authority Revenue Bonds Lyngblomsten Care Center Housing Project Series 1993 11-01-06 7.13 380,000 383,542 11-01-17 7.13 1,545,000 1,555,877 St. Paul Housing & Redevelopment Authority Revenue Bonds Minnesota Business Academy Project Series 2000 03-01-30 8.00 3,675,000(i) 3,358,987 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 48 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Minnesota Tax-Exempt Fund Municipal bonds(continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) St. Paul Housing & Redevelopment Authority Revenue Bonds Rental - Lyngblomsten Housing Project Series 1993 11-01-24 7.00% $1,720,000 $1,717,936 St. Paul Port Authority Revenue Bonds Office Building at Cedar Street Series 2003 12-01-23 5.00 5,000,000 5,305,900 12-01-27 5.13 5,000,000 5,272,050 State of Minnesota Unlimited General Obligation Bonds Series 1996 11-01-06 6.00 3,530,000 3,763,615 State of Minnesota Unlimited General Obligation Bonds Series 2001 10-01-10 5.00 5,000,000 5,548,450 10-01-15 5.00 4,455,000 4,850,069 State of Minnesota Unlimited General Obligation Bonds Series 2002 08-01-06 5.00 5,000,000 5,215,100 08-01-10 5.00 4,075,000 4,514,530 11-01-15 5.25 3,575,000 4,030,991 State of Minnesota Unlimited General Obligation Refunding Bonds Various Purpose Series 1998 11-01-08 5.00 1,170,000 1,280,425 Steele County Revenue Bonds Elderly Housing Project Series 2000 06-01-30 6.88 2,205,000 2,414,960 Suburban Hennepin Regional Park District Unlimited General Obligation Bonds Series 2001 02-01-05 4.50 1,025,000 1,027,092 Todd Morrison Cass & Wadena Counties United Hospital District Unlimited General Obligation Bonds Health Care Facilities-Lakewood Series 2004 12-01-34 5.00 2,500,000 2,501,825 University of Minnesota Revenue Bonds Residual Inverse Floater Series 2002 07-01-21 9.87 4,500,000(h) 6,802,290 University of Minnesota Revenue Bonds Series 1996A 07-01-13 5.75 2,000,000 2,321,640 Western Minnesota Municipal Power Agency Refunding Revenue Bonds Series 1996A (AMBAC) 01-01-06 6.25 1,285,000 1,335,244 Western Minnesota Municipal Power Agency Revenue Bonds Series 2003A (MBIA) 01-01-26 5.00 7,250,000 7,580,092 01-01-30 5.00 7,665,000 7,924,996 White Bear Lake Independent School District #624 Unlimited General Obligation Refunding Bonds School Building Series 2002C (FSA) (School District Credit Enhancement Program) 02-01-08 5.00 1,310,000 1,412,285 02-01-09 5.00 1,375,000 1,500,593 White Bear Lake Independent School District #624 Unlimited General Obligation Refunding Bonds Series 2002B (FGIC) (School District Credit Enhancement Program) 02-01-13 5.00 1,405,000 1,545,219 02-01-14 5.00 1,480,000 1,617,980 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 49 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Minnesota Tax-Exempt Fund Municipal bonds(continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Willmar Unlimited General Obligation Bonds Rice Memorial Hospital Project Series 2002 (FSA) 02-01-11 5.00% $1,025,000 $1,129,038 02-01-12 5.00 1,120,000 1,236,962 02-01-13 5.00 1,200,000 1,328,268 Total municipal bonds (Cost: $383,785,758) $397,606,417 Municipal notes (3.1%) Issue(e,f) Effective Amount payable Value(a) yield at maturity City of Brooklyn Center Refunding Revenue Bonds Brookdale Corporation II Project V.R.D.N. Series 2001 (U.S. Bank) 12-01-14 2.27% $100,000(j) $100,000 City of Plymouth Refunding Revenue Bonds Parkside Apartments Project V.R.D.N. Series 2003 04-15-33 2.00 1,780,000(j) 1,780,000 Cohasset Refunding Revenue Bonds Minnesota Power & Light Company Project V.R.D.N. Series 1997B (ABN Amro Bank) 06-01-13 2.22 700,000(j) 700,000 Mankato Revenue Bonds Housing-Highland V.R.D.N. Series 1997 (LaSalle Bank) 05-01-27 2.27 900,000(j) 900,000 Minnesota Higher Education Facilities Authority Revenue Bonds St. Olaf College V.R.D.N. 5th Series 2000H (Harris Trust & Savings Bank) 10-01-30 2.22 1,585,000(j) 1,585,000 Minnesota Higher Education Facilities Authority Revenue Bonds St. Olaf College V.R.D.N. 5th Series 2002M1 (Harris Trust & Savings Bank) 10-01-32 2.22 400,000(j) 400,000 Minnesota School District Capital Equipment Borrowing Program Unlimited Government Obligation Notes AID Anticipation Certificates Series 2004A School District Credit Enhancement Program 09-02-05 2.03 3,000,000 3,018,810 Southern Minnesota Municipal Power Authority C.P. 01-06-05 1.78 2,000,000 2,000,000 St. Louis Park Revenue Bonds Catholic Finance Corporation-Benilde V.R.D.N. Series 2000 (Allied Irish Bank) 10-01-25 2.02 1,070,000(j) 1,070,000 Wadena Revenue Bonds Homecrest Industries Project V.R.D.N. Series 1999 (U.S. Bank) A.M.T. 08-01-19 2.10 1,150,000(j) 1,150,000 Total municipal notes (Cost: $12,713,952) $12,703,810 Total investments in securities (Cost: $396,499,710)(k) $410,310,227 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 50 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL 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) 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 states, territories, possessions, or sovereign nations within the territorial boundaries of the United States. The securities represented 2.4% of net assets at Dec. 31, 2004. (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 Guaranty Insurance Company FHA -- Federal Housing Authority FNMA -- Federal National Mortgage Association FHLMC -- Federal Home Loan Mortgage Corporation FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association MBIA -- MBIA Insurance Corporation XLCA -- XL Capital Assurance (e) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- At of Dec. 31, 2004, 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 (f) The Fund is entitled to receive principal and interest from the party within parentheses after a day or a week's notice or upon maturity. The maturity date disclosed represents the final maturity. (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 Dec. 31, 2004. At Dec. 31, 2004, the value of inverse floaters represented 3.5% of net assets. - -------------------------------------------------------------------------------- 51 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Minnesota Tax-Exempt Fund Notes to investments in securities (continued) (i) Identifies issues considered to be illiquid as to their marketability (see Note 1 to the financial statements). Information concerning such security holdings at Dec. 31, 2004, is as follows: Security Acquisition Cost dates Anoka County Housing & Redevelopment Authority Revenue Bonds Epiphany Assisted Living LLC Project Series 1999 7.40% 2029 11-22-99 $3,519,786 Hastings Housing & Redevelopment Authority Revenue Bonds Arbor Oaks Assisted Living Project Series 2000A 8.25% 2032 09-11-00 2,000,000 Maplewood Revenue Bonds Care Institute Series 1994 7.75% 2024 03-02-94 3,677,432 Minnesota Business Academy Taxable Capital Appreciation Notes Zero Coupon Series 2002 6.01% 2007 09-30-02 251,815 St. Paul Housing & Redevelopment Authority Revenue Bonds Minnesota Business Academy Project Series 2000 8.00% 2030 03-09-00 3,580,099 (j) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Dec. 31, 2004. (k) At Dec. 31, 2004, the cost of securities for federal income tax purposes was approximately $396,500,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $16,348,000 Unrealized depreciation (2,538,000) ---------- Net unrealized appreciation $13,810,000 ----------- How to find information about the Fund's portfolio holdings (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at www.americanexpress.com/funds. - -------------------------------------------------------------------------------- 52 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Investments in Securities AXP New York Tax-Exempt Fund Dec. 31, 2004 (Unaudited) (Percentages represent value of investments compared to net assets) Municipal bonds(97.5%) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) Albany Municipal Water Finance Authority Revenue Bonds Series 2003A (MBIA) 12-01-14 5.00% $2,550,000 $2,731,815 Battery Park City Authority Senior Revenue Bonds Series 2003A 11-01-22 5.25 1,000,000 1,093,650 City of New York Pre-refunded Unlimited General Obligation Bonds Series 1996J 02-15-19 5.88 155,000 163,678 City of New York Unlimited General Obligation Bonds Series 2000 II Inverse Floater (FGIC) 05-15-16 10.91 830,000(g) 1,173,247 City of New York Unlimited General Obligation Bonds Series 2002C (XLCA) 03-15-12 5.00 1,000,000 1,096,620 City of New York Unlimited General Obligation Bonds Series 2002E 08-01-16 5.75 2,000,000 2,236,340 City of New York Unlimited General Obligation Bonds Series 2003I 03-01-27 5.38 2,000,000 2,109,860 City of New York Unlimited General Obligation Bonds Series 2003J 06-01-18 5.50 2,000,000 2,200,300 06-01-20 5.50 2,000,000 2,191,360 City of New York Unlimited General Obligation Bonds Series 2004D 11-01-34 5.00 1,000,000 1,013,880 City of Yonkers Unlimited General Obligation Bonds Series 2001B (AMBAC) 12-15-07 3.88 1,010,000 1,052,097 Commonwealth of Puerto Rico Unlimited General Obligation Bonds Public Improvement Series 2004A 07-01-24 5.00 500,000(d) 519,525 County of Erie Unlimited General Obligation Bonds Series 1995B (FGIC) 06-15-25 5.50 700,000 720,895 County of Monroe Unlimited General Obligation Refunding Bonds Public Improvement Series 1996 (MBIA) 03-01-15 6.00 1,250,000 1,490,313 Erie County Industrial Development Agency Revenue Bonds City of Buffalo Project Series 2003 (FSA) 05-01-06 4.00 1,000,000 1,023,310 Erie County Water Authority Refunding Revenue Bonds Series 1990A Escrowed to Maturity (AMBAC) 12-01-08 6.00 1,765,000 1,917,655 Long Island Power Authority Revenue Bonds Series 1998-8 (AMBAC) 04-01-09 5.25 1,000,000 1,098,920 Long Island Power Authority Revenue Bonds Series 2003B 06-01-05 5.00 2,000,000 2,022,600 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 53 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP New York Tax-Exempt Fund Municipal bonds(continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) Metropolitan Transportation Authority Pre-refunded Revenue Bonds Series 1998A (FGIC) 04-01-28 4.75% $1,000,000 $1,103,500 Metropolitan Transportation Authority Refunding Revenue Bonds Series 2002A (AMBAC) 11-15-19 5.50 1,000,000 1,130,500 Metropolitan Transportation Authority Revenue Bonds Series 2001A (FGIC) 11-15-31 5.00 1,000,000 1,024,430 Metropolitan Transportation Authority Revenue Bonds Series 2002A (FSA) 11-15-26 5.50 1,500,000 1,641,930 New York City Municipal Water Finance Authority Pre-refunded Revenue Bonds Series 1996B (MBIA) 06-15-26 5.75 180,000 191,016 New York City Municipal Water Finance Authority Revenue Bonds Refunded Balance Series 1996B (MBIA) 06-15-26 5.75 320,000 338,781 New York City Municipal Water Finance Authority Revenue Bonds Series 2002A 06-15-29 5.00 1,000,000 1,020,520 New York City Municipal Water Finance Authority Revenue Bonds Series 2004A 06-15-39 5.00 1,000,000 1,017,300 New York City Transitional Finance Authority Pre-refunded Revenue Bonds Future Tax Series 2001C 02-01-08 5.50 155,000 169,725 New York City Transitional Finance Authority Pre-refunded Revenue Bonds Future Tax Series 2001C Escrowed to Maturity 02-01-08 5.50 280,000 306,600 New York City Transitional Finance Authority Pre-refunded Revenue Bonds Future Tax Secured Series 1999C 05-01-25 5.50 440,000 498,084 New York City Transitional Finance Authority Revenue Bonds Future Tax Secured Series 2004C 02-01-33 5.00 1,000,000 1,020,430 New York City Transitional Finance Authority Un-refunded Revenue Bonds Future Tax Series 1999C 05-01-25 5.50 560,000 609,823 New York City Transitional Finance Authority Un-refunded Revenue Bonds Future Tax Series 2001C 02-01-08 5.50 1,065,000 1,163,193 New York City Trust for Cultural Resources Revenue Bonds Museum of American Folk Art Series 2000 (ACA) 07-01-22 6.00 1,000,000 1,081,080 New York Local Government Assistance Corporation Revenue Bonds Capital Appreciation Zero Coupon Series 1993C (MBIA) 04-01-14 3.65 1,000,000(f) 701,150 New York Mortgage Agency Revenue Bonds Series II 2002B Inverse Floater A.M.T. 04-01-32 9.55 1,000,000(g) 1,048,810 New York Power Authority Revenue Bonds Series 2000A 11-15-30 5.25 1,000,000 1,043,960 New York State Dormitory Authority Pre-refunded Revenue Bonds Series 1990B 05-15-11 7.50 415,000 498,315 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 54 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP New York Tax-Exempt Fund Municipal bonds(continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) New York State Dormitory Authority Revenue Bonds Brooklyn Law School Series 2003B (XLCA) 07-01-30 5.13% $1,000,000 $1,042,260 New York State Dormitory Authority Revenue Bonds Catholic Health L.I. Obligation Group Series 2004 07-01-27 5.00 1,000,000 1,004,500 New York State Dormitory Authority Revenue Bonds City University System Consolidated Series 1993A 07-01-13 5.75 3,000,000 3,393,180 New York State Dormitory Authority Revenue Bonds City University System Consolidated Series 1997-1 07-01-17 5.25 3,000,000 3,193,890 New York State Dormitory Authority Revenue Bonds City University System Consolidated 4th Generation Series 2003A (MBIA) 07-01-09 5.25 1,500,000 1,658,670 New York State Dormitory Authority Revenue Bonds Memorial Sloan-Kettering Center Series 2003-1 (MBIA) 07-01-21 5.00 1,000,000 1,060,290 New York State Dormitory Authority Revenue Bonds Montefiore Hospital Series 2004 (FGIC/FHA) 08-01-19 5.00 735,000 791,000 New York State Dormitory Authority Revenue Bonds Pratt Institute Series 1999 (Radian Group Financial Guaranty) 07-01-20 6.00 1,500,000 1,682,865 New York State Dormitory Authority Revenue Bonds School Districts Financing Series 2002D (MBIA) 10-01-07 5.00 3,380,000 3,615,213 New York State Dormitory Authority Revenue Bonds St. Thomas Aquinas Series 1998 (Radian Group Financial Guaranty) 07-01-14 5.00 1,125,000 1,184,996 New York State Dormitory Authority Revenue Bonds Series 2002B (AMBAC) 11-15-26 5.25 1,000,000(h) 1,111,970 New York State Dormitory Authority Un-refunded Revenue Bonds Series 1990B 05-15-11 7.50 1,485,000 1,721,650 New York State Energy Research & Development Authority Revenue Bonds New York State Electric & Gas Series 1985B (MBIA) 10-15-15 4.00 1,000,000 1,006,630 New York State Energy Research & Development Authority Revenue Bonds Residual Certificates Series 2000-379 Inverse Floater (MBIA) 01-01-21 9.91 330,000(g) 379,154 New York State Environmental Facilities Corporation Revenue Bonds Revolving Funds New York City Municipal Water Project Series 2002B 06-15-31 5.00 1,000,000 1,029,390 New York State Environmental Facilities Corporation Revenue Bonds Revolving Funds New York City Municipal Water Project Series 2002K 06-15-28 5.00 1,000,000 1,033,220 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 55 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP New York Tax-Exempt Fund Municipal bonds(continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) New York State Environmental Facilities Corporation Revenue Bonds State Water Revolving Fund Series 1990A 06-15-12 7.50% $295,000 $295,971 New York State Thruway Authority Refunding Revenue Bonds Series 1998E (MBIA) 01-01-25 5.00 1,000,000 1,030,230 New York State Thruway Authority Revenue Bonds Series 1997D 01-01-21 5.25 2,000,000 2,115,860 New York State Thruway Authority Revenue Bonds Series 2004A (MBIA) 04-01-19 5.00 1,000,000 1,079,760 New York State Thruway Authority Revenue Bonds Transportation Series 2003A (MBIA) 03-15-22 5.00 1,000,000 1,057,760 New York State Urban Development Corporation Pre-refunded Revenue Bonds Correctional Capital Facilities Series 1995-5 (MBIA) 01-01-25 5.50 750,000 765,000 New York State Urban Development Corporation Revenue Bonds Series 2002A (XLCA) 01-01-11 5.25 1,000,000 1,113,800 New York State Urban Development Corporation Revenue Bonds Series 2002C (XLCA) 01-01-09 4.00 1,545,000 1,624,660 Niagara Falls Public Water Authority Revenue Bonds Series 2003A (MBIA) 07-15-28 5.50 1,000,000 1,045,450 Port Authority of New York & New Jersey Revenue Bonds 5th Installment Special Project Series 1996-4 A.M.T. 10-01-19 6.75 1,500,000 1,564,695 Port Authority of New York & New Jersey Revenue Bonds Consolidated 134th Series 2004 07-15-34 5.00 1,000,000 1,023,840 Puerto Rico Public Finance Corporation Revenue Bonds Commonwealth Appropriation Series 2004A (MBIA) 08-01-29 5.25 1,000,000(d,h) 1,107,450 Sales Tax Asset Receivable Corporation Revenue Bonds Series 2004A (AMBAC) 10-15-29 5.00 1,000,000 1,035,130 State of New York Unlimited General Obligation Bonds Series 2003A 03-15-08 4.00 2,000,000 2,096,520 Suffolk County Industrial Development Agency Revenue Bonds 1st Mortgage Jeffersons Ferry Series 1999A 11-01-28 7.25 1,500,000 1,603,305 Syracuse Unlimited General Obligation Bonds Public Improvements Series 2002C (FGIC) A.M.T. 01-01-05 4.25 1,150,000 1,150,073 Tobacco Settlement Financing Authority Revenue Bonds Series 2003C-1 06-01-15 5.50 1,000,000 1,088,950 Triborough Bridge & Tunnel Authority Refunding Revenue Bonds General Purpose Series 2002B 11-15-10 5.00 2,000,000 2,205,540 11-15-29 5.13 1,000,000 1,032,920 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 56 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP New York Tax-Exempt Fund Municipal bonds(continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) Triborough Bridge & Tunnel Authority Revenue Bonds Convention Center Project Series 1990E 01-01-11 6.00% $1,145,000 $1,311,746 Total municipal bonds (Cost: $87,890,655) $91,722,750 Municipal notes (1.2%) Issue(b,c,e,h) Effective Amount Value(a) yield payable at maturity Long Island Power Authority Revenue Bonds V.R.D.N. Series 1998-1B (State Street Bank & Trust) 05-01-33 2.20% $1,000,000 $1,000,000 New York City Municipal Water Finance Authority Revenue Bonds V.R.D.N. Series 1994G (FGIC) 06-15-24 2.15 100,000 100,000 Total municipal notes (Cost: $1,100,000) $1,100,000 Total investments in securities (Cost: $88,990,655)(i) $92,822,750 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 Guaranty Insurance Company FHA -- Federal Housing Authority FNMA -- Federal National Mortgage Association FHLMC -- Federal Home Loan Mortgage Corporation FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association MBIA -- MBIA Insurance Corporation XLCA -- XL Capital Assurance (c) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- At of Dec. 31, 2004, the value of securities subject to alternative minimum tax represented 4.0% 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 - -------------------------------------------------------------------------------- 57 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP New York Tax-Exempt Fund Notes to investments in securities (continued) (d) Municipal obligations include debt obligations issued by or on behalf of states, territories, possessions, or sovereign nations within the territorial boundaries of the United States. The securities represented 1.7% of net assets at Dec. 31, 2004. (e) The Fund is entitled to receive principal and interest from the party within parentheses after a day or a week's notice or upon maturity. The maturity date disclosed represents the final maturity. (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 Dec. 31, 2004. At Dec. 31, 2004, the value of inverse floaters represented 2.8% of net assets. (h) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Dec. 31, 2004. (i) At Dec. 31, 2004, the cost of securities for federal income tax purposes was approximately $88,991,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $3,934,000 Unrealized depreciation (102,000) -------- Net unrealized appreciation $3,832,000 ---------- How to find information about the Fund's portfolio holdings (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at www.americanexpress.com/funds. - -------------------------------------------------------------------------------- 58 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Investments in Securities AXP Ohio Tax-Exempt Fund Dec. 31, 2004 (Unaudited) (Percentages represent value of investments compared to net assets) Municipal bonds(98.5%) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) Bowling Green State University Revenue Bonds Series 2003 (AMBAC) 06-01-12 5.00% $1,145,000 $1,268,752 Brookville Local School District Unlimited General Obligation Bonds Series 2003 (FSA) 12-01-18 5.25 1,000,000 1,102,290 Cincinnati City School District Limited General Obligation Bonds School Improvement Series 2002 (FSA) 06-01-09 5.00 1,355,000 1,482,424 06-01-21 5.25 2,600,000 2,836,730 City of Cincinnati Unlimited General Obligation Bonds Series 2000 12-01-16 5.25 1,000,000 1,093,720 City of Cleveland Revenue Bonds Series 2002K (FGIC) 01-01-10 5.00 2,000,000 2,188,900 City of Hamilton Refunding Revenue Bonds Series 2003 (FSA) 10-15-12 5.00 1,230,000 1,368,781 Cleveland City School District Revenue Bonds Revenue Anticipation Notes Series 1997 (AMBAC) 06-01-07 5.75 2,000,000 2,157,600 Cleveland State University Revenue Bonds Series 2003A (FGIC) 06-01-15 5.00 1,000,000 1,093,900 Columbus Unlimited General Obligation Bonds Series 1999-2 06-15-15 5.75 1,000,000 1,134,340 Columbus City School District Unlimited General Obligation Bonds School Facilities Construction & Improvement Series 2003 (FGIC) 12-01-11 5.00 1,000,000 1,109,400 County of Cuyahoga Limited General Obligation Bonds Series 1993 05-15-13 5.60 500,000 555,580 County of Cuyahoga Refunding Revenue Bonds Judson Retirement Community Series 1996A 11-15-18 7.25 1,000,000 1,058,220 County of Cuyahoga Refunding Revenue Bonds Series 2003A 01-01-17 6.00 1,000,000 1,146,630 01-01-32 6.00 1,000,000 1,089,400 County of Cuyahoga Revenue Bonds Canton Project Series 2000 01-01-30 7.50 1,000,000 1,121,740 County of Montgomery Revenue Bonds Catholic Health Initiatives Series 2004A 05-01-30 5.00 750,000 759,428 05-01-32 5.00 500,000 505,165 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 59 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Ohio Tax-Exempt Fund Municipal bonds(continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) Dayton City School District Unlimited General Obligation Bonds School Facilities Construction & Improvement Series 2003A (FGIC) 12-01-27 5.00% $1,250,000 $1,296,838 12-01-31 5.00 1,000,000 1,027,580 Dayton City School District Unlimited General Obligation Bonds School Facilities Construction & Improvement Series 2003D (FGIC) 12-01-17 5.00 1,000,000 1,080,390 12-01-19 5.00 1,000,000 1,075,190 Franklin County Refunding & Improvement Revenue Bonds Lutheran Senior City Project Series 1999 12-15-28 6.13 1,250,000 1,124,650 Franklin County Refunding Revenue Bonds OhioHealth Corporation Series 2003C 05-15-24 5.25 1,000,000 1,053,150 Hamilton County Convention Facilities Authority Revenue Bonds First Lien Series 2004 (FGIC) 12-01-33 5.00 1,000,000 1,028,680 Jackson Revenue Bonds Consolidated Health System Jackson Hospital Series 1999 (Radian Group Financial Guaranty) 10-01-20 6.13 1,000,000 1,117,950 Kenston Local School District Unlimited General Obligation Bonds School Improvement Series 2003 (MBIA) 12-01-16 5.00 1,000,000 1,087,870 Lakewood Limited General Obligation Bonds Series 2003 12-01-19 5.00 1,515,000 1,607,445 Lakota Local School District Pre-refunded Unlimited General Obligation Bonds Series 1994 (AMBAC) 12-01-14 6.25 2,000,000 2,075,680 Licking County Joint Vocational School District Unlimited General Obligation Bonds School Facilities Construction & Improvement Series 2002 (MBIA) 12-01-08 5.00 1,110,000 1,207,869 Licking Heights Local School District Unlimited General Obligation Series 2004 (FGIC) 12-01-28 5.00 1,000,000 1,034,080 Ohio Municipal Electric Generation Agency Refunding Revenue Bonds Joint Venture 5 Certificates Series 2004 (AMBAC) 02-15-24 4.75 750,000 767,235 Ohio State Air Quality Development Authority Refunding Revenue Bonds JMG Funding Limited Partnership Project Series1994 (AMBAC) A.M.T. 04-01-29 6.38 500,000 512,990 Ohio State Building Authority Pre-refunded Revenue Bonds State Facilities Adult Correctional Series 1999A 10-01-16 5.50 1,000,000 1,133,490 Ohio State Building Authority Refunding Revenue Bonds State Facilities Adult Correctional Series 2001A (FSA) 10-01-14 5.50 1,000,000 1,123,550 Ohio State Building Authority Refunding Revenue Bonds Workers Compensation Facilities Series 2003A 04-01-06 5.00 1,000,000 1,033,130 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 60 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Ohio Tax-Exempt Fund Municipal bonds(continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) Ohio State Building Authority Revenue Bonds Facilities Administration Building Fund Projects Series 1993A 10-01-07 5.60% $1,500,000 $1,624,785 Ohio State Building Authority Revenue Bonds Juvenile Correctional Building Series 2003 04-01-08 4.00 1,580,000 1,654,260 Ohio State Higher Educational Facility Commission Revenue Bonds Oberlin College Series 1999 10-01-29 5.00 1,000,000 1,017,890 Ohio State Higher Educational Facility Commission Revenue Bonds Xavier University Project Series 2003 (FGIC) 05-01-08 4.00 500,000 522,775 Ohio State University Revenue Bonds Series 2002A 12-01-05 3.50 500,000 506,240 Ohio State University Revenue Bonds Series 2003B 06-01-06 2.25 1,000,000 1,000,400 Puerto Rico Electric Power Authority Revenue Bonds Series 1998DD (FSA) 07-01-13 5.13 1,000,000(d) 1,091,430 State of Ohio Unlimited General Obligation Bonds Common Schools Series 2003C 03-15-10 5.00 1,000,000 1,100,550 State of Ohio Unlimited General Obligation Bonds Common Schools Capital Facilities Series 2001A 06-15-13 5.00 1,500,000 1,630,770 State of Ohio Unlimited General Obligation Bonds Common Schools Capital Facilities Series 2001B 09-15-20 5.00 1,000,000 1,065,420 State of Ohio Unlimited General Obligation Bonds Conservation Projects Series 2002A 09-01-09 4.00 1,115,000 1,176,481 State of Ohio Unlimited General Obligation Bonds Higher Education Series 2003A 05-01-11 5.00 1,000,000 1,105,860 Summit County Limited General Obligation Bonds Series 2003 12-01-18 5.25 1,490,000 1,665,015 Toledo City School District Unlimited General Obligation Bonds School Facilities Improvement Series 2003 (FSA) (School District Credit Enhancement Program) 12-01-15 5.00 1,000,000 1,098,630 University of Akron Revenue Bonds Series 2003A (AMBAC) 01-01-22 5.00 1,595,000 1,681,943 University of Cincinnati Revenue Bonds Series 2001A (FGIC) 06-01-14 5.50 1,000,000 1,126,140 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 61 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Ohio Tax-Exempt Fund Municipal bonds(continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) Warren County Limited General Obligation Bonds Series 1992 12-01-12 6.10% $500,000 $565,500 West Muskingum Local School District Unlimited General Obligation Bonds School Facilities Construction & Improvement Series 2003 (FGIC) 12-01-30 5.00 1,000,000 1,029,650 Total municipal bonds (Cost: $62,603,791) $64,124,506 Municipal note (0.8%) Issue(c,e) Effective Amount payable Value(a) yield at maturity State of Ohio Revenue Bonds VP Exploration & Oil Project V.R.D.N. Series 2001 A.M.T. 08-01-34 2.23% $500,000 $500,000 Total municipal note (Cost: $500,000) $500,000 Total investments in securities (Cost: $63,103,791)(f) $64,624,506 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 62 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Ohio Tax-Exempt Fund Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- American Municipal Bond Association Corporation BIG -- Bond Investors Guarantee CGIC -- Capital Guaranty Insurance Company FGIC -- Financial Guaranty Insurance Company FHA -- Federal Housing Authority FNMA -- Federal National Mortgage Association FHLMC -- Federal Home Loan Mortgage Corporation FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association MBIA -- MBIA Insurance Corporation XLCA -- XL Capital Assurance (c) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- At of Dec. 31, 2004, the value of securities subject to alternative minimum tax represented 1.6% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note (d) Municipal obligations include debt obligations issued by or on behalf of states, territories, possessions, or sovereign nations within the territorial boundaries of the United States. The securities represented 1.7% of net assets at Dec. 31, 2004. (e) Interest rate varies to reflect current market conditions; rate shown is the effective rate on Dec. 31, 2004. (f) At Dec. 31, 2004, the cost of securities for federal income tax purposes was approximately $63,104,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $1,722,000 Unrealized depreciation (201,000) -------- Net unrealized appreciation $1,521,000 ---------- How to find information about the Fund's portfolio holdings (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at www.americanexpress.com/funds. - -------------------------------------------------------------------------------- 63 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Financial Statements
Statements of assets and liabilities AXP State Tax-Exempt Funds California Massachusetts Michigan Tax-Exempt Tax-Exempt Tax-Exempt Dec. 31, 2004 (Unaudited) Fund Fund Fund Assets Investments in securities, at value (Note 1) (identified cost $201,270,498, $76,280,566 and $59,848,561) $210,013,931 $78,872,102 $61,988,723 Cash in bank on demand deposit 45,409 69,538 118,618 Capital shares receivable 27,218 500 19,474 Accrued interest receivable 3,000,363 1,265,681 740,472 Receivable for investment securities sold 2,259,202 -- -- ------------ ----------- ----------- Total assets 215,346,123 80,207,821 62,867,287 ------------ ----------- ----------- Liabilities Dividends payable to shareholders 188,179 59,914 53,772 Capital shares payable -- 9,990 80,625 Accrued investment management services fee 2,757 1,027 805 Accrued distribution fee 1,905 956 591 Accrued transfer agency fee 90 61 22 Accrued administrative services fee 235 87 69 Other accrued expenses 33,949 27,624 33,091 ------------ ----------- ----------- Total liabilities 227,115 99,659 168,975 ------------ ----------- ----------- Net assets applicable to outstanding shares $215,119,008 $80,108,162 $62,698,312 ============ =========== =========== Represented by Shares of beneficial interest -- $.01 par value (Note 1) $ 413,002 $ 148,001 $ 117,788 Additional paid-in capital 206,159,950 77,412,501 60,585,995 Undistributed net investment income 28,627 94,169 4 Accumulated net realized gain (loss) (226,004) (138,045) (145,637) Unrealized appreciation (depreciation) on investments 8,743,433 2,591,536 2,140,162 ------------ ----------- ----------- Total -- representing net assets applicable to outstanding shares $215,119,008 $80,108,162 $62,698,312 ============ =========== =========== Net assets applicable to outstanding shares: Class A $193,668,624 $60,111,810 $54,733,158 Class B $ 18,168,247 $18,626,279 $ 6,072,347 Class C $ 3,282,137 $ 1,370,073 $ 1,892,807 Outstanding shares of beneficial interest: Class A shares 37,181,048 11,105,764 10,282,871 Class B shares 3,489,741 3,441,161 1,140,362 Class C shares 629,368 253,221 355,558 Net asset value per share: Class A $ 5.21 $ 5.41 $ 5.32 Class B $ 5.21 $ 5.41 $ 5.32 Class C $ 5.21 $ 5.41 $ 5.32 ------------ ----------- -----------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 64 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT
Statements of assets and liabilities AXP State Tax-Exempt Funds Minnesota New York Ohio Tax-Exempt Tax-Exempt Tax-Exempt Dec. 31, 2004 (Unaudited) Fund Fund Fund Assets Investments in securities, at value (Note 1) (identified cost $396,499,710, $88,990,655 and $63,103,791) $410,310,227 $92,822,750 $64,624,506 Cash in bank on demand deposit 63,367 52,693 3,141 Capital shares receivable 1,197 761 1,001 Accrued interest receivable 6,427,201 1,263,687 576,067 Receivable for investment securities sold 108,004 -- -- ------------ ----------- ----------- Total assets 416,909,996 94,139,891 65,204,715 ------------ ----------- ----------- Liabilities Dividends payable to shareholders 339,203 78,040 49,836 Capital shares payable 106,748 1,654 5,000 Accrued investment management services fee 5,239 1,208 835 Accrued distribution fee 4,096 923 659 Accrued transfer agency fee 604 11 18 Accrued administrative services fee 433 103 71 Other accrued expenses 70,741 24,054 22,957 ------------ ----------- ----------- Total liabilities 527,064 105,993 79,376 ------------ ----------- ----------- Net assets applicable to outstanding shares $416,382,932 $94,033,898 $65,125,339 ============ =========== =========== Represented by Shares of beneficial interest -- $.01 par value (Note 1) $ 780,664 $ 182,915 $ 122,714 Additional paid-in capital 401,432,079 90,081,271 63,710,024 Undistributed net investment income 347,627 8,246 40,090 Accumulated net realized gain (loss) (Note 5) 12,045 (70,629) (268,204) Unrealized appreciation (depreciation) on investments 13,810,517 3,832,095 1,520,715 ------------ ----------- ----------- Total -- representing net assets applicable to outstanding shares $416,382,932 $94,033,898 $65,125,339 ============ =========== =========== Net assets applicable to outstanding shares: Class A $355,355,178 $80,307,255 $54,616,722 Class B $ 51,732,139 $12,141,892 $ 8,358,939 Class C $ 9,295,615 $ 1,584,751 $ 2,149,678 Outstanding shares of beneficial interest: Class A shares 66,625,459 15,621,371 10,291,382 Class B shares 9,698,244 2,361,938 1,575,091 Class C shares 1,742,699 308,234 404,946 Net asset value per share: Class A $ 5.33 $ 5.14 $ 5.31 Class B $ 5.33 $ 5.14 $ 5.31 Class C $ 5.33 $ 5.14 $ 5.31 ------------ ----------- -----------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 65 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT
Statements of operations AXP State Tax-Exempt Funds California Massachusetts Michigan Tax-Exempt Tax-Exempt Tax-Exempt Six months ended Dec. 31, 2004 (Unaudited) Fund Fund Fund Investment income Income: Interest $ 4,905,269 $1,659,667 $1,404,258 ----------- ---------- ---------- Expenses (Note 2): Investment management services fee 515,191 192,411 150,990 Distribution fee Class A 245,233 75,991 69,958 Class B 97,408 97,663 31,634 Class C 17,803 7,753 9,782 Transfer agency fee 42,019 24,672 17,269 Incremental transfer agency fee Class A 3,788 1,918 1,494 Class B 814 943 360 Class C 264 150 164 Administrative services fees and expenses 46,223 16,827 13,090 Compensation of board members 4,149 4,149 4,149 Custodian fees 9,400 7,360 4,596 Printing and postage 11,015 4,600 4,843 Registration fees 17,755 17,110 14,353 Audit fees 9,750 9,125 9,125 Other 3,124 2,352 2,081 ----------- ---------- ---------- Total expenses 1,023,936 463,024 333,888 Expenses waived/reimbursed by AEFC (Note 2) -- (22,663) (19,715) ----------- ---------- ---------- 1,023,936 440,361 314,173 Earnings credits on cash balances (Note 2) (1,940) (957) (1,205) ----------- ---------- ---------- Total net expenses 1,021,996 439,404 312,968 ----------- ---------- ---------- Investment income (loss) -- net 3,883,273 1,220,263 1,091,290 ----------- ---------- ---------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on security transactions (Note 3) 946,080 292,999 253,814 Net change in unrealized appreciation (depreciation) on investments 6,140,678 2,424,719 1,483,259 ----------- ---------- ---------- Net gain (loss) on investments 7,086,758 2,717,718 1,737,073 ----------- ---------- ---------- Net increase (decrease) in net assets resulting from operations $10,970,031 $3,937,981 $2,828,363 =========== ========== ==========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 66 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT
Statements of operations AXP State Tax-Exempt Funds Minnesota New York Ohio Tax-Exempt Tax-Exempt Tax-Exempt Six months ended Dec. 31, 2004 (Unaudited) Fund Fund Fund Investment income Income: Interest $ 8,915,350 $2,058,174 $1,374,153 ----------- ---------- ---------- Expenses (Note 2): Investment management services fee 969,740 225,596 160,852 Distribution fee Class A 447,985 101,559 71,767 Class B 269,377 64,662 43,923 Class C 47,257 9,085 11,241 Transfer agency fee 101,175 25,702 18,834 Incremental transfer agency fee Class A 8,729 2,220 1,562 Class B 2,490 674 477 Class C 684 134 194 Administrative services fees and expenses 85,105 19,889 14,061 Compensation of board members 4,815 4,149 4,149 Custodian fees 14,115 5,795 4,950 Printing and postage 71,240 4,785 5,160 Registration fees 6,751 16,115 12,820 Audit fees 10,625 9,375 9,125 Other 6,348 1,122 992 ----------- ---------- ---------- Total expenses 2,046,436 490,862 360,107 Expenses waived/reimbursed by AEFC (Note 2) -- (15,261) (17,007) ----------- ---------- ---------- 2,046,436 475,601 343,100 Earnings credits on cash balances (Note 2) (10,645) (1,180) (777) ----------- ---------- ---------- Total net expenses 2,035,791 474,421 342,323 ----------- ---------- ---------- Investment income (loss) -- net 6,879,559 1,583,753 1,031,830 ----------- ---------- ---------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on security transactions (Note 3) 656,389 267,276 443,647 Net change in unrealized appreciation (depreciation) on investments 11,065,444 2,281,078 1,542,460 ----------- ---------- ---------- Net gain (loss) on investments 11,721,833 2,548,354 1,986,107 ----------- ---------- ---------- Net increase (decrease) in net assets resulting from operations $18,601,392 $4,132,107 $3,017,937 =========== ========== ==========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 67 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT
Statements of changes in net assets AXP State Tax-Exempt Funds California Tax-Exempt Fund Massachusetts Tax-Exempt Fund Dec. 31, 2004 June 30, 2004 Dec. 31, 2004 June 30, 2004 Six months ended Year ended Six months ended Year ended (Unaudited) (Unaudited) Operations and distributions Investment income (loss) -- net $ 3,883,273 $ 9,492,210 $ 1,220,263 $ 2,864,585 Net realized gain (loss) on investments 946,080 4,271,954 292,999 118,188 Net change in unrealized appreciation (depreciation) on investments 6,140,678 (13,639,192) 2,424,719 (3,402,425) ------------ ------------ ----------- ------------ Net increase (decrease) in net assets resulting from operations 10,970,031 124,972 3,937,981 (419,652) ------------ ------------ ----------- ------------ Distributions to shareholders from: Net investment income Class A (3,608,601) (8,492,465) (966,570) (2,172,737) Class B (285,222) (769,181) (234,872) (567,432) Class C (52,173) (139,214) (18,701) (44,866) Net realized gain Class A (2,650,310) (2,563,129) (266,380) (758,405) Class B (248,451) (291,280) (82,558) (259,092) Class C (42,197) (48,764) (6,105) (20,647) ------------ ------------ ----------- ------------ Total distributions (6,886,954) (12,304,033) (1,575,186) (3,823,179) ------------ ------------ ----------- ------------ Share transactions (Note 4) Proceeds from sales Class A shares (Note 2) 10,614,420 15,901,451 3,826,068 6,412,052 Class B shares 313,319 1,083,627 384,857 1,359,509 Class C shares 390,057 1,207,521 38,846 674,999 Reinvestment of distributions at net asset value Class A shares 4,685,721 8,050,801 1,005,268 2,473,261 Class B shares 448,720 873,630 246,951 680,143 Class C shares 85,963 177,893 22,979 61,014 Payments for redemptions Class A shares (19,432,135) (56,069,227) (5,873,496) (19,003,431) Class B shares (Note 2) (4,347,613) (6,190,835) (3,200,407) (4,718,999) Class C shares (Note 2) (988,791) (2,345,662) (348,745) (824,274) ------------ ------------ ----------- ------------ Increase (decrease) in net assets from share transactions (8,230,339) (37,310,801) (3,897,679) (12,885,726) ------------ ------------ ----------- ------------ Total increase (decrease) in net assets (4,147,262) (49,489,862) (1,534,884) (17,128,557) Net assets at beginning of period 219,266,270 268,756,132 81,643,046 98,771,603 ------------ ------------ ----------- ------------ Net assets at end of period $215,119,008 $219,266,270 $80,108,162 $ 81,643,046 ============ ============ =========== ============ Undistributed net investment income $ 28,627 $ 91,350 $ 94,169 $ 94,049 ------------ ------------ ----------- ------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 68 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT
Statements of changes in net assets AXP State Tax-Exempt Funds Michigan Tax-Exempt Fund Minnesota Tax-Exempt Fund Dec. 31, 2004 June 30, 2004 Dec. 31, 2004 June 30, 2004 Six months ended Year ended Six months ended Year ended (Unaudited) (Unaudited) Operations and distributions Investment income (loss) -- net $ 1,091,290 $ 2,515,023 $ 6,879,559 $ 15,515,294 Net realized gain (loss) on investments 253,814 119,015 656,389 2,656,487 Net change in unrealized appreciation (depreciation) on investments 1,483,259 (2,736,651) 11,065,444 (16,925,059) ----------- ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations 2,828,363 (102,613) 18,601,392 1,246,722 ----------- ------------ ------------ ------------ Distributions to shareholders from: Net investment income Class A (979,221) (2,226,533) (6,030,159) (13,145,714) Class B (85,199) (231,859) (704,189) (1,780,915) Class C (26,792) (56,704) (123,672) (262,576) Net realized gain Class A (261,330) (939,726) (1,142,029) -- Class B (28,921) (124,142) (166,188) -- Class C (9,068) (28,159) (29,795) -- ----------- ------------ ------------ ------------ Total distributions (1,390,531) (3,607,123) (8,196,032) (15,189,205) ----------- ------------ ------------ ------------ Share transactions (Note 4) Proceeds from sales Class A shares (Note 2) 3,288,945 3,929,167 26,867,466 31,708,550 Class B shares 132,746 465,780 1,088,932 3,586,678 Class C shares 135,788 626,081 1,015,353 3,068,043 Reinvestment of distributions at net asset value Class A shares 996,032 2,623,733 5,796,891 10,715,648 Class B shares 78,190 261,994 727,281 1,489,197 Class C shares 31,387 73,298 129,937 228,169 Payments for redemptions Class A shares (6,548,147) (17,160,945) (33,387,450) (76,911,886) Class B shares (Note 2) (1,389,951) (2,429,975) (10,798,919) (11,748,894) Class C shares (Note 2) (276,697) (819,029) (1,303,886) (3,005,495) ----------- ------------ ------------ ------------ Increase (decrease) in net assets from share transactions (3,551,707) (12,429,896) (9,864,395) (40,869,990) ----------- ------------ ------------ ------------ Total increase (decrease) in net assets (2,113,875) (16,139,632) 540,965 (54,812,473) Net assets at beginning of period 64,812,187 80,951,819 415,841,967 470,654,440 ----------- ------------ ------------ ------------ Net assets at end of period $62,698,312 $ 64,812,187 $416,382,932 $415,841,967 =========== ============ ============ ============ Undistributed (excess of distributions over) net investment income $ 4 $ (74) $ 347,627 $ 326,088 ----------- ------------ ------------ ------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 69 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT
Statements of changes in net assets AXP State Tax-Exempt Funds New York Tax-Exempt Fund Ohio Tax-Exempt Fund Dec. 31, 2004 June 30, 2004 Dec. 31, 2004 June 30, 2004 Six months ended Year ended Six months ended Year ended (Unaudited) (Unaudited) Operations and distributions Investment income (loss) -- net $ 1,583,753 $ 3,491,957 $ 1,031,830 $ 2,294,258 Net realized gain (loss) on investments 267,276 1,237,352 443,647 (246,174) Net change in unrealized appreciation (depreciation) on investments 2,281,078 (5,118,869) 1,542,460 (2,801,314) ----------- ------------ ----------- ------------ Net increase (decrease) in net assets resulting from operations 4,132,107 (389,560) 3,017,937 (753,230) ----------- ------------ ----------- ------------ Distributions to shareholders from: Net investment income Class A (1,387,859) (2,982,840) (898,235) (1,917,434) Class B (170,875) (443,612) (104,169) (277,749) Class C (24,088) (58,190) (26,675) (61,732) Net realized gain Class A (958,523) (1,792,067) -- (822,499) Class B (144,685) (349,327) -- (159,181) Class C (18,926) (45,440) -- (35,511) ----------- ------------ ----------- ------------ Total distributions (2,704,956) (5,671,476) (1,029,079) (3,274,106) ----------- ------------ ----------- ------------ Share transactions (Note 4) Proceeds from sales Class A shares (Note 2) 4,618,655 5,308,394 2,109,031 5,179,041 Class B shares 281,695 1,490,534 279,153 915,169 Class C shares 163,175 860,606 99,723 463,974 Reinvestment of distributions at net asset value Class A shares 1,984,617 4,083,913 679,641 2,178,569 Class B shares 245,886 611,810 78,850 347,672 Class C shares 41,811 97,082 24,910 94,195 Payments for redemptions Class A shares (6,501,765) (22,699,309) (6,255,254) (14,186,759) Class B shares (Note 2) (3,671,583) (3,905,116) (2,162,885) (3,712,886) Class C shares (Note 2) (619,215) (1,130,447) (331,436) (1,192,556) ----------- ------------ ----------- ------------ Increase (decrease) in net assets from share transactions (3,456,724) (15,282,533) (5,478,267) (9,913,581) ----------- ------------ ----------- ------------ Total increase (decrease) in net assets (2,029,573) (21,343,569) (3,489,409) (13,940,917) Net assets at beginning of period 96,063,471 117,407,040 68,614,748 82,555,665 ----------- ------------ ----------- ------------ Net assets at end of period $94,033,898 $ 96,063,471 $65,125,339 $ 68,614,748 =========== ============ =========== ============ Undistributed net investment income $ 8,246 $ 7,315 $ 40,090 $ 37,339 ----------- ------------ ----------- ------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 70 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Notes to Financial Statements AXP State Tax-Exempt Funds (Unaudited as to Dec. 31, 2004) 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 transfer agency fees (class specific expenses) differ among classes. Income, expenses (other than class-specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. Each Fund's significant accounting policies are summarized below: Use of estimates Preparing financial statements that conform to 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. - -------------------------------------------------------------------------------- 71 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Valuation of securities All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sale price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. Securities for which market quotations are not readily available are valued at fair value according to methods selected in good faith by the board. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost. Illiquids At Dec. 31, 2004, investments in securities for California Tax-Exempt Fund and Minnesota Tax-Exempt Fund included issues that are illiquid which the Funds currently limit to 10% of net assets, at market value, at the time of purchase. The aggregate value of such securities at Dec. 31, 2004, was $1,995,800 and $11,248,314 representing 0.93% and 2.70% of net assets for California Tax-Exempt Fund and Minnesota Tax-Exempt Fund, respectively. These securities are valued at fair value according to methods selected in good faith by the board. According to board guidelines, certain unregistered securities are determined to be liquid and are not included within the 10% limitation specified above. Assets are liquid if they can be sold or disposed of in the ordinary course of business within seven days at approximately the value at which the asset is valued by the Fund. Securities purchased on a forward-commitment basis Delivery and payment for securities that have been purchased by the Funds on a forward-commitment basis, including when-issued securities and other forward-commitments, can take place one month or more after the transaction date. During this period, such securities are subject to market fluctuations, and they may affect each Fund's net assets the same as owned securities. The Funds designate cash or liquid securities at least equal to the amount of its forward-commitments. At Dec. 31, 2004, there are no outstanding forward-commitments for the Funds. 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. - -------------------------------------------------------------------------------- 72 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Funds will realize a gain or loss when the option transaction expires or closes. When options on debt securities or futures are exercised, the Funds will realize a gain or loss. When other options are exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of the premium received or paid. Futures transactions To gain exposure to or protect itself from market changes, the Funds may buy and sell financial futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Funds are required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Funds each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Funds recognize a realized gain or loss when the contract is closed or expires. Swap transactions To produce incremental earnings, to gain exposure to or protect itself from market changes, the Funds may enter into swap agreements. Swaps are an agreement between two parties to exchange periodic cash flows based on a specified amount of principal. The net cash flow is generally the difference between a floating market interest rate versus a fixed interest rate. The Funds may employ swaps to synthetically add or subtract principal exposure to the municipal market. Risks of entering into a swap include a lack of correlation between swaps and the portfolio of municipal bonds the swaps are designed to hedge or replicate. A lack of correlation may cause the swap to experience adverse changes in value relative to expectations. In addition, swaps are subject to the risk of default of a counterparty, and the risk of adverse movements in market interest rates relative to the swap positions entered. Swaps are valued daily and unrealized appreciation and depreciation is recorded. The Funds will realize a gain or a loss when the swap is terminated. The Funds did not enter into any swap agreements for the six months ended Dec. 31, 2004. Guarantees and indemnifications Under each Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to each Fund. In addition, certain of each Fund's contracts with its service providers contain general indemnification clauses. Each Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against each Fund cannot be determined and each Fund has no historical basis for predicting the likelihood of any such claims. - -------------------------------------------------------------------------------- 73 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT 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. Dividends to shareholders Dividends from net investment income, declared daily and paid monthly, are reinvested in additional shares of each Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the last income dividend of the calendar year. Other Security transactions are accounted for on the date securities are purchased or sold. Interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. 2. EXPENSES AND SALES CHARGES 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 that declines from 0.47% to 0.38% annually as each Fund's assets increase. 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 that declines from 0.04% to 0.02% annually as each Fund's assets increase. 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. - -------------------------------------------------------------------------------- 74 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Under a Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of each Fund or other American Express mutual funds. Each Fund's liability for these amounts is adjusted for market value changes and remains in each Fund until distributed in accordance with the Plan. Under a separate Transfer Agency Agreement, American Express Client Service Corporation (AECSC) maintains shareholder accounts and records. Each Fund pays AECSC an annual fee per shareholder account for this service as follows: o Class A $20.50 o Class B $21.50 o Class C $21.00 The incremental transfer agency fee is the amount charged to the specific classes for the additional expense above the base fee of $18.50. In addition, AECSC is entitled to charge an annual closed account fee of $5 per inactive account, charged on a pro rata basis from the date the account becomes inactive until the date the account is purged from the transfer agent system generally within one year. However, the closed account fee is currently not effective. Each Fund has agreements with American Express Financial Advisors Inc. (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, each Fund pays a fee at an annual rate up to 0.25% of each Fund's average daily net assets attributable to Class A shares and up to 1.00% for Class B and Class C shares. For the six months ended Dec. 31, 2004, AEFC and its affiliates waived certain fees and expenses as follows:
Fund Class A Class B Class C Massachusetts Tax-Exempt Fund 0.88% 1.64% 1.64% Michigan Tax-Exempt Fund 0.88 1.64 1.64 New York Tax-Exempt Fund 0.87 1.63 1.63 Ohio Tax-Exempt Fund 0.88 1.64 1.64
- -------------------------------------------------------------------------------- 75 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Of these waived fees and expenses, the class specific transfer agency fees waived are as follows:
Percentage of average Fund Amount daily net assets Massachusetts Tax-Exempt Fund Class A $14,674 0.04% Class B 4,066 0.03 Class C 398 0.05 Michigan Tax-Exempt Fund Class A 11,413 0.04 Class B 1,165 0.03 Class C 413 0.04 New York Tax-Exempt Fund Class A 13,130 0.03 Class B 1,839 0.03 Class C 292 0.03 Ohio Tax-Exempt Fund Class A 12,089 0.04 Class B 1,651 0.03 Class C 495 0.04
In addition, AEFC and its affiliates have agreed to waive certain fees and expenses until June 30, 2005. Under this agreement, net expenses will not exceed 0.88% for Class A, 1.64% for Class B and 1.64% for Class C of the Fund's average daily net assets for Massachusetts Tax-Exempt Fund, Michigan Tax-Exempt Fund, New York Tax-Exempt Fund and Ohio Tax-Exempt Fund. Sales charges received by the Distributor for distributing the Funds' shares for the six months ended Dec. 31, 2004, are as follows:
Fund Class A Class B Class C California Tax-Exempt Fund $ 86,834 $ 9,489 $ 717 Massachusetts Tax-Exempt Fund 29,715 18,575 283 Michigan Tax-Exempt Fund 36,314 9,694 544 Minnesota Tax-Exempt Fund 226,768 33,750 887 New York Tax-Exempt Fund 65,343 21,959 2,076 Ohio Tax-Exempt Fund 24,525 9,445 221
During the six months ended Dec. 31, 2004, 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 $ 1,940 Massachusetts Tax-Exempt Fund 957 Michigan Tax-Exempt Fund 1,205 Minnesota Tax-Exempt Fund 10,645 New York Tax-Exempt Fund 1,180 Ohio Tax-Exempt Fund 777
- -------------------------------------------------------------------------------- 76 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT 3. SECURITIES TRANSACTIONS For the six months ended Dec. 31, 2004, 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 $23,672,729 $27,519,567 Massachusetts Tax-Exempt Fund 2,572,123 5,986,287 Michigan Tax-Exempt Fund 1,876,735 6,174,185 Minnesota Tax-Exempt Fund 25,159,235 33,617,084 New York Tax-Exempt Fund 12,412,777 13,772,775 Ohio Tax-Exempt Fund 10,948,062 15,184,553
Realized gains and losses are determined on an identified cost basis. 4. SHARE TRANSACTIONS Transactions in shares for each Fund for the periods indicated are as follows: California Tax-Exempt Fund Six months ended Dec. 31, 2004 Class A Class B Class C Sold 2,032,015 60,040 74,689 Issued for reinvested distributions 897,291 85,980 16,435 Redeemed (3,720,285) (834,678) (188,497) ---------- -------- -------- Net increase (decrease) (790,979) (688,658) (97,373) ---------- -------- -------- Year ended June 30, 2004 Class A Class B Class C Sold 3,033,671 206,871 230,075 Issued for reinvested distributions 1,537,634 166,830 33,943 Redeemed (10,732,762) (1,184,067) (449,095) ----------- ---------- -------- Net increase (decrease) (6,161,457) (810,366) (185,077) ---------- -------- -------- Massachusetts Tax-Exempt Fund Six months ended Dec. 31, 2004 Class A Class B Class C Sold 710,456 71,032 7,192 Issued for reinvested distributions 185,877 45,672 4,252 Redeemed (1,089,503) (595,358) (64,501) ---------- -------- ------- Net increase (decrease) (193,170) (478,654) (53,057) -------- -------- ------- Year ended June 30, 2004 Class A Class B Class C Sold 1,191,577 251,911 124,956 Issued for reinvested distributions 459,165 126,234 11,326 Redeemed (3,531,720) (876,712) (154,180) ---------- -------- -------- Net increase (decrease) (1,880,978) (498,567) (17,898) ---------- -------- ------- - -------------------------------------------------------------------------------- 77 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Michigan Tax-Exempt Fund Six months ended Dec. 31, 2004 Class A Class B Class C Sold 618,509 25,122 25,512 Issued for reinvested distributions 187,065 14,676 5,895 Redeemed (1,232,985) (263,319) (52,033) ---------- -------- ------- Net increase (decrease) (427,411) (223,521) (20,626) -------- -------- ------- Year ended June 30, 2004 Class A Class B Class C Sold 736,955 87,977 117,722 Issued for reinvested distributions 492,872 49,175 13,759 Redeemed (3,227,509) (459,337) (153,247) ---------- -------- -------- Net increase (decrease) (1,997,682) (322,185) (21,766) ---------- -------- ------- Minnesota Tax-Exempt Fund Six months ended Dec. 31, 2004 Class A Class B Class C Sold 5,072,350 204,355 191,396 Issued for reinvested distributions 1,087,630 136,483 24,380 Redeemed (6,286,450) (2,045,758) (245,339) ---------- ---------- -------- Net increase (decrease) (126,470) (1,704,920) (29,563) -------- ---------- ------- Year ended June 30, 2004 Class A Class B Class C Sold 5,989,136 678,333 581,550 Issued for reinvested distributions 2,028,244 281,844 43,186 Redeemed (14,563,010) (2,227,995) (570,516) ----------- ---------- -------- Net increase (decrease) (6,545,630) (1,267,818) 54,220 ---------- ---------- ------ New York Tax-Exempt Fund Six months ended Dec. 31, 2004 Class A Class B Class C Sold 895,884 54,512 31,445 Issued for reinvested distributions 384,346 47,658 8,098 Redeemed (1,257,287) (714,149) (119,641) ---------- -------- -------- Net increase (decrease) 22,943 (611,979) (80,098) ------ -------- ------- Year ended June 30, 2004 Class A Class B Class C Sold 1,018,559 285,671 164,025 Issued for reinvested distributions 784,799 117,555 18,658 Redeemed (4,372,625) (752,175) (218,063) ---------- -------- -------- Net increase (decrease) (2,569,267) (348,949) (35,380) ---------- -------- ------- - -------------------------------------------------------------------------------- 78 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Ohio Tax-Exempt Fund Six months ended Dec. 31, 2004 Class A Class B Class C Sold 402,530 52,766 18,911 Issued for reinvested distributions 128,479 14,909 4,708 Redeemed (1,183,942) (412,873) (62,972) ---------- -------- ------- Net increase (decrease) (652,933) (345,198) (39,353) -------- -------- ------- Year ended June 30, 2004 Class A Class B Class C Sold 974,625 172,274 87,413 Issued for reinvested distributions 411,677 65,666 17,779 Redeemed (2,689,966) (708,242) (225,894) ---------- -------- -------- Net increase (decrease) (1,303,664) (470,302) (120,702) ---------- -------- -------- 5. CAPITAL LOSS CARRY-OVER For federal income tax purposes, Ohio Tax-Exempt Fund had a capital loss carry-over of $438,217 at June 30, 2004, that if not offset by capital gains will expire in 2013. 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 a syndicate of banks headed by The Bank of New York, whereby each Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The agreement went into effect Sept. 21, 2004. Each Fund must maintain asset coverage for borrowings of at least 300%. The agreement, which enables each Fund to participate with other American Express mutual funds, permits borrowings up to $500 million, collectively. Interest is charged to each Fund based on its borrowings at a rate equal to either the higher of the Federal Funds Effective Rate plus 0.50% or the Prime Lending Rate. Borrowings are payable within 60 days after such loan is executed. Each Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.09% per annum. Prior to this agreement, each Fund had a revolving credit agreement that permitted borrowings up to $500 million with Deutsche Bank. Each Fund had no borrowings outstanding during the six months ended Dec. 31, 2004. - -------------------------------------------------------------------------------- 79 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT 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, 2004(f) 2004 2003 2002 2001 Net asset value, beginning of period $5.11 $5.37 $5.23 $5.18 $5.03 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .09 .21 .23 .24 .25 Net gains (losses) (both realized and unrealized) .18 (.20) .14 .05 .15 ----- ----- ----- ----- ----- Total from investment operations .27 .01 .37 .29 .40 ----- ----- ----- ----- ----- Less distributions: Dividends from net investment income (.10) (.21) (.23) (.24) (.25) Distributions from realized gains (.07) (.06) -- -- -- ----- ----- ----- ----- ----- Total distributions (.17) (.27) (.23) (.24) (.25) ----- ----- ----- ----- ----- Net asset value, end of period $5.21 $5.11 $5.37 $5.23 $5.18 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $194 $194 $237 $234 $231 Ratio of expenses to average daily net assets(b) .85%(c) .86% .85% .84% .85% Ratio of net investment income (loss) to average daily net assets 3.61%(c) 4.03% 4.34% 4.56% 4.79% Portfolio turnover rate (excluding short-term securities) 12% 30% 95% 16% 11% Total return(d) 5.29%(e) .25% 7.26% 5.66% 8.00%
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Adjusted to an annual basis. (d) Total return does not reflect payment of a sales charge. (e) Not annualized. (f) Six months ended Dec. 31, 2004 (Unaudited). - -------------------------------------------------------------------------------- 80 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP California Tax-Exempt Fund
Class B Per share income and capital changes(a) Fiscal period ended June 30, 2004(f) 2004 2003 2002 2001 Net asset value, beginning of period $5.11 $5.37 $5.23 $5.17 $5.03 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .07 .17 .19 .20 .21 Net gains (losses) (both realized and unrealized) .18 (.20) .14 .06 .14 ----- ----- ----- ----- ----- Total from investment operations .25 (.03) .33 .26 .35 ----- ----- ----- ----- ----- Less distributions: Dividends from net investment income (.08) (.17) (.19) (.20) (.21) Distributions from realized gains (.07) (.06) -- -- -- ----- ----- ----- ----- ----- Total distributions (.15) (.23) (.19) (.20) (.21) ----- ----- ----- ----- ----- Net asset value, end of period $5.21 $5.11 $5.37 $5.23 $5.17 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $18 $21 $27 $27 $24 Ratio of expenses to average daily net assets(b) 1.60%(c) 1.61% 1.60% 1.59% 1.60% Ratio of net investment income (loss) to average daily net assets 2.85%(c) 3.28% 3.58% 3.81% 3.99% Portfolio turnover rate (excluding short-term securities) 12% 30% 95% 16% 11% Total return(d) 4.90%(e) (.50%) 6.44% 5.07% 6.98%
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Adjusted to an annual basis. (d) Total return does not reflect payment of a sales charge. (e) Not annualized. (f) Six months ended Dec. 31, 2004 (Unaudited). - -------------------------------------------------------------------------------- 81 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP California Tax-Exempt Fund
Class C Per share income and capital changes(a) Fiscal period ended June 30, 2004(f) 2004 2003 2002 2001 Net asset value, beginning of period $5.12 $5.38 $5.24 $5.18 $5.03 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .07 .17 .19 .20 .21 Net gains (losses) (both realized and unrealized) .17 (.20) .14 .06 .15 ----- ----- ----- ----- ----- Total from investment operations .24 (.03) .33 .26 .36 ----- ----- ----- ----- ----- Less distributions: Dividends from net investment income (.08) (.17) (.19) (.20) (.21) Distributions from realized gains (.07) (.06) -- -- -- ----- ----- ----- ----- ----- Total distributions (.15) (.23) (.19) (.20) (.21) ----- ----- ----- ----- ----- Net asset value, end of period $5.21 $5.12 $5.38 $5.24 $5.18 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $3 $4 $5 $3 $1 Ratio of expenses to average daily net assets(b) 1.61%(c) 1.62% 1.61% 1.60% 1.60% Ratio of net investment income (loss) to average daily net assets 2.85%(c) 3.27% 3.56% 3.86% 4.04% Portfolio turnover rate (excluding short-term securities) 12% 30% 95% 16% 11% Total return(d) 4.69%(e) (.50%) 6.43% 5.07% 7.20%
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Adjusted to an annual basis. (d) Total return does not reflect payment of a sales charge. (e) Not annualized. (f) Six months ended Dec. 31, 2004 (Unaudited). - -------------------------------------------------------------------------------- 82 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Massachusetts Tax-Exempt Fund
Class A Per share income and capital changes(a) Fiscal period ended June 30, 2004(g) 2004 2003 2002 2001 Net asset value, beginning of period $5.26 $5.51 $5.37 $5.28 $5.11 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .08 .18 .19 .22 .27 Net gains (losses) (both realized and unrealized) .18 (.19) .16 .09 .17 ----- ----- ----- ----- ----- Total from investment operations .26 (.01) .35 .31 .44 ----- ----- ----- ----- ----- Less distributions: Dividends from net investment income (.09) (.18) (.19) (.22) (.27) Distributions from realized gains (.02) (.06) (.02) -- -- ----- ----- ----- ----- ----- Total distributions (.11) (.24) (.21) (.22) (.27) ----- ----- ----- ----- ----- Net asset value, end of period $5.41 $5.26 $5.51 $5.37 $5.28 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $60 $59 $73 $66 $65 Ratio of expenses to average daily net assets(b) .88%(c),(d) .88%(c) .88%(c) .91% .95% Ratio of net investment income (loss) to average daily net assets 3.17%(d) 3.35% 3.57% 4.11% 5.04% Portfolio turnover rate (excluding short-term securities) 3% 14% 141% 53% 4% Total return(e) 4.97%(f) (.24%)(f) 6.73% 5.94% 8.64%
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class A would have been 0.93% for the six months ended Dec. 31, 2004 and 0.93% and 0.92% for the years ended June 30, 2004 and 2003, respectively. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2004 (Unaudited). - -------------------------------------------------------------------------------- 83 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Massachusetts Tax-Exempt Fund
Class B Per share income and capital changes(a) Fiscal period ended June 30, 2004(g) 2004 2003 2002 2001 Net asset value, beginning of period $5.26 $5.51 $5.37 $5.28 $5.11 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .06 .14 .15 .18 .23 Net gains (losses) (both realized and unrealized) .18 (.19) .16 .09 .17 ----- ----- ----- ----- ----- Total from investment operations .24 (.05) .31 .27 .40 ----- ----- ----- ----- ----- Less distributions: Dividends from net investment income (.07) (.14) (.15) (.18) (.23) Distributions from realized gains (.02) (.06) (.02) -- -- ----- ----- ----- ----- ----- Total distributions (.09) (.20) (.17) (.18) (.23) ----- ----- ----- ----- ----- Net asset value, end of period $5.41 $5.26 $5.51 $5.37 $5.28 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $19 $21 $24 $24 $18 Ratio of expenses to average daily net assets(b) 1.64%(c),(d) 1.64%(c) 1.63%(c) 1.66% 1.70% Ratio of net investment income (loss) to average daily net assets 2.41%(d) 2.59% 2.81% 3.34% 4.28% Portfolio turnover rate (excluding short-term securities) 3% 14% 141% 53% 4% Total return(e) 4.56%(f) (.99%)(f) 5.92% 5.15% 7.83%
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class B would have been 1.68% for the six months ended Dec. 31, 2004 and 1.69% and 1.68% for the years ended June 30, 2004 and 2003, respectively. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2004 (Unaudited). - -------------------------------------------------------------------------------- 84 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Massachusetts Tax-Exempt Fund
Class C Per share income and capital changes(a) Fiscal period ended June 30, 2004(g) 2004 2003 2002 2001 Net asset value, beginning of period $5.26 $5.51 $5.37 $5.28 $5.11 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .06 .14 .15 .18 .23 Net gains (losses) (both realized and unrealized) .18 (.19) .16 .09 .17 ----- ----- ----- ----- ----- Total from investment operations .24 (.05) .31 .27 .40 ----- ----- ----- ----- ----- Less distributions: Dividends from net investment income (.07) (.14) (.15) (.18) (.23) Distributions from realized gains (.02) (.06) (.02) -- -- ----- ----- ----- ----- ----- Total distributions (.09) (.20) (.17) (.18) (.23) ----- ----- ----- ----- ----- Net asset value, end of period $5.41 $5.26 $5.51 $5.37 $5.28 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $1 $2 $2 $2 $1 Ratio of expenses to average daily net assets(b) 1.64%(c),(d) 1.64%(c) 1.64%(c) 1.66% 1.70% Ratio of net investment income (loss) to average daily net assets 2.41%(d) 2.58% 2.88% 3.32% 4.30% Portfolio turnover rate (excluding short-term securities) 3% 14% 141% 53% 4% Total return(e) 4.57%(f) (.97%)(f) 5.91% 5.16% 7.84%
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class C would have been 1.70%for the six months ended Dec. 31, 2004 and 1.69% and 1.68% for the years ended June 30, 2004 and 2003, respectively. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2004 (Unaudited). - -------------------------------------------------------------------------------- 85 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Michigan Tax-Exempt Fund
Class A Per share income and capital changes(a) Fiscal period ended June 30, 2004(g) 2004 2003 2002 2001 Net asset value, beginning of period $5.21 $5.47 $5.33 $5.27 $5.09 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .09 .19 .22 .24 .27 Net gains (losses) (both realized and unrealized) .14 (.18) .19 .06 .18 ----- ----- ----- ----- ----- Total from investment operations .23 .01 .41 .30 .45 ----- ----- ----- ----- ----- Less distributions: Dividends from net investment income (.09) (.19) (.22) (.24) (.27) Distributions from realized gains (.03) (.08) (.05) -- -- ----- ----- ----- ----- ----- Total distributions (.12) (.27) (.27) (.24) (.27) ----- ----- ----- ----- ----- Net asset value, end of period $5.32 $5.21 $5.47 $5.33 $5.27 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $55 $56 $70 $70 $67 Ratio of expenses to average daily net assets(b) .88%(c),(d) .88%(c) .88%(c) .92% .95% Ratio of net investment income (loss) to average daily net assets 3.49%(d) 3.55% 4.06% 4.57% 5.09% Portfolio turnover rate (excluding short-term securities) 3% 32% 113% 33% 4% Total return(e) 4.42%(f) .19% 8.00% 5.83% 8.90%
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class A would have been 0.94% for the six months ended Dec. 31, 2004 and 0.94% and 0.93% for the years ended June 30, 2004 and 2003, respectively. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2004 (Unaudited). - -------------------------------------------------------------------------------- 86 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Michigan Tax-Exempt Fund
Class B Per share income and capital changes(a) Fiscal period ended June 30, 2004(g) 2004 2003 2002 2001 Net asset value, beginning of period $5.21 $5.47 $5.33 $5.27 $5.09 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .07 .15 .18 .20 .23 Net gains (losses) (both realized and unrealized) .14 (.18) .19 .06 .18 ----- ----- ----- ----- ----- Total from investment operations .21 (.03) .37 .26 .41 ----- ----- ----- ----- ----- Less distributions: Dividends from net investment income (.07) (.15) (.18) (.20) (.23) Distributions from realized gains (.03) (.08) (.05) -- -- ----- ----- ----- ----- ----- Total distributions (.10) (.23) (.23) (.20) (.23) ----- ----- ----- ----- ----- Net asset value, end of period $5.32 $5.21 $5.47 $5.33 $5.27 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $6 $7 $9 $8 $6 Ratio of expenses to average daily net assets(b) 1.64%(c),(d) 1.63%(c) 1.63%(c) 1.67% 1.70% Ratio of net investment income (loss) to average daily net assets 2.72%(d) 2.79% 3.28% 3.82% 4.34% Portfolio turnover rate (excluding short-term securities) 3% 32% 113% 33% 4% Total return(e) 4.02%(f) (.56%) 7.18% 5.04% 8.09%
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class B would have been 1.69% for the six monhs ended Dec. 31, 2004 and 1.70% and 1.69% for the years ended June 30, 2004 and 2003, respectively. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2004 (Unaudited). - -------------------------------------------------------------------------------- 87 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Michigan Tax-Exempt Fund
Class C Per share income and capital changes(a) Fiscal period ended June 30, 2004(g) 2004 2003 2002 2001 Net asset value, beginning of period $5.21 $5.47 $5.33 $5.27 $5.09 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .07 .15 .18 .20 .22 Net gains (losses) (both realized and unrealized) .14 (.18) .19 .06 .18 ----- ----- ----- ----- ----- Total from investment operations .21 (.03) .37 .26 .40 ----- ----- ----- ----- ----- Less distributions: Dividends from net investment income (.07) (.15) (.18) (.20) (.22) Distributions from realized gains (.03) (.08) (.05) -- -- ----- ----- ----- ----- ----- Total distributions (.10) (.23) (.23) (.20) (.22) ----- ----- ----- ----- ----- Net asset value, end of period $5.32 $5.21 $5.47 $5.33 $5.27 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $2 $2 $2 $1 $-- Ratio of expenses to average daily net assets(b) 1.64%(c),(d) 1.64%(c) 1.63%(c) 1.66% 1.70% Ratio of net investment income (loss) to average daily net assets 2.73%(d) 2.80% 3.27% 3.80% 4.36% Portfolio turnover rate (excluding short-term securities) 3% 32% 113% 33% 4% Total return(e) 4.02%(f) (.57%) 7.18% 5.05% 8.02%
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class C would have been 1.70% for the six months ended Dec. 31, 2004 and 1.70% and 1.69% for the years ended June 30, 2004 and 2003, respectively. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2004 (Unaudited). - -------------------------------------------------------------------------------- 88 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Minnesota Tax-Exempt Fund
Class A Per share income and capital changes(a) Fiscal period ended June 30, 2004(f) 2004 2003 2002 2001 Net asset value, beginning of period $5.20 $5.37 $5.20 $5.14 $5.00 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .09 .19 .22 .25 .28 Net gains (losses) (both realized and unrealized) .15 (.17) .17 .06 .14 ----- ----- ----- ----- ----- Total from investment operations .24 .02 .39 .31 .42 ----- ----- ----- ----- ----- Less distributions: Dividends from net investment income (.09) (.19) (.22) (.25) (.28) Distributions from realized gains (.02) -- -- -- -- ----- ----- ----- ----- ----- Total distributions (.11) (.19) (.22) (.25) (.28) ----- ----- ----- ----- ----- Net asset value, end of period $5.33 $5.20 $5.37 $5.20 $5.14 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $355 $347 $393 $375 $357 Ratio of expenses to average daily net assets(b) .85%(c) .84% .84% .83% .84% Ratio of net investment income (loss) to average daily net assets 3.37%(c) 3.60% 4.26% 4.82% 5.45% Portfolio turnover rate (excluding short-term securities) 6% 23% 73% 36% 4% Total return(d) 4.58%(e) .32% 7.78% 6.15% 8.53%
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Adjusted to an annual basis. (d) Total return does not reflect payment of a sales charge. (e) Not annualized. (f) Six months ended Dec. 31, 2004 (Unaudited). - -------------------------------------------------------------------------------- 89 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Minnesota Tax-Exempt Fund
Class B Per share income and capital changes(a) Fiscal period ended June 30, 2004(f) 2004 2003 2002 2001 Net asset value, beginning of period $5.20 $5.37 $5.20 $5.14 $5.00 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .07 .15 .18 .21 .24 Net gains (losses) (both realized and unrealized) .15 (.17) .17 .06 .14 ----- ----- ----- ----- ----- Total from investment operations .22 (.02) .35 .27 .38 ----- ----- ----- ----- ----- Less distributions: Dividends from net investment income (.07) (.15) (.18) (.21) (.24) Distributions from realized gains (.02) -- -- -- -- ----- ----- ----- ----- ----- Total distributions (.09) (.15) (.18) (.21) (.24) ----- ----- ----- ----- ----- Net asset value, end of period $5.33 $5.20 $5.37 $5.20 $5.14 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $52 $59 $68 $64 $53 Ratio of expenses to average daily net assets(b) 1.61%(c) 1.59% 1.59% 1.59% 1.60% Ratio of net investment income (loss) to average daily net assets 2.61%(c) 2.85% 3.48% 4.02% 4.70% Portfolio turnover rate (excluding short-term securities) 6% 23% 73% 36% 4% Total return(d) 4.19%(e) (.44%) 6.97% 5.36% 7.72%
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Adjusted to an annual basis. (d) Total return does not reflect payment of a sales charge. (e) Not annualized. (f) Six months ended Dec. 31, 2004 (Unaudited). - -------------------------------------------------------------------------------- 90 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Minnesota Tax-Exempt Fund
Class C Per share income and capital changes(a) Fiscal period ended June 30, 2004(f) 2004 2003 2002 2001 Net asset value, beginning of period $5.20 $5.37 $5.20 $5.14 $5.00 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .07 .15 .18 .21 .24 Net gains (losses) (both realized and unrealized) .15 (.17) .17 .06 .14 ----- ----- ----- ----- ----- Total from investment operations .22 (.02) .35 .27 .38 ----- ----- ----- ----- ----- Less distributions: Dividends from net investment income (.07) (.15) (.18) (.21) (.24) Distributions from realized gains (.02) -- -- -- -- ----- ----- ----- ----- ----- Total distributions (.09) (.15) (.18) (.21) (.24) ----- ----- ----- ----- ----- Net asset value, end of period $5.33 $5.20 $5.37 $5.20 $5.14 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $9 $9 $9 $5 $2 Ratio of expenses to average daily net assets(b) 1.61%(c) 1.60% 1.60% 1.59% 1.59% Ratio of net investment income (loss) to average daily net assets 2.61%(c) 2.84% 3.44% 4.04% 4.74% Portfolio turnover rate (excluding short-term securities) 6% 23% 73% 36% 4% Total return(d) 4.19%(e) (.44%) 6.96% 5.36% 7.75%
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Adjusted to an annual basis. (d) Total return does not reflect payment of a sales charge. (e) Not annualized. (f) Six months ended Dec. 31, 2004 (Unaudited). - -------------------------------------------------------------------------------- 91 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP New York Tax-Exempt Fund
Class A Per share income and capital changes(a) Fiscal period ended June 30, 2004(g) 2004 2003 2002 2001 Net asset value, beginning of period $5.07 $5.36 $5.16 $5.12 $4.92 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .09 .18 .20 .22 .25 Net gains (losses) (both realized and unrealized) .13 (.18) .22 .04 .20 ----- ----- ----- ----- ----- Total from investment operations .22 -- .42 .26 .45 ----- ----- ----- ----- ----- Less distributions: Dividends from net investment income (.09) (.18) (.20) (.22) (.25) Distributions from realized gains (.06) (.11) (.02) -- -- ----- ----- ----- ----- ----- Total distributions (.15) (.29) (.22) (.22) (.25) ----- ----- ----- ----- ----- Net asset value, end of period $5.14 $5.07 $5.36 $5.16 $5.12 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $80 $79 $97 $92 $88 Ratio of expenses to average daily net assets(b) .87%(c),(d) .88%(c) .88%(c) .90% .91% Ratio of net investment income (loss) to average daily net assets 3.41%(d) 3.44% 3.88% 4.38% 4.90% Portfolio turnover rate (excluding short-term securities) 14% 36% 91% 44% 13% Total return(e) 4.38%(f) (.02%) 8.43% 5.26% 9.28%
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class A would have been 0.90% for the six months ended Dec. 31, 2004 and 0.93% and 0.90% for the years ended June 30, 2004 and 2003, respectively. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2004 (Unaudited). - -------------------------------------------------------------------------------- 92 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP New York Tax-Exempt Fund
Class B Per share income and capital changes(a) Fiscal period ended June 30, 2004(g) 2004 2003 2002 2001 Net asset value, beginning of period $5.07 $5.36 $5.16 $5.12 $4.92 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .07 .14 .16 .19 .21 Net gains (losses) (both realized and unrealized) .13 (.18) .22 .04 .20 ----- ----- ----- ----- ----- Total from investment operations .20 (.04) .38 .23 .41 ----- ----- ----- ----- ----- Less distributions: Dividends from net investment income (.07) (.14) (.16) (.19) (.21) Distributions from realized gains (.06) (.11) (.02) -- -- ----- ----- ----- ----- ----- Total distributions (.13) (.25) (.18) (.19) (.21) ----- ----- ----- ----- ----- Net asset value, end of period $5.14 $5.07 $5.36 $5.16 $5.12 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $12 $15 $18 $18 $16 Ratio of expenses to average daily net assets(b) 1.63%(c),(d) 1.63%(c) 1.63%(c) 1.65% 1.66% Ratio of net investment income (loss) to average daily net assets 2.64%(d) 2.69% 3.13% 3.60% 4.14% Portfolio turnover rate (excluding short-term securities) 14% 36% 91% 44% 13% Total return(e) 3.98%(f) (.78%) 7.61% 4.48% 8.47%
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class B would have been 1.66% for the six months ended Dec. 31, 2004 and 1.69% and 1.66% for the years ended June 30, 2004 and 2003, respectively. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2004 (Unaudited). - -------------------------------------------------------------------------------- 93 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP New York Tax-Exempt Fund
Class C Per share income and capital changes(a) Fiscal period ended June 30, 2004(g) 2004 2003 2002 2001 Net asset value, beginning of period $5.07 $5.36 $5.16 $5.11 $4.92 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .07 .14 .16 .19 .21 Net gains (losses) (both realized and unrealized) .13 (.18) .22 .05 .19 ----- ----- ----- ----- ----- Total from investment operations .20 (.04) .38 .24 .40 ----- ----- ----- ----- ----- Less distributions: Dividends from net investment income (.07) (.14) (.16) (.19) (.21) Distributions from realized gains (.06) (.11) (.02) -- -- ----- ----- ----- ----- ----- Total distributions (.13) (.25) (.18) (.19) (.21) ----- ----- ----- ----- ----- Net asset value, end of period $5.14 $5.07 $5.36 $5.16 $5.11 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $2 $2 $2 $1 $-- Ratio of expenses to average daily net assets(b) 1.63%(c),(d) 1.63%(c) 1.64%(c) 1.66% 1.66% Ratio of net investment income (loss) to average daily net assets 2.65%(d) 2.68% 3.07% 3.69% 4.09% Portfolio turnover rate (excluding short-term securities) 14% 36% 91% 44% 13% Total return(e) 3.98%(f) (.78%) 7.60% 4.68% 8.26%
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class C would have been 1.66% for the six months ended Dec. 31, 2004 and 1.69% and 1.66% for the years ended June 30, 2004 and 2003, respectively. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2004 (Unaudited). - -------------------------------------------------------------------------------- 94 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Ohio Tax-Exempt Fund
Class A Per share income and capital changes(a) Fiscal period ended June 30, 2004(g) 2004 2003 2002 2001 Net asset value, beginning of period $5.16 $5.43 $5.35 $5.27 $5.13 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .08 .17 .18 .22 .27 Net gains (losses) (both realized and unrealized) .15 (.20) .19 .08 .14 ----- ----- ----- ----- ----- Total from investment operations .23 (.03) .37 .30 .41 ----- ----- ----- ----- ----- Less distributions: Dividends from net investment income (.08) (.17) (.18) (.22) (.27) Distributions from realized gains -- (.07) (.11) -- -- ----- ----- ----- ----- ----- Total distributions (.08) (.24) (.29) (.22) (.27) ----- ----- ----- ----- ----- Net asset value, end of period $5.31 $5.16 $5.43 $5.35 $5.27 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $55 $56 $67 $69 $67 Ratio of expenses to average daily net assets(b) .88%(c),(d) .88%(c) .88%(c) .91% .93% Ratio of net investment income (loss) to average daily net assets 3.13%(d) 3.13% 3.40% 4.22% 4.98% Portfolio turnover rate (excluding short-term securities) 17% 17% 194% 33% 3% Total return(e) 4.53%(f) (.67%) 7.08% 5.87% 7.95%
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class A would have been 0.93% for the six months ended Dec. 31, 2004 and 0.95% and 0.92% for the years ended June 30, 2004 and 2003, respectively. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2004 (Unaudited). - -------------------------------------------------------------------------------- 95 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Ohio Tax-Exempt Fund
Class B Per share income and capital changes(a) Fiscal period ended June 30, 2004(g) 2004 2003 2002 2001 Net asset value, beginning of period $5.16 $5.43 $5.34 $5.27 $5.13 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .06 .13 .14 .18 .23 Net gains (losses) (both realized and unrealized) .15 (.20) .20 .07 .14 ----- ----- ----- ----- ----- Total from investment operations .21 (.07) .34 .25 .37 ----- ----- ----- ----- ----- Less distributions: Dividends from net investment income (.06) (.13) (.14) (.18) (.23) Distributions from realized gains -- (.07) (.11) -- -- ----- ----- ----- ----- ----- Total distributions (.06) (.20) (.25) (.18) (.23) ----- ----- ----- ----- ----- Net asset value, end of period $5.31 $5.16 $5.43 $5.34 $5.27 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $8 $10 $13 $12 $8 Ratio of expenses to average daily net assets(b) 1.64%(c),(d) 1.63%(c) 1.63%(c) 1.66% 1.68% Ratio of net investment income (loss) to average daily net assets 2.37%(d) 2.38% 2.62% 3.46% 4.23% Portfolio turnover rate (excluding short-term securities) 17% 17% 194% 33% 3% Total return(e) 4.14%(f) (1.43%) 6.47% 4.89% 7.15%
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class B would have been 1.68% for the six months ended Dec. 31, 2004 and 1.71% and 1.68% for the years ended June 30, 2004 and 2003, respectively. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2004 (Unaudited). - -------------------------------------------------------------------------------- 96 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT AXP Ohio Tax-Exempt Fund
Class C Per share income and capital changes(a) Fiscal period ended June 30, 2004(g) 2004 2003 2002 2001 Net asset value, beginning of period $5.16 $5.43 $5.35 $5.28 $5.13 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .06 .13 .14 .18 .22 Net gains (losses) (both realized and unrealized) .15 (.20) .19 .07 .15 ----- ----- ----- ----- ----- Total from investment operations .21 (.07) .33 .25 .37 ----- ----- ----- ----- ----- Less distributions: Dividends from net investment income (.06) (.13) (.14) (.18) (.22) Distributions from realized gains -- (.07) (.11) -- -- ----- ----- ----- ----- ----- Total distributions (.06) (.20) (.25) (.18) (.22) ----- ----- ----- ----- ----- Net asset value, end of period $5.31 $5.16 $5.43 $5.35 $5.28 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $2 $2 $3 $1 $1 Ratio of expenses to average daily net assets(b) 1.64%(c),(d) 1.63%(c) 1.63%(c) 1.66% 1.68% Ratio of net investment income (loss) to average daily net assets 2.37%(d) 2.38% 2.54% 3.45% 4.26% Portfolio turnover rate (excluding short-term securities) 17% 17% 194% 33% 3% Total return(e) 4.14%(f) (1.44%) 6.26% 4.89% 7.27%
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses for Class C would have been 1.69% for the six months ended Dec. 31, 2004 and 1.71% and 1.68% for the years ended June 30, 2004 and 2003, respectively. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2004 (Unaudited). - -------------------------------------------------------------------------------- 97 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Fund Expenses Example (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the six months ended Dec. 31, 2004. Actual Expenses The first line of the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled "Expenses paid during the period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line of the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - -------------------------------------------------------------------------------- 98 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT
AXP California Tax-Exempt Fund Beginning Ending Expenses account value account value paid during Annualized July 1, 2004 Dec. 31, 2004 the period(a) expense ratio Class A Actual(b) $1,000 $1,052.90 $4.40 .85% Hypothetical (5% return before expenses) $1,000 $1,020.92 $4.33 .85% Class B Actual(b) $1,000 $1,049.00 $8.26 1.60% Hypothetical (5% return before expenses) $1,000 $1,017.14 $8.13 1.60% Class C Actual(b) $1,000 $1,046.90 $8.31 1.61% Hypothetical (5% return before expenses) $1,000 $1,017.09 $8.19 1.61% (a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Dec. 31, 2004: +5.29% for Class A, +4.90% for Class B and +4.69% for Class C. AXP Massachusetts Tax-Exempt Fund Beginning Ending Expenses account value account value paid during Annualized July 1, 2004 Dec. 31, 2004 the period(a) expense ratio Class A Actual(b) $1,000 $1,049.70 $4.55 .88% Hypothetical (5% return before expenses) $1,000 $1,020.77 $4.48 .88% Class B Actual(b) $1,000 $1,045.60 $8.46 1.64% Hypothetical (5% return before expenses) $1,000 $1,016.94 $8.34 1.64% Class C Actual(b) $1,000 $1,045.70 $8.46 1.64% Hypothetical (5% return before expenses) $1,000 $1,016.94 $8.34 1.64%
(a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Dec. 31, 2004: +4.97% for Class A, +4.56% for Class B and +4.57% for Class C. - -------------------------------------------------------------------------------- 99 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT
AXP Michigan Tax-Exempt Fund Beginning Ending Expenses account value account value paid during Annualized July 1, 2004 Dec. 31, 2004 the period(a) expense ratio Class A Actual(b) $1,000 $1,044.20 $4.53 .88% Hypothetical (5% return before expenses) $1,000 $1,020.77 $4.48 .88% Class B Actual(b) $1,000 $1,040.20 $8.43 1.64% Hypothetical (5% return before expenses) $1,000 $1,016.94 $8.34 1.64% Class C Actual(b) $1,000 $1,040.20 $8.43 1.64% Hypothetical (5% return before expenses) $1,000 $1,016.94 $8.34 1.64% (a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Dec. 31, 2004: +4.42%% for Class A, +4.02%% for Class B and +4.02% for Class C. AXP Minnesota Tax-Exempt Fund Beginning Ending Expenses account value account value paid during Annualized July 1, 2004 Dec. 31, 2004 the period(a) expense ratio Class A Actual(b) $1,000 $1,045.80 $4.38 .85% Hypothetical (5% return before expenses) $1,000 $1,020.92 $4.33 .85% Class B Actual(b) $1,000 $1,041.90 $8.29 1.61% Hypothetical (5% return before expenses) $1,000 $1,017.09 $8.19 1.61% Class C Actual(b) $1,000 $1,041.90 $8.29 1.61% Hypothetical (5% return before expenses) $1,000 $1,017.09 $8.19 1.61%
(a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Dec. 31, 2004: +4.58% for Class A, +4.19% for Class B, +4.19% for Class C. - -------------------------------------------------------------------------------- 100 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT
AXP New York Tax-Exempt Fund Beginning Ending Expenses account value account value paid during Annualized July 1, 2004 Dec. 31, 2004 the period(a) expense ratio Class A Actual(b) $1,000 $1,043.80 $4.48 .87% Hypothetical (5% return before expenses) $1,000 $1,020.82 $4.43 .87% Class B Actual(b) $1,000 $1,039.80 $8.38 1.63% Hypothetical (5% return before expenses) $1,000 $1,016.99 $8.29 1.63% Class C Actual(b) $1,000 $1,039.80 $8.38 1.63% Hypothetical (5% return before expenses) $1,000 $1,016.99 $8.29 1.63% (a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Dec. 31, 2004: +4.38% for Class A, +3.98% for Class B, +3.98% for Class C. AXP Ohio Tax-Exempt Fund Beginning Ending Expenses account value account value paid during Annualized July 1, 2004 Dec. 31, 2004 the period(a) expense ratio Class A Actual(b) $1,000 $1,045.30 $4.54 .88% Hypothetical (5% return before expenses) $1,000 $1,020.77 $4.48 .88% Class B Actual(b) $1,000 $1,041.40 $8.44 1.64% Hypothetical (5% return before expenses) $1,000 $1,016.94 $8.34 1.64% Class C Actual(b) $1,000 $1,041.40 $8.44 1.64% Hypothetical (5% return before expenses) $1,000 $1,016.94 $8.34 1.64%
(a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Dec. 31, 2004: +4.53% for Class A, +4.14% for Class B and +4.14% for Class C. - -------------------------------------------------------------------------------- 101 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT Proxy Voting The policy of the Board is to vote all proxies of the companies in which the Fund holds investments. The procedures are stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling (800) 862-7919; by looking at the website americanexpress.com/funds; or by searching the website of the Securities and Exchange Commission http://www.sec.gov. You may view the Fund's voting record for all portfolio companies whose shareholders meetings were completed the previous quarter on americanexpress.com/funds or obtain a copy by calling the Fund's administrator, Board Services Corporation, collect at (612) 330-9283. In addition, information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available at http://www.sec.gov. - -------------------------------------------------------------------------------- 102 -- AXP STATE TAX-EXEMPT FUNDS -- 2004 SEMIANNUAL REPORT (logo) AMERICAN EXPRESS (R) American Express Funds 70100 AXP Financial Center Minneapolis, MN 55474 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. Item 2. Code of Ethics. Not applicable for semi-annual reports. Item 3. Audit Committee Financial Expert. Not applicable for semi-annual reports. Item 4. Principal Accountant Fees and Services. Not applicable for semi-annual reports. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. The complete schedule of investments is included in Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not applicable. Item 9. Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. Item 10. Submission of matters to a vote of security holders. Not applicable. Item 11. Controls and Procedures. (a) Based upon their evaluation of the registrant's disclosure controls and procedures as conducted within 90 days of the filing date of this Form N-CSR, the registrant's Principal Financial Officer and Principal Executive Officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. (b) There were no changes in the registrant's internal controls over financial reporting that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits. (a)(1) Not applicable for semi-annual reports. (a)(2) Separate certification for the Registrant's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached as EX.99.CERT. (a)(3) Not applicable. (b) A certification by the Registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment Company Act of 1940, is attached as EX.99.906 CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) AXP California Tax-Exempt Trust By /s/ Paula R. Meyer ------------------ Paula R. Meyer President and Principal Executive Officer Date March 4, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/ Paula R. Meyer ------------------ Paula R. Meyer President and Principal Executive Officer Date March 4, 2005 By /s/ Jeffrey P. Fox ------------------ Jeffrey P. Fox Treasurer and Principal Financial Officer Date March 4, 2005 EX-99.CERT 2 ex99-cert.txt CERTIFICATION PURSUANT TO 270.30A-2 OF THE INVESTMENT COMPANY ACT OF 1940 Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Paula Meyer, certify that: 1. I have reviewed this report on Form N-CSR of AXP California Tax-Exempt Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 28, 2005 /s/ Paula R. Meyer -------------------------------- Name: Paula R. Meyer Title: President and Chief Executive Officer Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Jeffrey Fox, certify that: 1. I have reviewed this report on Form N-CSR of AXP California Tax-Exempt Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 28, 2005 /s/ Jeffrey P. Fox -------------------------------- Name: Jeffrey P. Fox Title: Treasurer and Chief Financial Officer EX-99.906 CERT 3 ex99-906cert.txt CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION AXP California Tax-Exempt Trust (the Registrant) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Each of the undersigned below certifies that 1. This report on Form N-CSR of the Registrant (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: February 28, 2005 /s/ Paula R. Meyer ------------------- Paula R. Meyer President and Chief Executive Officer Date: February 28, 2005 /s/ Jeffrey P. Fox ------------------- Jeffrey P. Fox Treasurer and Chief Financial Officer A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO THE REGISTRANT AND WILL BE RETAINED BY THE REGISTRANT AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. This certification is being furnished to the Commission solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form N-CSR filed with the Commission. -----END PRIVACY-ENHANCED MESSAGE-----