-----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, Bpiu21BEhKfPxYEA99IqCEJPWvazUO67+3EfTEyQIUv4FmmPXELq/+Vn8aMHY5Kf jmxIC0kdrBhcECVhgaAT2A== 0000820027-05-000780.txt : 20050901 0000820027-05-000780.hdr.sgml : 20050901 20050901144253 ACCESSION NUMBER: 0000820027-05-000780 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20050901 DATE AS OF CHANGE: 20050901 EFFECTIVENESS DATE: 20050901 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-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-04646 FILM NUMBER: 051064415 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-CSR 1 california-ncsr.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: 6/30 -------------- 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 Annual Report for the Period Ended [pic] June 30, 2005 Each Fund seeks to provide shareholders with a high level of income generally exempt from federal income tax as well as from the respective state and local income tax. (This annual report is intended only for the information of shareholders or those who have received the offering prospectus of the Funds, which contains information about the Fund's objective, investment strategy, risks, sales charges, fees and other matters of interest. Please read the prospectus carefully before you invest or send money.) Table of Contents Fund Snapshot 4-9 AXP California Tax-Exempt Fund 4 AXP Massachusetts Tax-Exempt Fund 5 AXP Michigan Tax-Exempt Fund 6 AXP Minnesota Tax-Exempt Fund 7 AXP New York Tax-Exempt Fund 8 AXP Ohio Tax-Exempt Fund 9 Performance Summary 10-15 AXP California Tax-Exempt Fund 10 AXP Massachusetts Tax-Exempt Fund 11 AXP Michigan Tax-Exempt Fund 12 AXP Minnesota Tax-Exempt Fund 13 AXP New York Tax-Exempt Fund 14 AXP Ohio Tax-Exempt Fund 15 Questions & Answers with Portfolio Management 16 The Fund's Long-term Performance 24-35 AXP California Tax-Exempt Fund 24 AXP Massachusetts Tax-Exempt Fund 26 AXP Michigan Tax-Exempt Fund 28 AXP Minnesota Tax-Exempt Fund 30 AXP New York Tax-Exempt Fund 32 AXP Ohio Tax-Exempt Fund 34 Investments in Securities 36-74 AXP California Tax-Exempt Fund 36 AXP Massachusetts Tax-Exempt Fund 44 AXP Michigan Tax-Exempt Fund 49 AXP Minnesota Tax-Exempt Fund 54 AXP New York Tax-Exempt Fund 64 AXP Ohio Tax-Exempt Fund 70 Financial Statements 75 Notes to Financial Statements 82 Report of Independent Registered Public Accounting Firm 112 Federal Income Tax Information 113 Fund Expense Examples 126 Board Members and Officers 133 Approval of Investment Management Services Agreement 136 Proxy Voting 140 [DALBAR LOGO] 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 -- 2005 ANNUAL REPORT CORPORATE REORGANIZATION On Feb. 1, 2005, American Express Company (American Express) announced plans to pursue a spin off to American Express shareholders of its American Express Financial Advisors division. The separation from American Express is expected to be completed on or after Sept. 30, 2005, subject to certain regulatory and other approvals, including final approval by the board of directors of American Express. On Aug. 1, 2005, American Express Financial Corporation and several of its companies, through which the products and services of the American Express Financial Advisors division are offered, changed their names in anticipation of their separation from American Express. American Express Financial Corporation, which currently provides investment management services for the American Express Funds, changed its name to Ameriprise Financial, Inc. (Ameriprise Financial), the parent company of the Ameriprise Financial family of companies. American Express Financial Advisors Inc., which is currently the distributor of the American Express Funds, changed its name to Ameriprise Financial Services, Inc., a wholly owned subsidiary of Ameriprise Financial. Ameriprise Financial and American Express will be independent companies, with separate public ownership, boards of directors and management. No changes in the management or operations of the funds or in the services provided to the funds are anticipated in connection with the reorganization. After the expected separation from American Express, Ameriprise Financial and its subsidiaries will no longer be affiliated with American Express. As part of a corporate reorganization, Ameriprise Financial will be introducing the RiverSource(SM) brand which, with the approval of the American Express Funds' Boards of Directors, will replace "American Express" as the name of the fund family. The RiverSource brand will also be used for certain subsidiaries of Ameriprise Financial that provide services to the funds. The transition to the RiverSource name, which began on Aug. 1, 2005, will be substantially completed in the fourth quarter 2005, and will be subsequently communicated to shareholders. - ------------------------------------------------------------------------------ 3 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Fund Snapshot AT JUNE 30, 2005 AXP California Tax-Exempt Fund PORTFOLIO MANAGER < Portfolio manager Since Years in industry David Kerwin, CFA* 8/04 20 * The Fund is managed by a team of portfolio managers led by David 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 $208.9 million Number of holdings 107 Effective maturity(1) 15.8 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 bond portfolio assets AAA bonds 57.7% AA bonds 9.6 A bonds 20.7 BBB bonds 8.6 Non-investment grade bonds 3.4 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. 4.4% of the portfolio rating above was determined through internal analysis. SEC YIELDS < At June 30, 2005 by class A: 2.74% B: 2.13% C: 2.12% 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 10 for additional performance information. 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 -- 2005 ANNUAL REPORT Fund Snapshot AT JUNE 30, 2005 AXP Massachusetts Tax-Exempt Fund PORTFOLIO MANAGER < Portfolio manager Since Years in industry David Kerwin, CFA* 8/04 20 * The Fund is managed by a team of portfolio managers led by David 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 $75.0 million Number of holdings 52 Effective maturity(1) 12.9 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 bond portfolio assets AAA bonds 69.7% AA bonds 23.1 A bonds 1.5 BBB bonds 4.2 Non-investment grade bonds 1.5 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. 2.8% of the portfolio rating above was determined through internal analysis. SEC YIELDS < At June 30, 2005 by class A: 2.69% B: 2.07% C: 2.08% 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. 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 -- 2005 ANNUAL REPORT Fund Snapshot AT JUNE 30, 2005 AXP Michigan Tax-Exempt Fund PORTFOLIO MANAGER < Portfolio manager Since Years in industry David Kerwin, CFA* 8/04 20 * The Fund is managed by a team of portfolio managers led by David 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 $60.6 million Number of holdings 60 Effective maturity(1) 12.9 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 bond portfolio assets AAA bonds 61.6% AA bonds 27.4 A bonds 7.9 BBB bonds 2.2 Non-investment grade bonds 0.9 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. 2.4% of the portfolio rating above was determined through internal analysis. SEC YIELDS < At June 30, 2005 by class A: 2.73% B: 2.11% C: 2.11% 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 12 for additional performance information. 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 -- 2005 ANNUAL REPORT Fund Snapshot AT JUNE 30, 2005 AXP Minnesota Tax-Exempt Fund PORTFOLIO MANAGER < Portfolio manager Since Years in industry David Kerwin, CFA* 8/04 20 * The Fund is managed by a team of portfolio managers led by David 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 $399.1 million Number of holdings 147 Effective maturity(1) 12.7 years Effective duration(2) 6.5 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 bond portfolio assets AAA bonds 67.1% AA bonds 17.0 A bonds 5.5 BBB bonds 3.6 Non-investment grade bonds 6.8 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. 6.8% of the portfolio rating above was determined through internal analysis. SEC YIELDS < At June 30, 2005 by class A: 2.85% B: 2.24% C: 2.24% 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. 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 -- 2005 ANNUAL REPORT Fund Snapshot AT JUNE 30, 2005 AXP New York Tax-Exempt Fund PORTFOLIO MANAGER < Portfolio manager Since Years in industry David Kerwin, CFA* 8/04 20 * The Fund is managed by a team of portfolio managers led by David 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 $84.9 million Number of holdings 72 Effective maturity(1) 14.7 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 bond portfolio assets AAA bonds 55.0% AA bonds 24.3 A bonds 13.9 BBB bonds 2.9 Non-investment grade bonds 3.9 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. 3.8% of the portfolio rating above was determined through internal analysis. SEC YIELDS < At June 30, 2005 by class A: 2.81% B: 2.20% C: 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 14 for additional performance information. 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 -- 2005 ANNUAL REPORT Fund Snapshot AT JUNE 30, 2005 AXP Ohio Tax-Exempt Fund PORTFOLIO MANAGER < Portfolio manager Since Years in industry David Kerwin, CFA* 8/04 20 * The Fund is managed by a team of portfolio managers led by David 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 $61.1 million Number of holdings 58 Effective maturity(1) 12.9 years Effective duration(2) 6.7 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 bond portfolio assets AAA bonds 61.9% AA bonds 31.8 A bonds 3.8 BBB bonds 2.3 Non-investment grade bonds 0.2 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. 0.4% of the portfolio rating above was determined through internal analysis. SEC YIELDS < At June 30, 2005 by class A: 2.59% B: 1.97% C: 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 15 for additional performance information. Certain income may be subject to the alternative minimum tax or state or local tax. Fund holdings are subject to change. - -------------------------------------------------------------------------------- 9 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Performance Summary AXP California Tax-Exempt Fund [bar chart] AXP CALIFORNIA TAX-EXEMPT FUND PERFORMANCE COMPARISON For the year ended June 30, 2005 +8.53% +9.55% +9.21% +8.24% +8.91% +8.53% = AXP California Tax-Exempt Fund Class A (excluding sales charge) +9.55% = Lehman Brothers California 2 Plus Year Municipal Bond Index (unmanaged) +9.21% = Lehman Brothers California Municipal Bond Index (unmanaged) +8.24% = Lehman Brothers Municipal Bond Index (unmanaged) +8.91% = Lipper California Municipal Debt Funds Index (see "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (800) 862-7919 or visiting www.ameriprise.com. 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. 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 June 30, 2005 1 year +8.53% +3.37% +7.72% +2.72% +7.71% +6.71% 3 years +5.28% +3.59% +4.49% +3.26% +4.48% +4.48% 5 years +5.89% +4.87% +5.10% +4.77% +5.14% +5.14% 10 years +5.49% +4.98% +4.70% +4.70% N/A N/A Since inception +6.10% +5.83% +4.63% +4.63% +5.19% +5.19%
(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. - -------------------------------------------------------------------------------- 10 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Performance Summary AXP Massachusetts Tax-Exempt Fund [bar chart] AXP MASSACHUSETTS TAX-EXEMPT FUND PERFORMANCE COMPARISON For the year ended June 30, 2005 +7.42% +8.52% +7.94% +8.24% +7.97% +7.42% = AXP Massachusetts Tax-Exempt Fund Class A (excluding sales charge) +8.52% = Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond Index (unmanaged) +7.94% = Lehman Brothers Massachusetts Municipal Bond Index (unmanaged) +8.24% = Lehman Brothers Municipal Bond Index (unmanaged) +7.97% = Lipper Massachusetts Municipal Debt Funds Index (see "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (800) 862-7919 or visiting www.ameriprise.com. 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. 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 June 30, 2005 1 year +7.42% +2.33% +6.61% +1.61% +6.41% +5.41% 3 years +4.58% +2.90% +3.79% +2.54% +3.73% +3.73% 5 years +5.65% +4.63% +4.86% +4.53% +4.83% +4.83% 10 years +5.18% +4.67% +4.39% +4.39% N/A N/A Since inception +6.04% +5.75% +4.36% +4.36% +4.88% +4.88%
(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 -- 2005 ANNUAL REPORT Performance Summary AXP Michigan Tax-Exempt Fund [bar chart] AXP MICHIGAN TAX-EXEMPT FUND PERFORMANCE COMPARISON For the year ended June 30, 2005 +6.80% +7.72% +8.24% +7.19% +6.80% = AXP Michigan Tax-Exempt Fund Class A (excluding sales charge) +7.72% = Lehman Brothers Michigan Municipal Bond Index (unmanaged) +8.24% = Lehman Brothers Municipal Bond Index (unmanaged) +7.19% = Lipper Michigan Municipal Debt Funds Index (see "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (800) 862-7919 or visiting www.ameriprise.com. 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. 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 June 30, 2005 1 year +6.80% +1.72% +5.99% +0.99% +5.99% +4.99% 3 years +4.94% +3.25% +4.15% +2.90% +4.14% +4.14% 5 years +5.90% +4.87% +5.10% +4.77% +5.09% +5.09% 10 years +5.23% +4.72% +4.44% +4.44% N/A N/A Since inception +6.18% +5.90% +4.38% +4.38% +5.13% +5.13%
(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. - -------------------------------------------------------------------------------- 12 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Performance Summary AXP Minnesota Tax-Exempt Fund [bar chart] AXP MINNESOTA TAX-EXEMPT FUND PERFORMANCE COMPARISON For the year ended June 30, 2005 +6.73% +7.91% +7.42% +8.24% +7.39% +6.73% = AXP Minnesota Tax-Exempt Fund Class A (excluding sales charge) +7.91% = Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index (unmanaged) +7.42% = Lehman Brothers Minnesota Municipal Bond Index (unmanaged) +8.24% = Lehman Brothers Municipal Bond Index (unmanaged) +7.39% = Lipper Minnesota Municipal Debt Funds Index (see "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (800) 862-7919 or visiting www.ameriprise.com. 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. 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 June 30, 2005 1 year +6.73% +1.67% +5.94% +0.94% +5.94% +4.94% 3 years +4.89% +3.21% +4.11% +2.86% +4.10% +4.10% 5 years +5.86% +4.84% +5.07% +4.74% +5.07% +5.07% 10 years +5.44% +4.93% +4.65% +4.65% N/A N/A Since inception +6.19% +5.92% +4.61% +4.61% +5.12% +5.12%
(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 -- 2005 ANNUAL REPORT Performance Summary AXP New York Tax-Exempt Fund [bar chart] AXP NEW YORK TAX-EXEMPT FUND PERFORMANCE COMPARISON For the year ended June 30, 2005 +7.04% +9.07% +7.92% +8.24% +7.84% +7.04% = AXP New York Tax-Exempt Fund Class A (excluding sales charge) +9.07% = Lehman Brothers New York 4 Plus Year Municipal Bond Index (unmanaged) +7.92% = Lehman Brothers New York Municipal Bond Index (unmanaged) +8.24% = Lehman Brothers Municipal Bond Index (unmanaged) +7.84% = Lipper New York Municipal Debt Funds Index (see "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (800) 862-7919 or visiting www.ameriprise.com. 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. 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 June 30, 2005 1 year +7.04% +1.96% +6.23% +1.23% +6.23% +5.23% 3 years +5.08% +3.40% +4.29% +3.05% +4.29% +4.29% 5 years +5.95% +4.92% +5.15% +4.82% +5.15% +5.15% 10 years +5.35% +4.84% +4.56% +4.56% N/A N/A Since inception +5.96% +5.69% +4.46% +4.46% +5.20% +5.20%
(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. - -------------------------------------------------------------------------------- 14 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Performance Summary AXP Ohio Tax-Exempt Fund [bar chart] AXP OHIO TAX-EXEMPT FUND PERFORMANCE COMPARISON For the year ended June 30, 2005 +6.90% +8.64% +7.59% +8.24% +7.75% +6.90% = AXP Ohio Tax-Exempt Fund Class A (excluding sales charge) +8.64% = Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index (unmanaged) +7.59% = Lehman Brothers Ohio Municipal Bond Index (unmanaged) +8.24% = Lehman Brothers Municipal Bond Index (unmanaged) +7.75% = Lipper Ohio Municipal Debt Funds Index (see "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (800) 862-7919 or visiting www.ameriprise.com. 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. 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 June 30, 2005 1 year +6.90% +1.83% +6.10% +1.10% +6.10% +5.10% 3 years +4.38% +2.69% +3.65% +2.39% +3.58% +3.58% 5 years +5.38% +4.36% +4.59% +4.25% +4.57% +4.57% 10 years +5.12% +4.61% +4.33% +4.33% N/A N/A Since inception +6.01% +5.72% +4.26% +4.26% +4.62% +4.62%
(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 -- 2005 ANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT Below, Portfolio Manager David Kerwin discusses the Funds' positioning and results for the fiscal year. On Aug. 20, 2004, Mr. Kerwin assumed leadership of the Funds' portfolio management team. Q: How did the AXP State Tax-Exempt Funds perform for the fiscal year? A: All Fund returns are for Class A shares, excluding sales charge. All returns are for the 12 months ended June 30, 2005. o AXP California Tax-Exempt Fund gained 8.53%, compared to the Lipper California Municipal Debt Funds Index, which rose 8.91%. The Lehman Brothers California 2 Plus Year Municipal Bond Index returned 9.55%. The Lehman Brothers California Municipal Bond Index returned 9.21% and the Lehman Brothers Municipal Bond Index returned 8.24% for the same period. o AXP Massachusetts Tax-Exempt Fund rose 7.42%, compared to the Lipper Massachusetts Municipal Debt Funds Index, which also rose 7.97%. The Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond Index returned 8.52%. The Lehman Brothers Massachusetts Municipal Bond Index returned 7.94% and the Lehman Brothers Municipal Bond Index returned 8.24% for the same period. o AXP Michigan Tax-Exempt Fund gained 6.80%, compared to the Lipper Michigan Municipal Debt Funds Index, which produced a total return of 7.19%. The Lehman Brothers Michigan Municipal Bond Index and the Lehman Brothers Municipal Bond Index returned 7.72% and 8.24%, respectively, for the same period. o AXP Minnesota Tax-Exempt Fund increased 6.73%, compared to the Lipper Minnesota Municipal Debt Funds Index, which gained 7.39%. The Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index returned 7.91%. The Lehman Brothers Minnesota Municipal Bond Index returned 7.42% and the Lehman Brothers Municipal Bond Index returned 8.24% for the same period. o AXP New York Tax-Exempt Fund advanced 7.04%, while the Lipper New York Municipal Debt Funds Index increased 7.84%. The Lehman Brothers New York 4 Plus Year Municipal Bond Index returned 9.07%. The Lehman Brothers New York Municipal Bond Index returned 7.92% and the Lehman Brothers Municipal Bond Index returned 8.24% for the same period. - -------------------------------------------------------------------------------- 16 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Questions & Answers [BEGIN CALLOUT QUOTE]> The Funds underperformed due primarily to their strong exposure to the intermediate segment of the municipal yield curve.[END CALLOUT QUOTE] o AXP Ohio Tax-Exempt Fund rose 6.90%, while the Lipper Ohio Municipal Debt Funds Index gained 7.75%. The Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index returned 8.64%. The Lehman Brothers Ohio Municipal Bond Index returned 7.59% and the Lehman Brothers Municipal Bond Index returned 8.24% for the same period. Q: What factors most significantly affected performance during the annual period? A: Overall, the tax-exempt bond market had a relatively strong period, despite seven additional interest rate hikes by the Federal Reserve Board (the Fed) during the 12 months, following the initial rate hike of this tightening cycle made on June 30, 2004. The tax-exempt bond market, as measured by the Lehman Brothers Municipal Bond Index(1), provided an 8.24% return for the 12 months ended June 30, 2005, significantly outperforming the taxable bond market, as measured by the Lehman Brothers Aggregate Bond Index(2), which provided a 6.80% return for the annual period. The Funds underperformed due primarily to their strong exposure to the intermediate segment of the municipal yield curve. As in the taxable bond market, the municipal yield curve flattened, as the difference in yields between short- and long-term securities narrowed. This flattening of the yield curve had a greater positive price impact on the longer-term bonds than on intermediate bonds. (1) 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. However, the securities used to create the index may not be representative of the bonds held in the Fund. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. (2) The Lehman Brothers Aggregate Bond Index, an unmanaged index, is made up of a representative list of government, corporate, asset-backed and mortgage-backed securities. The index is frequently used as a general measure of bond market performance. However, the securities used to create the index may not be representative of the bonds held in the Fund. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. - -------------------------------------------------------------------------------- 17 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Questions & Answers Also detracting from performance was each Fund's duration positioning. We had somewhat extended the duration of most of the Funds during the period, but still maintained a duration shorter than that of their respective indices in anticipation of rising rates. Instead, rates across the municipal yield curve actually fell. AXP California Tax-Exempt Fund and AXP New York Tax-Exempt Fund were also hurt by their modest positions in non-enhanced municipal tobacco bonds. While we had added exposure to this sector toward the end of 2004 and added to it through the period, non-enhanced municipal tobacco bonds were among the best-performing sectors. Another factor detracting from these two Funds' performance, as well as that of AXP Ohio Tax-Exempt Fund, was a comparatively lower exposure to bonds rated BBB, which overall outperformed higher quality bonds during the fiscal year. On the positive side, each Fund's reduced exposure to shorter-term bonds (i.e., five years and under) and its exposure mix on the front-end of the yield curve helped returns. For example, we selectively added "mandatory put bonds" and high-quality zero coupon bonds as substitutes for the short-term bonds in order to increase yield without increasing risk. Mandatory put bonds, sometimes known as mandatory tenders, contain a provision that a holder of the security surrender the security to the issuer or its agent for purchase, usually at par, at some date or dates prior to the final stated maturity. Zero coupon municipal bonds are securities that make no periodic interest payments but are sold at a 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 Funds. The Funds were further buoyed by positions in select non-investment grade or non-rated bonds. Also boosting the respective returns of each of the Funds, with the exceptions of AXP Michigan Tax-Exempt Fund and AXP California Tax-Exempt Fund, was exposure to bonds that were advance refunded during the fiscal year. This 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. - -------------------------------------------------------------------------------- 18 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Questions & Answers Significant positions in bonds rated BBB contributed positively to the returns of AXP Massachusetts Tax-Exempt Fund and AXP Minnesota Tax-Exempt Fund, for, as mentioned, these bonds overall outperformed higher quality bonds during the fiscal year. Results of AXP California Tax-Exempt Fund were further helped by its significant exposure to uninsured California general obligation tax-exempt bonds. Similarly, relative performance of AXP New York Tax-Exempt Fund was supported by its significant exposure to New York City general obligation bonds. Q: What changes did you make to the portfolios and how are they currently positioned? A: We made several strategic moves within the Funds during the annual period. We increased several of the Funds' exposure to bonds rated BBB, as we believe these bonds may continue to outperform in the coming months. We reduced the Funds' positions in below investment grade securities and non-rated securities and upgraded the quality of what we call the Funds' "credit baskets" with bonds rated BBB and A that offer enhanced liquidity and reduced risk. We focused on further diversifying the portfolios by bond maturity, coupon and call dates. We believe this disciplined approach to portfolio diversification -- across multiple parameters -- should help reduce the volatility and risks associated with interest rate movements and produce more consistent returns for the Funds over the long term. Indeed, over the second half of the fiscal year, the impact of the Funds' yield curve positioning on its results was mitigated, as we moved from a concentration in intermediate-term bonds to a more laddered structure, whereby maturities are staggered so that bonds in the portfolios come due periodically. At the same time, we sought opportunities to carry out tactical strategies wherever and whenever possible. Also, as indicated, we established a position in and then added exposure to non-enhanced municipal tobacco bonds in AXP California Tax-Exempt Fund and AXP New York Tax-Exempt Fund. While we did not move beyond a neutral position in these bonds relative to their respective indices due to concerns over lingering litigation risks, this municipal - -------------------------------------------------------------------------------- 19 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Questions & Answers fixed income sector offers significant yield currently. Furthermore, this position should help us to reduce portfolio volatility to both the Funds' benchmark indices and peer groups and to further diversify the structural attributes of the portfolios. In AXP California Tax-Exempt Fund, we reduced exposure to uninsured California general obligations, and in AXP New York Tax-Exempt Fund, we reduced exposure to New York City general obligations. We moved to more neutral positions, as these bonds became fairly valued in our view. In AXP Ohio Tax-Exempt Fund and AXP California Tax-Exempt Fund, we sought opportunities to add some lower coupon bonds at the long-term end of the curve. Often overlooked by the broad market, these lower coupon bonds performed well and contributed positively to the Funds' relative returns. Finally we adjusted several of the Funds' duration somewhat. This strategy was carried out as part of transitioning to new benchmarks that were approved in April. o AXP California Tax-Exempt Fund's comparative index is the Lehman Brothers California 2 Plus Year Municipal Bond Index. o AXP Massachusetts Tax-Exempt Fund's comparative index is the Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond Index. o AXP Minnesota Tax-Exempt Fund's comparative index is the Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index. o AXP New York Tax-Exempt Fund's comparative index is the Lehman Brothers New York 4 Plus Year Municipal Bond Index. o AXP Ohio Tax-Exempt Fund's comparative index is the Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index. We feel that these new benchmarks more precisely reflect the actual strategy of the Funds. AXP Michigan Tax-Exempt Fund is expected to maintain its current benchmark index. - -------------------------------------------------------------------------------- 20 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Questions & Answers Q: How do you intend to manage the Funds in the coming months? A: We intend to position the Funds for ongoing U.S. economic recovery and still higher interest rates, as these themes are likely to continue to weigh on the fixed income markets through the summer. Indeed, as nearly all signs of any material slowdown in U.S. growth have reversed or been revised away, we believe the market's focus will again return to our long-held reasons why the Fed will continue to raise interest rates, namely robust U.S. economic growth and building inflation pressures. In addition, the Fed has signaled some concern over "frothy" housing markets in certain regions. Thus, we believe the Fed is keenly aware that excess monetary stimulus has fueled speculation in the housing market and that its likely response is to raise rates until this market cools noticeably. We anticipate that the yield curve may flatten a bit more in the near term but that after an extended period of yield curve flattening, the yield spread between short- and long-term maturities may stabilize somewhat in the months ahead with more parallel shifts across the yield curve. Typically, rising rates are negative for the bond market. However, municipal bonds have historically weathered this environment better than taxable bonds. 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 and to diversify our portfolios. Given this view, we plan to maintain the Funds' durations moderately shorter than that of 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. 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. - -------------------------------------------------------------------------------- 21 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Questions & Answers AXP California Tax-Exempt Fund DISTRIBUTION SUMMARY The table below details the Fund's income and capital gain distributions for the fiscal years shown. More information on the other classes can be found in the Financial Highlights section of this report's Notes to Financial Statements.
Class A ---------------------------------------------- Short-term Long-term Income capital gains capital gains Total Fiscal year ended June 30, 2005 $0.20 $-- $0.07 $0.27 June 30, 2004 0.21 -- 0.06 0.27 June 30, 2003 0.23 -- -- 0.23 June 30, 2002 0.24 -- -- 0.24 June 30, 2001 0.25 -- -- 0.25
AXP Massachusetts Tax-Exempt Fund DISTRIBUTION SUMMARY The table below details the Fund's income and capital gain distributions for the fiscal years shown. More information on the other classes can be found in the Financial Highlights section of this report's Notes to Financial Statements.
Class A ---------------------------------------------- Short-term Long-term Income capital gains capital gains Total Fiscal year ended June 30, 2005 $0.17 $ -- $0.03 $0.20 June 30, 2004 0.18 0.06 -- 0.24 June 30, 2003 0.19 -- 0.02 0.21 June 30, 2002 0.22 -- -- 0.22 June 30, 2001 0.27 -- -- 0.27
AXP Michigan Tax-Exempt Fund DISTRIBUTION SUMMARY The table below details the Fund's income and capital gain distributions for the fiscal years shown. More information on the other classes can be found in the Financial Highlights section of this report's Notes to Financial Statements.
Class A ---------------------------------------------- Short-term Long-term Income capital gains capital gains Total Fiscal year ended June 30, 2005 $0.18 $0.01 $0.02 $0.21 June 30, 2004 0.19 0.05 0.03 0.27 June 30, 2003 0.22 -- 0.05 0.27 June 30, 2002 0.24 -- -- 0.24 June 30, 2001 0.27 -- -- 0.27
- -------------------------------------------------------------------------------- 22 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Questions & Answers AXP Minnesota Tax-Exempt Fund DISTRIBUTION SUMMARY The table below details the Fund's income and capital gain distributions for the fiscal years shown. More information on the other classes can be found in the Financial Highlights section of this report's Notes to Financial Statements.
Class A ---------------------------------------------- Short-term Long-term Income capital gains capital gains Total Fiscal year ended June 30, 2005 $0.18 $-- $0.02 $0.20 June 30, 2004 0.19 -- -- 0.19 June 30, 2003 0.22 -- -- 0.22 June 30, 2002 0.25 -- -- 0.25 June 30, 2001 0.28 -- -- 0.28
AXP New York Tax-Exempt Fund DISTRIBUTION SUMMARY The table below details the Fund's income and capital gain distributions for the fiscal years shown. More information on the other classes can be found in the Financial Highlights section of this report's Notes to Financial Statements.
Class A ---------------------------------------------- Short-term Long-term Income capital gains capital gains Total Fiscal year ended June 30, 2005 $0.18 $ -- $0.06 $0.24 June 30, 2004 0.18 0.05 0.06 0.29 June 30, 2003 0.20 -- 0.02 0.22 June 30, 2002 0.22 -- -- 0.22 June 30, 2001 0.25 -- -- 0.25
AXP Ohio Tax-Exempt Fund DISTRIBUTION SUMMARY The table below details the Fund's income and capital gain distributions for the fiscal years shown. More information on the other classes can be found in the Financial Highlights section of this report's Notes to Financial Statements.
Class A ---------------------------------------------- Short-term Long-term Income capital gains capital gains Total Fiscal year ended June 30, 2005 $0.16 $ -- $ -- $0.16 June 30, 2004 0.17 0.06 0.01 0.24 June 30, 2003 0.18 -- 0.11 0.29 June 30, 2002 0.22 -- -- 0.22 June 30, 2001 0.27 -- -- 0.27
- -------------------------------------------------------------------------------- 23 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT The Fund's Long-term Performance The chart on the facing page illustrates the total value of an assumed $10,000 investment in AXP California Tax-Exempt Fund Class A shares (from 7/1/95 to 6/30/05) as compared to the performance of four widely cited performance indices, the Lehman Brothers California 2 Plus Year Municipal Bond Index, the Lehman Brothers California Municipal Bond Index, the Lehman Brothers Municipal Bond Index and the Lipper California Municipal Debt Funds Index. Recently, the Fund's investment manager recommended to the Fund that the Fund change its comparative index from the Lehman Brothers California Municipal Bond Index to the Lehman Brothers California 2 Plus Year Municipal Bond Index. The investment manager made this recommendation because the new index more closely represents the Fund's holdings. Both indices are shown in this transition year. In the future, however, only the Lehman Brothers California 2 Plus Year Municipal Bond Index will be included. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents past performance and is not a guarantee of future results. The value of your investment and returns will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Returns do not reflect taxes payable on distributions and redemptions. 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.ameriprise.com. Also see "Past Performance" in the Fund's current prospectus. COMPARATIVE RESULTS Results at June 30, 2005
Since 1 year 3 years 5 years 10 years inception(5) AXP California Tax-Exempt Fund (includes sales charge) Class A Cumulative value of $10,000 $10,337 $11,116 $12,684 $16,258 $29,125 Average annual total return +3.37% +3.59% +4.87% +4.98% +5.83% Lehman Brothers California 2 Plus Year Municipal Bond Index(1) Cumulative value of $10,000 $10,955 $11,998 $14,058 $19,090 N/A Average annual total return +9.55% +6.26% +7.05% +6.68% N/A Lehman Brothers California Municipal Bond Index(2) Cumulative value of $10,000 $10,921 $11,930 $13,934 $18,881 N/A Average annual total return +9.21% +6.06% +6.86% +6.56% N/A Lehman Brothers Municipal Bond Index(3) Cumulative value of $10,000 $10,824 $11,860 $13,947 $18,560 $36,664 Average annual total return +8.24% +5.85% +6.88% +6.38% +7.11% Lipper California Municipal Debt Funds Index(4) Cumulative value of $10,000 $10,891 $11,789 $13,637 $17,838 $33,026 Average annual total return +8.91% +5.64% +6.40% +5.96% +6.52%
See footnotes to the Comparative Results table on facing page. - -------------------------------------------------------------------------------- 24 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT [LINE CHART]
VALUE OF HYPOTHETICAL $10,000 IN AXP CALIFORNIA TAX-EXEMPT FUND AXP California Tax-Exempt Fund Class A (includes sales charge) ($16,258) $9,525 $10,097 $10,882 $11,731 $11,947 $12,209 $13,186 $13,932 $14,943 $14,980 $16,258 Lehman Brothers California 2 Plus Year Municipal Bond Index(1) ($19,090) $10,000 $10,730 $11,667 $12,739 $13,126 $13,580 $14,838 $15,911 $17,213 $17,426 $19,090 Lehman Brothers California Municipal Bond Index(2) ($18,881) $10,000 $10,724 $11,649 $12,703 $13,093 $13,545 $14,779 $15,822 $17,077 $17,289 $18,881 Lehman Brothers Municipal Bond Index(3) ($18,560) $10,000 $10,664 $11,544 $12,544 $12,890 $13,309 $14,637 $15,650 $17,018 $17,147 $18,560 Lipper California Municipal Debt Funds Index(4) ($17,838) $10,000 $10,652 $11,544 $12,567 $12,827 $13,080 $14,252 $15,130 $16,278 $16,379 $17,838 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05
Results for other share classes can be found on page 10. (1) The Lehman Brothers California 2 Plus Year Municipal Bond Index, an unmanaged index, is a market value-weighted index of California investment-grade fixed-rate municipal bonds with maturities of two years or more. (2) The Lehman Brothers 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. (3) 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. However, the securities used to create the index may not be representative of the bonds held in the Fund. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. (4) 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. (5) Fund data is from Aug. 18, 1986. Lehman Brothers Municipal Bond Index and Lipper peer group data is from Sept. 1, 1986. The Fund began operating before the inception of the Lehman Brothers California 2 Plus Year Municipal Bond Index and Lehman Brothers California Municipal Bond Index. - -------------------------------------------------------------------------------- 25 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT The Fund's Long-term Performance The chart on the facing page illustrates the total value of an assumed $10,000 investment in AXP Massachusetts Tax-Exempt Fund Class A shares (from 7/1/95 to 6/30/05) as compared to the performance of four widely cited performance indices, the Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond Index, the Lehman Brothers Massachusetts Municipal Bond Index, the Lehman Brothers Municipal Bond Index and the Lipper Massachusetts Municipal Debt Funds Index. Recently, the Fund's investment manager recommended to the Fund that the Fund change its comparative index from the Lehman Brothers Massachusetts Municipal Bond Index to the Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond Index. The investment manager made this recommendation because the new index more closely represents the Fund's holdings. Both indices are shown in this transition year. In the future, however, only the Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond Index will be included. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents past performance and is not a guarantee of future results. The value of your investment and returns will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Returns do not reflect taxes payable on distributions and redemptions. 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.ameriprise.com. Also see "Past Performance" in the Fund's current prospectus. COMPARATIVE RESULTS Results at June 30, 2005
Since 1 year 3 years 5 years 10 years inception(5) AXP Massachusetts Tax-Exempt Fund (includes sales charge) Class A Cumulative value of $10,000 $10,233 $10,895 $12,540 $15,785 $27,351 Average annual total return +2.33% +2.90% +4.63% +4.67% +5.75% Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond Index(1) Cumulative value of $10,000 $10,852 $11,957 $14,223 N/A N/A Average annual total return +8.52% +6.14% +7.30% N/A N/A Lehman Brothers Massachusetts Municipal Bond Index(2) Cumulative value of $10,000 $10,794 $11,823 $13,993 $18,557 N/A Average annual total return +7.94% +5.74% +6.95% +6.38% N/A Lehman Brothers Municipal Bond Index(3) Cumulative value of $10,000 $10,824 $11,860 $13,947 $18,560 $35,249 Average annual total return +8.24% +5.85% +6.88% +6.38% +7.25% Lipper Massachusetts Municipal Debt Funds Index(4) Cumulative value of $10,000 $10,797 $11,739 $13,707 $17,493 N/A Average annual total return +7.97% +5.49% +6.51% +5.75% N/A
See footnotes to the Comparative Results table on facing page. - -------------------------------------------------------------------------------- 26 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT [LINE CHART]
VALUE OF HYPOTHETICAL $10,000 IN AXP MASSACHUSETTS TAX-EXEMPT FUND AXP Massachusetts Tax-Exempt Fund Class A (includes sales charge) ($15,785) $9,525 $10,093 $10,881 $11,773 $11,986 $11,991 $13,027 $13,801 $14,730 $14,695 $15,785 Lehman Brothers Massachusetts Municipal Bond Index(2) ($18,557) $10,000 $10,649 $11,529 $12,510 $12,832 $13,258 $14,638 $15,696 $17,113 $17,192 $18,557 Lehman Brothers Municipal Bond Index(3) ($18,560) $10,000 $10,664 $11,544 $12,544 $12,890 $13,309 $14,637 $15,650 $17,018 $17,147 $18,560 Lipper Massachusetts Municipal Debt Funds Index(4) ($17,493) $10,000 $10,612 $11,434 $12,390 $12,598 $12,764 $14,019 $14,902 $16,178 $16,202 $17,493 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05
Results for other share classes can be found on page 11. (1) The Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond Index, an unmanaged index, is a market value-weighted index of Massachusetts investment-grade fixed-rate municipal bonds with maturities of three years or more. (2) The Lehman Brothers 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. (3) 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. However, the securities used to create the index may not be representative of the bonds held in the Fund. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. (4) 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 net reinvested dividends. (5) Fund data is from July 2, 1987. Lehman Brothers Municipal Bond Index is from July 1, 1987. The Fund began operating before the inception of the Lehman Brothers Massachusetts 3 Plus Enhanced Municipal Bond Index, Lehman Brothers Massachusetts Municipal Bond Index and Lipper peer group. - -------------------------------------------------------------------------------- 27 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT The Fund's Long-term Performance The chart on the facing page illustrates the total value of an assumed $10,000 investment in AXP Michigan Tax-Exempt Fund Class A shares (from 7/1/95 to 6/30/05) as compared to the performance of three widely cited performance indices, the Lehman Brothers Michigan Municipal Bond Index, the Lehman Brothers Municipal Bond Index and the Lipper Michigan Municipal Debt Funds Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents past performance and is not a guarantee of future results. The value of your investment and returns will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Returns do not reflect taxes payable on distributions and redemptions. 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.ameriprise.com. Also see "Past Performance" in the Fund's current prospectus. - -------------------------------------------------------------------------------- 28 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT [LINE CHART]
VALUE OF HYPOTHETICAL $10,000 IN AXP MIGHIGAN TAX-EXEMPT FUND AXP Michigan Tax-Exempt Fund Class A (includes sales charge) ($15,852) $9,525 $10,131 $10,852 $11,692 $11,920 $11,903 $12,962 $13,718 $14,815 $14,843 $15,852 Lehman Brothers Michigan Municipal Bond Index(1) ($18,694) $10,000 $10,702 $11,601 $12,632 $12,947 $13,335 $14,743 $15,779 $17,280 $17,354 $18,694 Lehman Brothers Municipal Bond Index(2) ($18,560) $10,000 $10,664 $11,544 $12,544 $12,890 $13,309 $14,637 $15,650 $17,018 $17,147 $18,560 Lipper Michigan Municipal Debt Funds Index(3) ($16,901) $10,000 $10,591 $11,383 $12,274 $12,461 $12,618 $13,804 $14,643 $15,800 $15,767 $16,901 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05
COMPARATIVE RESULTS Results at June 30, 2005
Since 1 year 3 years 5 years 10 years inception(4) AXP Michigan Tax-Exempt Fund (includes sales charge) Class A Cumulative value of $10,000 $10,172 $11,007 $12,684 $15,852 $28,058 Average annual total return +1.72% +3.25% +4.87% +4.72% +5.90% Lehman Brothers Michigan Municipal Bond Index(1) Cumulative value of $10,000 $10,772 $11,850 $14,019 $18,694 N/A Average annual total return +7.72% +5.82% +6.99% +6.46% N/A Lehman Brothers Municipal Bond Index(2) Cumulative value of $10,000 $10,824 $11,860 $13,947 $18,560 $35,249 Average annual total return +8.24% +5.85% +6.88% +6.38% +7.25% Lipper Michigan Municipal Debt Funds Index(3) Cumulative value of $10,000 $10,719 $11,540 $13,395 $16,901 N/A Average annual total return +7.19% +4.89% +6.02% +5.39% N/A
Results for other share classes can be found on page 12. (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) 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. However, the securities used to create the index may not be representative of the bonds held in the Fund. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. (3) The Lipper Michigan Municipal Debt Funds Index includes the 10 largest municipal debt funds in Michigan tracked by Lipper Inc. The index's returns include net reinvested dividends. (4) Fund data is from July 2, 1987. Lehman Brothers Municipal Bond Index is from July 1, 1987. The Fund began operating before the inception of the Lehman Brothers Michigan Municipal Bond Index and Lipper peer group. - -------------------------------------------------------------------------------- 29 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT The Fund's Long-term Performance The chart on the facing page illustrates the total value of an assumed $10,000 investment in AXP Minnesota Tax-Exempt Fund Class A shares (from 7/1/95 to 6/30/05) as compared to the performance of four widely cited performance indices, the Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index, the Lehman Brothers Minnesota Municipal Bond Index, the Lehman Brothers Municipal Bond Index and the Lipper Minnesota Municipal Debt Funds Index. Recently, the Fund's investment manager recommended to the Fund that the Fund change its comparative index from the Lehman Brothers Minnesota Municipal Bond Index to the Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index. The investment manager made this recommendation because the new index more closely represents the Fund's holdings. Both indices are shown in this transition year. In the future, however, only the Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index will be included. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents past performance and is not a guarantee of future results. The value of your investment and returns will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Returns do not reflect taxes payable on distributions and redemptions. 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.ameriprise.com. Also see "Past Performance" in the Fund's current prospectus. COMPARATIVE RESULTS Results at June 30, 2005
Since 1 year 3 years 5 years 10 years inception(5) AXP Minnesota Tax-Exempt Fund (includes sales charge) Class A Cumulative value of $10,000 $10,167 $10,994 $12,666 $16,180 $29,596 Average annual total return +1.67% +3.21% +4.84% +4.93% +5.92% Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index(1) Cumulative value of $10,000 $10,791 $11,876 $13,973 N/A N/A Average annual total return +7.91% +5.90% +6.92% N/A N/A Lehman Brothers Minnesota Municipal Bond Index(2) Cumulative value of $10,000 $10,742 $11,749 $13,785 $18,115 N/A Average annual total return +7.42% +5.52% +6.63% +6.12% N/A Lehman Brothers Municipal Bond Index(3) Cumulative value of $10,000 $10,824 $11,860 $13,947 $18,560 $36,664 Average annual total return +8.24% +5.85% +6.88% +6.38% +7.11% Lipper Minnesota Municipal Debt Funds Index(4) Cumulative value of $10,000 $10,739 $11,696 $13,528 $17,000 N/A Average annual total return +7.39% +5.36% +6.23% +5.45% N/A
See footnotes to the Comparative Results table on facing page. - -------------------------------------------------------------------------------- 30 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT [LINE CHART]
VALUE OF HYPOTHETICAL $10,000 IN AXP MINNESOTA TAX-EXEMPT FUND AXP Minnesota Tax-Exempt Fund Class A (includes sales charge) ($16,180) $9,525 $10,096 $10,910 $11,787 $12,098 $12,171 $13,209 $14,021 $15,112 $15,160 $16,180 Lehman Brothers Minnesota Municipal Bond Index(2) ($18,115) $10,000 $10,612 $11,454 $12,432 $12,765 $13,142 $14,459 $15,419 $16,717 $16,864 $18,115 Lehman Brothers Municipal Bond Index(3) ($18,560) $10,000 $10,664 $11,544 $12,544 $12,890 $13,309 $14,637 $15,650 $17,018 $17,147 $18,560 Lipper Minnesota Municipal Debt Funds Index(4) ($17,000) $10,000 $10,534 $11,307 $12,196 $12,470 $12,567 $13,703 $14,535 $15,701 $15,830 $17,000 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05
Results for other share classes can be found on page 13. (1) The Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index, an unmanaged index, is a market value-weighted index of Minnesota investment-grade fixed-rate municipal bonds with maturities of three years or more. (2) The Lehman Brothers 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. (3) 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. However, the securities used to create the index may not be representative of the bonds held in the Fund. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. (4) 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 net reinvested dividends. (5) Fund data is from Aug. 18, 1986. Lehman Brothers Municipal Bond Index is from Sept. 1, 1986. The Fund began operating before the inception of the Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index, Lehman Brothers Minnesota Municipal Bond Index and Lipper peer group. - -------------------------------------------------------------------------------- 31 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT The Fund's Long-term Performance The chart on the facing page illustrates the total value of an assumed $10,000 investment in AXP New York Tax-Exempt Fund Class A shares (from 7/1/95 to 6/30/05) as compared to the performance of four widely cited performance indices, the Lehman Brothers New York 4 Plus Year Municipal Bond Index, the Lehman Brothers New York Municipal Bond Index, the Lehman Brothers Municipal Bond Index and the Lipper New York Municipal Debt Funds Index. Recently, the Fund's investment manager recommended to the Fund that the Fund change its comparative index from the Lehman Brothers New York Municipal Bond Index to the Lehman Brothers New York 4 Plus Year Municipal Bond Index. The investment manager made this recommendation because the new index more closely represents the Fund's holdings. Both indices are shown in this transition year. In the future, however, only the Lehman Brothers New York 4 Plus Year Municipal Bond Index will be included. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents past performance and is not a guarantee of future results. The value of your investment and returns will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Returns do not reflect taxes payable on distributions and redemptions. 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.ameriprise.com. Also see "Past Performance" in the Fund's current prospectus. COMPARATIVE RESULTS Results at June 30, 2005
Since 1 year 3 years 5 years 10 years inception(5) AXP New York Tax-Exempt Fund (includes sales charge) Class A Cumulative value of $10,000 $10,196 $11,055 $12,714 $16,046 $28,406 Average annual total return +1.96% +3.40% +4.92% +4.84% +5.69% Lehman Brothers New York 4 Plus Year Municipal Bond Index(1) Cumulative value of $10,000 $10,907 $12,046 $14,256 $19,392 N/A Average annual total return +9.07% +6.40% +7.35% +6.85% N/A Lehman Brothers New York Municipal Bond Index(2) Cumulative value of $10,000 $10,792 $11,819 $13,882 $18,765 N/A Average annual total return +7.92% +5.73% +6.78% +6.50% N/A Lehman Brothers Municipal Bond Index(3) Cumulative value of $10,000 $10,824 $11,860 $13,947 $18,560 $36,664 Average annual total return +8.24% +5.85% +6.88% +6.38% +7.11% Lipper New York Municipal Debt Funds Index(4) Cumulative value of $10,000 $10,784 $11,682 $13,617 $17,246 $31,987 Average annual total return +7.84% +5.32% +6.37% +5.60% +6.34%
See footnotes to the Comparative Results table on facing page. - -------------------------------------------------------------------------------- 32 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT [LINE CHART]
VALUE OF HYPOTHETICAL $10,000 IN AXP NEW YORK TAX-EXEMPT FUND AXP New York Tax-Exempt Fund Class A (includes sales charge) ($16,046) $9,525 $10,023 $10,785 $11,673 $11,929 $12,021 $13,137 $13,828 $14,994 $14,991 $16,046 Lehman Brothers New York 4 Plus Year Municipal Bond Index(1) ($19,392) $10,000 $10,688 $11,696 $12,835 $13,170 $13,602 $15,091 $16,099 $17,648 $17,779 $19,392 Lehman Brothers New York Municipal Bond Index(2) ($18,765) $10,000 $10,676 $11,636 $12,705 $13,068 $13,516 $14,911 $15,877 $17,260 $17,388 $18,765 Lehman Brothers Municipal Bond Index(3) ($18,560) $10,000 $10,664 $11,544 $12,544 $12,890 $13,309 $14,637 $15,650 $17,018 $17,147 $18,560 Lipper New York Municipal Debt Funds Index(4) ($17,246) $10,000 $10,552 $11,379 $12,358 $12,538 $12,668 $13,970 $14,763 $15,935 $15,992 $17,246 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05
Results for other share classes can be found on page 14. (1) The Lehman Brothers New York 4 Plus Year Municipal Bond Index, an unmanaged index, is a market value-weighted index of New York investment-grade fixed-rate municipal bonds with maturities of four years or more. (2) The Lehman Brothers 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. (3) 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. However, the securities used to create the index may not be representative of the bonds held in the Fund. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. (4) 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 net reinvested dividends. (5) Fund data is from Aug. 18, 1986. Lehman Brothers Municipal Bond Index and Lipper peer group is from Sept. 1, 1986. The Fund began operating before the inception of the Lehman Brothers New York 4 Plus Year Municipal Bond Index and Lehman Brothers New York Municipal Bond Index. - -------------------------------------------------------------------------------- 33 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT The Fund's Long-term Performance The chart on the facing page illustrates the total value of an assumed $10,000 investment in AXP Ohio Tax-Exempt Fund Class A shares (from 7/1/95 to 6/30/05) as compared to the performance of four widely cited performance indices, the Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index, the Lehman Brothers Ohio Municipal Bond Index, the Lehman Brothers Municipal Bond Index and the Lipper Ohio Municipal Debt Funds Index. Recently, the Fund's investment manager recommended to the Fund that the Fund change its comparative index from the Lehman Brothers Ohio Municipal Bond Index to the Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index. The investment manager made this recommendation because the new index more closely represents the Fund's holdings. Both indices are shown in this transition year. In the future, however, only the Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index will be included. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents past performance and is not a guarantee of future results. The value of your investment and returns will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Returns do not reflect taxes payable on distributions and redemptions. 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.ameriprise.com. Also see "Past Performance" in the Fund's current prospectus. COMPARATIVE RESULTS Results at June 30, 2005
Since 1 year 3 years 5 years 10 years inception(5) AXP Ohio Tax-Exempt Fund (includes sales charge) Class A Cumulative value of $10,000 $10,183 $10,829 $12,379 $15,694 $27,212 Average annual total return +1.83% +2.69% +4.36% +4.61% +5.72% Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index(1) Cumulative value of $10,000 $10,864 $11,971 $14,157 N/A N/A Average annual total return +8.64% +6.18% +7.20% N/A N/A Lehman Brothers Ohio Municipal Bond Index(2) Cumulative value of $10,000 $10,759 $11,749 $13,804 $18,015 N/A Average annual total return +7.59% +5.52% +6.66% +6.06% N/A Lehman Brothers Municipal Bond Index(3) Cumulative value of $10,000 $10,824 $11,860 $13,947 $18,560 $35,249 Average annual total return +8.24% +5.85% +6.88% +6.38% +7.25% Lipper Ohio Municipal Debt Funds Index(4) Cumulative value of $10,000 $10,775 $11,666 $13,566 $17,256 N/A Average annual total return +7.75% +5.27% +6.29% +5.61% N/A
See footnotes to the Comparative Results table on facing page. - -------------------------------------------------------------------------------- 34 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT [LINE CHART]
VALUE OF HYPOTHETICAL $10,000 IN AXP OHIO TAX-EXEMPT FUND AXP Ohio Tax-Exempt Fund Class A (includes sales charge) ($15,694) $9,525 $10,074 $10,821 $11,673 $11,969 $12,078 $13,038 $13,803 $14,780 $14,681 $15,694 Lehman Brothers Ohio Municipal Bond Index(2) ($18,015) $10,000 $10,622 $11,411 $12,304 $12,639 $13,049 $14,319 $15,331 $16,671 $16,744 $18,015 Lehman Brothers Municipal Bond Index(3) ($18,560) $10,000 $10,664 $11,544 $12,544 $12,890 $13,309 $14,637 $15,650 $17,018 $17,147 $18,560 Lipper Ohio Municipal Debt Funds Index(4) ($17,256) $10,000 $10,585 $11,383 $12,294 $12,535 $12,718 $13,924 $14,790 $15,978 $16,015 $17,256 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05
Results for other share classes can be found on page 15. (1) The Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index, an unmanaged index, is a market value-weighted index of Ohio investment-grade fixed-rate municipal bonds with maturities of four years or more. (2) The Lehman Brothers 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. (3) 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. However, the securities used to create the index may not be representative of the bonds held in the Fund. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. (4) 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 net reinvested dividends. (5) Fund data is from July 2, 1987. Lehman Brothers Municipal Bond Index is from July 1, 1987. The Fund began operating before the inception of the Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index, Lehman Brothers Ohio Municipal Bond Index and Lipper peer group. - -------------------------------------------------------------------------------- 35 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Investments in Securities AXP California Tax-Exempt Fund June 30, 2005 (Percentages represent value of investments compared to net assets) Municipal bonds (96.0%) 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 $2,267,826 Abag Finance Authority for Nonprofit Corporations Revenue Bonds San Diego Hospital Association Series 2001A 08-15-20 6.13 2,500,000 2,764,525 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) 489,288 Anaheim Union High School District Pre-refunded Unlimited General Obligation Bonds Series 2002A (FSA) 08-01-16 5.38 1,550,000 1,764,908 Beaumont Financing Authority Revenue Bonds Series 2000A 09-01-32 7.38 1,955,000 2,093,160 Beverly Hills Public Financing Authority Revenue Bonds Capital Improvements Project Series 1998A 06-01-23 5.00 3,000,000 3,112,260 California Educational Facilities Authority Revenue Bonds Stanford University Series 1997N 12-01-27 5.20 1,000,000 1,049,440 California Educational Facilities Authority Revenue Bonds University of Southern California Series 2003A 10-01-33 5.00 2,000,000 2,119,540 Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) California Health Facilities Financing Authority Revenue Bonds Catholic Healthcare West Series 2004G 07-01-23 5.25% $3,500,000 $3,700,199 California Health Facilities Financing Authority Revenue Bonds Sutter Health Series 1999A (MBIA) 08-15-28 5.35 2,500,000 2,669,650 California Pollution Control Financing Authority Revenue Bonds Waste Management Project Series 2005A-1 A.M.T. 04-01-25 4.70 1,000,000 1,029,180 California Rural Home Mortgage Finance Authority Revenue Bonds Mortgage-backed Securities Program Series 1997A-2 (GNMA/FNMA/FHLMC) A.M.T. 09-01-29 7.00 110,000 110,814 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 95,000 96,432 California State Department of Water Resources Revenue Bonds Series 2002A (MBIA) 05-01-09 5.25 3,200,000 3,462,687 05-01-10 5.25 3,000,000 3,289,380 05-01-15 6.00 2,000,000 2,311,400 California State Public Works Board Revenue Bonds Department of General Services Capital East End Series 2002A 12-01-06 5.00 1,000,000 1,029,050 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 36 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL 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 Statewide Communities Development Authority Revenue Bonds Daughters of Charity Health Series 2005A 07-01-39 5.00% $2,250,000 $2,306,903 California Statewide Communities Development Authority Revenue Bonds Daughters of Charity Health Series 2005G 07-01-13 5.25 200,000 217,516 California Statewide Communities Development Authority Revenue Bonds Kaiser Permanente Series 2004E 04-01-32 3.88 750,000 760,838 California Statewide Communities Development Authority Revenue Bonds Thomas Jefferson School of Law Project Series 2001 10-01-31 7.75 2,500,000 2,761,600 City of San Jose Unlimited General Obligation Bonds Libraries & Public Safety Project Series 2005 (MBIA) 09-01-35 4.50 2,000,000 1,990,080 Commonwealth of Puerto Rico Unlimited General Obligation Bonds Public Improvement Series 2001 (FSA) 07-01-16 5.50 2,000,000(c) 2,358,220 Commonwealth of Puerto Rico Unlimited General Obligation Bonds Public Improvement Series 2004A 07-01-24 5.00 1,000,000(c) 1,059,360 Contra Costa County Revenue Bonds Cypress Meadows Project Series 1998E A.M.T. 09-01-28 7.00 236,638(b,h) 47,337 Contra Costa Water District Refunding Revenue Bonds Series 2003M (FSA) 10-01-16 5.00 1,500,000 1,651,815 Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) County of Riverside Certificate of Participation Series 1998 (MBIA) 12-01-21 5.00% $1,530,000 $1,609,514 County of San Diego Certificate of Participation Series 1993 Inverse Floater (AMBAC) 09-01-07 8.52 3,200,000(i) 3,588,671 Desert Sands Unified School District Refunding Certificate of Participation Series 2003 (MBIA) 03-01-17 5.25 1,135,000 1,268,090 Encinitas Union School District Unlimited General Obligation Bonds Capital Appreciation Zero Coupon Series 1996 (MBIA) 08-01-15 5.85 2,500,000(f) 1,667,900 Fontana Unified School District Unlimited General Obligation Bonds Convertible Capital Appreciation Series 1997D (FGIC) 05-01-22 5.75 2,000,000 2,216,560 Golden State Tobacco Securitization Corporation Revenue Bonds Enhanced Asset-backed Series 2003B (FGIC) 06-01-28 5.38 2,500,000 2,659,575 Golden State Tobacco Securitization Corporation Revenue Bonds Series 2003A-1 06-01-33 6.25 2,490,000 2,713,328 06-01-39 6.75 1,250,000 1,407,113 06-01-40 6.63 600,000 670,530 Grossmont-Cuyamaca Community College District Unlimited General Obligation Bonds Election of 2002 Series 2005B (FGIC) 08-01-26 5.00 3,000,000 3,238,830 Inglewood Redevelopment Agency Refunding Tax Allocation Bonds Merged Redevelopment Project Series 1998A (AMBAC) 05-01-23 5.25 1,100,000 1,263,713 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 37 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP California Tax-Exempt Fund Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Lake Elsinore Public Financing Authority Revenue Bonds Series 1997F 09-01-20 7.10% $815,000 $880,665 Lancaster Redevelopment Agency Refunding Tax Allocation Bonds Combined Redevelopment Project Areas Series 2003 (MBIA) 08-01-17 5.13 1,840,000 2,085,658 Los Angeles County Public Works Financing Authority Pre-refunded Revenue Bonds Multiple Capital Facilities Project Series 1997V-B (AMBAC) 12-01-29 5.13 1,000,000 1,067,820 Los Angeles County Sanitation Districts Financing Authority Revenue Bonds Capital Project Series 2003A (FSA) 10-01-13 5.00 2,000,000 2,234,180 Los Angeles Department of Water & Power Revenue Bonds Power System Series 2003B (FSA) 07-01-16 5.13 1,460,000 1,621,899 07-01-17 5.13 2,315,000 2,559,834 Los Angeles Harbor Department Revenue Bonds Series 1988 Escrowed to Maturity 10-01-18 7.60 965,000 1,224,508 Los Angeles Unified School District Certificate of Participation Multiple Properties Project Series 2002B (FSA) 10-01-08 5.00 1,000,000 1,067,890 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 1,029,340 Los Angeles Unified School District Unlimited General Obligation Bonds Series 1997A (FGIC) 07-01-21 5.00 2,000,000 2,126,880 Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Menlo Park Unlimited General Obligation Bonds Series 2002 08-01-32 5.30% $1,900,000 $2,066,326 Metropolitan Water District of Southern California Pre-refunded Revenue Bonds Series 1997A 07-01-26 5.00 3,000,000 3,195,870 Mountain View Los Altos Union High School District Pre-refunded Unlimited General Obligation Bonds Series 1995A 08-01-15 5.75 1,200,000 1,226,736 Oxnard School District Unlimited General Obligation Refunding Bonds Series 2001A (MBIA) 08-01-30 5.75 2,575,000 3,121,673 Palomar Pomerado Health Unlimited General Obligation Bonds Election of 2004 Series 2005A (AMBAC) 08-01-29 4.50 2,500,000(g) 2,485,375 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) 864,318 Port of Oakland Revenue Bonds Series 1997G (MBIA) A.M.T. 11-01-25 5.38 3,080,000 3,248,661 Port of Oakland Revenue Bonds Series 2000K (FGIC) A.M.T. 11-01-18 5.63 1,000,000 1,077,340 Puerto Rico Public Finance Corporation Revenue Bonds Commonwealth Appropriation Series 2004A (MBIA) 08-01-29 5.25 1,000,000(c) 1,111,180 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 38 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP California Tax-Exempt Fund Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Sacramento Cogeneration Authority Pre-refunded Revenue Bonds Procter & Gamble Project Series 1995 07-01-10 6.38% $500,000 $510,000 Sacramento Municipal Utility District Refunding Revenue Bonds Series 2003S (FSA) 11-15-10 5.00 2,500,000 2,748,300 San Diego Public Water Facilities Financing Authority Revenue Bonds Series 2002 (MBIA) 08-01-26 5.00 2,500,000 2,639,950 San Diego Unified School District Unlimited General Obligation Bonds Capital Appreciation Zero Coupon Series 1999A (FGIC) 07-01-12 3.70 3,420,000(f) 2,661,820 San Francisco Bay Area Transit Financing Authority Revenue Bonds Series 2001 (AMBAC) 07-01-36 5.13 2,000,000 2,103,500 San Francisco City & County Airports Commission Refunding Revenue Bonds 2nd Series 2001B-27 (FGIC) 05-01-16 5.25 2,170,000 2,383,854 San Francisco State Building Authority Revenue Bonds San Francisco Civic Center Complex Series 1996A (AMBAC) 12-01-16 5.25 2,000,000 2,104,500 San Juan Unified School District Unlimited General Obligation Bonds Capital Appreciation Zero Coupon Series 1999 (FSA) 08-01-21 5.68 820,000(f) 402,989 08-01-24 5.70 1,810,000(f) 756,146 San Mateo County Community College District Unlimited General Obligation Bonds Election of 2001 Series 2002A (FGIC) 09-01-18 5.38 1,000,000 1,121,720 Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) 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 $3,236,250 South Tahoe Joint Powers Financing Authority Refunding Revenue Bonds Redevelopment Project Area #1 Series 1995B 10-01-20 6.25 2,700,000 2,776,869 Southern California Public Power Authority Refunding Revenue Bonds San Juan Power Project Series 2005A (FSA) 01-01-15 5.00 2,000,000 2,225,020 State of California Unlimited General Obligation Bonds Series 2000 05-01-19 5.63 3,000,000 3,332,490 10-01-25 5.38 2,500,000 2,688,900 State of California Unlimited General Obligation Bonds Series 2000 (MBIA) 09-01-13 5.25 1,500,000 1,655,445 State of California Unlimited General Obligation Bonds Series 2001 06-01-11 5.50 2,825,000 3,150,949 03-01-31 5.13 2,500,000 2,640,900 06-01-31 5.13 2,500,000 2,646,475 State of California Unlimited General Obligation Bonds Series 2002 02-01-15 6.00 1,000,000 1,181,250 State of California Unlimited General Obligation Bonds Series 2003 02-01-10 5.00 1,000,000 1,075,490 02-01-21 5.25 2,500,000 2,733,475 02-01-29 5.25 2,500,000 2,680,350 02-01-32 5.00 2,500,000 2,625,125 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 39 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP California Tax-Exempt Fund Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) State of California Unlimited General Obligation Bonds Series 2003 (FGIC) 11-01-20 5.25% $1,000,000 $1,104,790 State of California Unlimited General Obligation Bonds Series 2004 03-01-14 5.25 2,000,000 2,248,140 02-01-33 5.00 1,000,000 1,052,630 State of California Unlimited General Obligation Bonds Series 2004 (FGIC) 02-01-33 5.00 2,500,000 2,655,550 State of California Unlimited General Obligation Bonds Series 2004A 01-01-11 5.25 5,000,000 5,509,299 State of California Unlimited General Obligation Bonds Series 2004A (FGIC) 07-01-17 5.00 2,000,000 2,161,860 State of California Unlimited General Obligation Bonds Various Purpose Series 2003 11-01-22 5.00 2,000,000 2,127,140 11-01-23 5.13 2,500,000 2,689,900 11-01-24 5.13 2,000,000 2,146,080 State of California Unlimited General Obligation Bonds Various Purpose Series 2004 (FSA) 12-01-22 5.25 1,500,000 1,648,650 State of California Unlimited General Obligation Bonds Veterans Series 2000B A.M.T. 12-01-12 4.95 2,250,000 2,341,890 12-01-13 5.05 1,435,000 1,493,419 12-01-14 5.15 2,535,000 2,637,845 Stockton Revenue Bonds Mortgage-backed Securities Program Series 1990A (GNMA/FNMA/FHLMC) A.M.T. 02-01-23 7.50 30,000 30,867 Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Tobacco Securitization Authority of Southern California Revenue Bonds Asset-backed Bonds Series 2002A 06-01-43 5.63% $1,000,000 $1,027,170 University of California Revenue Bonds Multiple Purpose Series 2000K (FGIC) 09-01-20 5.00 1,010,000 1,068,833 University of California Revenue Bonds Multiple Purpose Projects Series 2003Q (FSA) 09-01-18 5.00 2,000,000 2,158,920 University of California Revenue Bonds Series 2003B (AMBAC) 05-15-16 5.25 1,500,000 1,676,730 Walnut Energy Center Authority Revenue Bonds Series 2004A (AMBAC) 01-01-29 5.00 2,500,000 2,658,025 01-01-34 5.00 1,000,000 1,061,010 West Contra Costa Unified School District Unlimited General Obligation Bonds Election of 2000 Series 2003C (FGIC) 08-01-06 3.00 1,985,000 1,994,131 Western Hills Water District Special Tax Bonds Diablo Grande Community Facilities #1 Series 2001 09-01-31 6.88 1,000,000 1,056,740 Whittier Union High School District Unlimited General Obligation Bonds Election of 1999 Series 2003D (FSA) 08-01-28 5.00 2,615,000 2,775,221 - ------------------------------------------------------ Total municipal bonds (Cost: $191,241,354) $200,519,992 - ------------------------------------------------------ See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 40 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP California Tax-Exempt Fund Municipal notes (3.9%) Issue(d,e,j) Effective Amount Value(a) yield payable at maturity Abag Finance Authority for Nonprofit Corporations Revenue Bonds Jewish Community Center Project V.R.D.N. Series 2002 (Allied Irish Bank) 11-15-31 2.22% $2,700,000 $2,700,000 California Infrastructure & Economic Development Bank Revenue Bonds Rand Corporation V.R.D.N. Series 2002B (JP Morgan Chase Bank) AMBAC 04-01-42 2.15 1,800,000 1,800,000 California State Department of Water Resources Revenue Bonds V.R.D.N. Series 2002B-3 (Bank of New York) 05-01-22 2.15 800,000 800,000 Municipal notes (continued) Issue(d,e,j) Effective Amount Value(a) yield payable at maturity California Statewide Communities Development Authority Refunding Revenue Bonds University Retirement Community at Davis V.R.D.N. Series 2003 (Bank of America) Radian Group Financial Guaranty 11-15-30 2.23% $2,900,000 $2,900,000 - ------------------------------------------------------ Total municipal notes (Cost: $8,200,000) $8,200,000 - ------------------------------------------------------ Total investments in securities (Cost: $199,441,354)(k) $208,719,992 ====================================================== See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 41 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP California 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 2.2% of net assets at June 30, 2005. (d) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- Ambac Assurance Corporation BIG -- Bond Investors Guarantee CGIC -- Capital Guaranty Insurance Company 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 June 30, 2005, the value of securities subject to alternative minimum tax represented 5.8% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note (f) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (g) At June 30, 2005, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $2,481,250. (h) Identifies issues considered to be illiquid as to their marketability (see Note 1 to the financial statements). These securities are valued at fair value according to methods selected in good faith by the Fund's Board of Directors. Information concerning such security holdings at June 30, 2005, is as follows: Security Acquisition Cost date ------------------------------------------------------------------------ Contra Costa County Revenue Bonds Cypress Meadows Project Series 1998E A.M.T. 7.00% 2028 09-21-98 $236,638 (i) Inverse floaters represent securities that pay interest at a rate that increases (decreases) in the same magnitude as, or in a multiple of, a decline (increase) in market short-term rates. Interest rate disclosed is the rate in effect on June 30, 2005. At June 30, 2005, the value of inverse floaters represented 1.7% of net assets. - -------------------------------------------------------------------------------- 42 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP California Tax-Exempt Fund Notes to investments in securities (continued) (j) 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 June 30, 2005. (k) At June 30, 2005, the cost of securities for federal income tax purposes was $199,418,806 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $9,632,315 Unrealized depreciation (331,129) ------------------------------------------------------------------------- Net unrealized appreciation $9,301,186 ------------------------------------------------------------------------- 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.ameriprise.com. - -------------------------------------------------------------------------------- 43 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Investments in Securities AXP Massachusetts Tax-Exempt Fund June 30, 2005 (Percentages represent value of investments compared to net assets) Municipal bonds (93.6%) 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 $2,261,786 City of Boston Revenue Bonds Series 2004A 11-01-22 5.00 1,000,000 1,080,340 City of Boston Unlimited General Obligation Bonds Series 2005A 01-01-14 5.00 1,000,000 1,114,740 City of Boston Unlimited General Obligation Refunding Bonds Series 2003A (MBIA) 02-01-23 5.00 1,000,000 1,081,790 City of Springfield Limited General Obligation Bonds State Qualified Series 2003 (MBIA) 01-15-20 5.25 1,405,000 1,551,738 Commonwealth of Massachusetts Limited General Obligation Bonds Consolidated Loan Series 2002C (FSA) 11-01-15 5.50 2,500,000 2,901,599 Commonwealth of Massachusetts Limited General Obligation Bonds Consolidated Loan Series 2002E 01-01-10 5.50 3,000,000 3,298,049 Commonwealth of Massachusetts Limited General Obligation Refunding Bonds Series 1997A (AMBAC) 08-01-10 5.75 2,185,000 2,452,466 Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Commonwealth of Massachusetts Pre-refunded Limited General Obligation Bonds Consolidated Loan Series 2002A (FGIC) 01-01-14 5.00% $2,500,000 $2,664,325 Commonwealth of Massachusetts Pre-refunded Limited General Obligation Bonds Consolidated Loan Series 2002C 11-01-30 5.25 2,000,000 2,222,820 Commonwealth of Massachusetts Pre-refunded Unlimited General Obligation Bonds Consolidated Loan Series 2003D 10-01-22 5.25 1,000,000 1,122,700 Commonwealth of Massachusetts Revenue Bonds Grant Anticipation Notes Series 1998A (FSA) 06-15-09 5.25 1,500,000 1,621,035 Commonwealth of Massachusetts Special Obligation Bonds Refunding Notes Federal Highway Grant Anticipation Series 2003A (FSA) 12-15-14 5.00 1,000,000 1,103,620 Commonwealth of Massachusetts Unlimited General Obligation Bonds Consolidated Loan Series 2005A 03-01-16 5.00 750,000 827,865 Commonwealth of Puerto Rico Unlimited General Obligation Bonds Public Improvement Series 2001 (FSA) 07-01-16 5.50 500,000(c) 589,555 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 44 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Massachusetts Tax-Exempt Fund Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Freetown Lakeville Regional School District Unlimited General Obligation Bonds Series 2003 (MBIA) 01-01-13 5.00% $1,865,000 $2,073,768 Massachusetts Bay Transportation Authority Refunding Revenue Bonds Series 1992B 03-01-16 6.20 1,500,000 1,780,155 Massachusetts Development Finance Agency Pre-refunded Revenue Bonds Briarwood Series 2001B 12-01-30 8.25 750,000 940,283 Massachusetts Development Finance Agency Revenue Bonds 1st Mortgage Berkshire Retirement Series 1999 07-01-29 5.63 1,250,000 1,261,088 Massachusetts Development Finance Agency Revenue Bonds Boston University Series 1999P 05-15-29 6.00 1,400,000 1,654,814 Massachusetts Development Finance Agency Revenue Bonds Devens Electric System Series 2001 12-01-30 6.00 1,000,000 1,086,740 Massachusetts Development Finance Agency Revenue Bonds May Institute Series 1999 (Radian Group Financial Guaranty) 09-01-29 5.75 1,000,000 1,072,890 Massachusetts Health & Educational Facilities Authority Revenue Bonds Boston College Series 2003N 06-01-21 5.25 1,000,000 1,101,740 Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Massachusetts Health & Educational Facilities Authority Revenue Bonds Harvard University Series 2001DD 07-15-35 5.00% $1,000,000 $1,046,520 Massachusetts Health & Educational Facilities Authority Revenue Bonds Harvard University Series 2002FF 07-15-37 5.13 3,000,000 3,184,139 Massachusetts Health & Educational Facilities Authority Revenue Bonds Massachusetts Institute of Technology Series 2003L 07-01-13 5.00 1,000,000 1,115,520 Massachusetts Health & Educational Facilities Authority Revenue Bonds Massachusetts Institute of Technology Series 2004M 07-01-25 5.25 1,000,000 1,167,860 Massachusetts Health & Educational Facilities Authority Revenue Bonds New England Medical Center Hospital Series 2002H (FGIC) 05-15-08 5.00 1,655,000 1,748,690 Massachusetts Health & Educational Facilities Authority Revenue Bonds Williams College Series 2003H 07-01-33 5.00 1,750,000 1,845,358 Massachusetts Housing Finance Agency Revenue Bonds Single Family Series 2003-98 A.M.T. 06-01-23 4.88 985,000 989,827 Massachusetts Industrial Finance Agency Revenue Bonds TNG Marina Bay LLC Project Series 1997 A.M.T. 12-01-27 7.50 1,000,000 1,037,750 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 45 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL 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 Industrial Finance Agency Revenue Bonds Tufts University Series 1998H (MBIA) 02-15-28 4.75% $1,000,000 $1,016,860 Massachusetts Municipal Wholesale Electric Company Revenue Bonds Nuclear Project #5 Series 2001A (MBIA) 07-01-10 5.00 1,000,000 1,081,870 Massachusetts Port Authority Revenue Bonds Series 2003A (MBIA) 07-01-18 5.00 1,000,000 1,081,270 Massachusetts State College Building Authority Refunding Revenue Bonds Series 2003B (XLCA) 05-01-08 5.00 1,130,000 1,192,184 Massachusetts State Water Pollution Abatement Pre-refunded Revenue Bonds Pool Program Series 2002-8 08-01-20 5.00 1,475,000 1,620,214 Massachusetts State Water Pollution Abatement Revenue Bonds Pool Program Series 2004-10 08-01-34 5.00 1,000,000 1,059,020 Massachusetts State Water Pollution Abatement Un-refunded Revenue Bonds Pool Program Series 2002-8 08-01-20 5.00 25,000 26,844 Massachusetts Water Resources Authority Refunding Revenue Bonds Series 1998B (FSA) 08-01-11 5.50 1,930,000 2,165,151 Massachusetts Water Resources Authority Revenue Bonds Series 1992A (FGIC) 07-15-19 6.50 2,000,000 2,474,660 Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Massachusetts Water Resources Authority Revenue Bonds Series 2004D (MBIA) 08-01-27 4.75% $1,000,000 $1,035,900 Puerto Rico Electric Power Authority Revenue Bonds Series 1998DD (FSA) 07-01-13 5.13 1,000,000(c) 1,084,170 Puerto Rico Electric Power Authority Revenue Bonds Series 2002A Inverse Floater (MBIA) 07-01-17 8.63 1,500,000(b,c) 2,047,710 Puerto Rico Public Buildings Authority Refunding Revenue Bonds Government Facilities Series 2004J (AMBAC) 07-01-36 5.00 625,000(c) 688,756 University of Massachusetts Building Authority Refunding Revenue Bonds Series 2003-1 (AMBAC) 11-01-21 5.25 1,000,000 1,113,100 University of Massachusetts Building Authority Revenue Bonds Series 1976 Escrowed to Maturity 05-01-11 7.50 60,000 68,305 Westfield Limited General Obligation Refunding Bonds Series 2003 (MBIA) 09-01-17 5.00 940,000 1,025,230 Woods Hole Martha's Vineyard & Nantucket Steamship Authority Revenue Bonds Series 2004B 03-01-20 5.00 750,000 816,428 Worcester Limited General Obligation Bonds Series 2001A (FGIC) 08-15-12 5.50 1,400,000 1,567,440 - ------------------------------------------------------ Total municipal bonds (Cost: $67,349,539) $70,166,682 - ------------------------------------------------------ See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 46 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Massachusetts Tax-Exempt Fund Municipal notes (4.9%) Issue(d,e,f) Effective Amount Value(a) yield payable at maturity Massachusetts Health & Educational Facilities Authority Revenue Bonds Capital Asset Program V.R.D.N. Series 1985B MBIA 07-01-10 2.29% $1,200,000 $1,200,000 Massachusetts Health & Educational Facilities Authority Revenue Bonds Capital Asset Program V.R.D.N. Series 1985C MBIA 07-01-10 2.29 1,700,000 1,700,000 Municipal notes (continued) Issue(d,e,f) 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 2.25% $760,000 $760,000 - ------------------------------------------------------ Total municipal notes (Cost: $3,660,000) $3,660,000 - ------------------------------------------------------ Total investments in securities (Cost: $71,009,539)(g) $73,826,682 ====================================================== 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 June 30, 2005. At June 30, 2005, the value of inverse floaters represented 2.7% 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 5.9% of net assets at June 30, 2005. (d) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- Ambac Assurance Corporation BIG -- Bond Investors Guarantee CGIC -- Capital Guaranty Insurance Company 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 - -------------------------------------------------------------------------------- 47 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL 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 June 30, 2005, the value of securities subject to alternative minimum tax represented 2.7% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note (f) The Fund is entitled to receive principal 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 June 30, 2005. (g) At June 30, 2005, the cost of securities for federal income tax purposes was $71,007,429 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $2,869,627 Unrealized depreciation (50,374) ------------------------------------------------------------------------- Net unrealized appreciation $2,819,253 ------------------------------------------------------------------------- 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.ameriprise.com. - -------------------------------------------------------------------------------- 48 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Investments in Securities AXP Michigan Tax-Exempt Fund June 30, 2005 (Percentages represent value of investments compared to net assets) Municipal bonds (97.1%) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d) 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 $1,098,520 05-01-18 5.00 1,000,000 1,081,170 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 1,052,750 Chippewa Valley Schools Unlimited General Obligation Refunding Bonds Series 2003 (Qualified School Bond Loan Fund) 05-01-21 5.00 745,000 797,657 Commonwealth of Puerto Rico Unlimited General Obligation Bonds Public Improvement Series 2001 (FSA) 07-01-16 5.50 500,000(c) 589,555 Commonwealth of Puerto Rico Unlimited General Obligation Bonds Public Improvement Series 2004A 07-01-24 5.00 500,000(c) 529,680 Detroit Revenue Bonds Senior Lien Series 2003A (MBIA) 07-01-34 5.00 1,375,000 1,453,746 Detroit Revenue Bonds Series 2003B (MBIA) 07-01-32 5.25 1,500,000 1,616,459 Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d) Detroit Unlimited General Obligation Bonds Series 2001A-1 (MBIA) 04-01-15 5.38% $1,000,000 $1,112,460 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 1,109,140 Dickinson County Economic Development Corporation Refunding Revenue Bonds International Paper Company Projects Series 2004A 11-01-18 4.80 500,000 512,815 Eastern Michigan University Refunding Revenue Bonds Series 2003A (FGIC) 06-01-28 5.00 1,000,000 1,056,730 Genesee County Pre-refunded Limited General Obligation Bonds Sewer Disposal System #3 Series 1996A (AMBAC) 04-01-15 5.40 1,000,000 1,040,020 Goodrich Area School District Unlimited General Obligation Bonds Series 2003B (Qualified School Bond Loan Fund) 05-01-27 5.00 1,000,000 1,057,060 Grand Rapids Building Authority Revenue Bonds Series 2002A (AMBAC) 10-01-17 5.50 1,270,000 1,436,256 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 1,052,750 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 49 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Michigan Tax-Exempt Fund Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d) Hudsonville Public Schools Unlimited General Obligation Refunding Bonds Series 1997 (FGIC) (Qualified School Bond Loan Fund) 05-01-27 5.15% $1,000,000 $1,031,390 Jackson Limited General Obligation Bonds Capital Appreciation Downtown Development Zero Coupon Series 2001 (FSA) 06-01-21 5.58 1,450,000(b) 723,478 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 1,039,440 Lansing Community College Limited General Obligation Bonds Series 2002 (FGIC) 05-01-12 5.00 1,000,000 1,103,650 Lawton Community Schools Unlimited General Obligation Bonds Series 2001 (Qualified School Bond Loan Fund) 05-01-31 5.00 1,000,000 1,037,760 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 1,036,500 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 1,466,780 Michigan Municipal Bond Authority Revenue Bonds Clean Water State Revolving Fund Series 2001 10-01-14 5.00 500,000 545,765 Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d) Michigan Municipal Bond Authority Revenue Bonds Clean Water State Revolving Fund Series 2002 10-01-07 5.25% $1,000,000 $1,054,930 10-01-20 5.38 1,000,000 1,114,150 10-01-21 5.38 1,000,000 1,113,480 Michigan Municipal Bond Authority Revenue Bonds State Revolving Fund Series 1997 10-01-14 5.25 250,000 264,183 10-01-15 5.25 250,000 264,183 Michigan Public Power Agency Refunding Revenue Bonds Belle River Project Series 2002A (MBIA) 01-01-09 5.25 2,000,000 2,151,319 01-01-14 5.25 500,000 562,980 Michigan State Building Authority Refunding Revenue Bonds Facilities Program Series 2003 II (MBIA) 10-15-29 5.00 1,000,000 1,058,240 Michigan State Building Authority Revenue Bonds Facilities Program Series 2000 I 10-15-16 5.25 1,000,000 1,086,080 Michigan State Building Authority Revenue Bonds Facilities Program Series 2001 I Escrowed to Maturity 10-15-08 5.50 500,000 539,990 Michigan State Building Authority Revenue Bonds State Police Communications System Series 2002 Escrowed to Maturity 10-01-07 4.00 1,000,000 1,026,900 Michigan State Hospital Finance Authority Revenue Bonds McLaren Health Care Series 2005C 08-01-35 5.00 1,000,000 1,029,480 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 50 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Michigan Tax-Exempt Fund Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d) Michigan State Hospital Finance Authority Revenue Bonds Oakwood Obligated Group Series 2003 11-01-18 5.50% $1,000,000 $1,090,060 Michigan State South Central Power Agency Refunding Revenue Bonds Series 2002 (AMBAC) 11-01-10 5.00 2,000,000 2,180,839 Michigan Strategic Fund Refunding Revenue Bonds Detroit Edison Series 1990BB (MBIA) 07-15-08 7.00 1,000,000 1,115,150 Michigan Strategic Fund Refunding Revenue Bonds The Oxford Institute Series 1987A Escrowed to Maturity 08-15-05 7.88 25,000 25,151 Plymouth-Canton Community School District Unlimited General Obligation Refunding Bonds Series 2003 (Qualified School Bond Loan Fund) 05-01-15 5.25 600,000 671,256 Pontiac Tax Increment Finance Authority Refunding Revenue Bonds Tax Increment Development Area #2 Series 2002 (ACA) 06-01-22 5.63 1,000,000 1,069,130 Puerto Rico Public Buildings Authority Refunding Revenue Bonds Government Facilities Series 2002C (XLCA) 07-01-13 5.50 1,000,000(c) 1,154,100 Saline Area Schools Unlimited General Obligation Bonds Series 2000A (Qualified School Bond Loan Fund) 05-01-09 4.75 1,000,000 1,062,670 Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d) South Lyon Community Schools Unlimited General Obligation Bonds School Building & Site Series 2003 (FGIC) 05-01-28 5.00% $1,000,000 $1,056,360 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 1,121,043 State of Michigan Certificate of Participation Series 2004A (MBIA) 09-01-31 4.25 750,000 781,710 State of Michigan Unlimited General Obligation Bonds Environmental Programs Series 2003A 05-01-10 5.00 1,000,000 1,086,740 Summit Academy Certificate of Participation Series 1998 08-01-18 7.00 500,000 500,915 Summit Academy North Public School Academy Certificate of Participation Series 2001 07-01-30 7.38 750,000 791,333 Van Buren Township Downtown Development Authority Tax Allocation Bonds Series 1994 10-01-16 8.40 920,000 936,670 Warren Consolidated School District Unlimited General Obligation Bonds School Building & Site Series 2003 (FGIC) 05-01-13 5.00 875,000 972,283 Waverly Community School Pre-refunded Unlimited General Obligation Bonds Series 2000 (FGIC) 05-01-17 5.25 1,000,000 1,099,750 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 51 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Michigan Tax-Exempt Fund Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d) Wayne State University Revenue Bonds Series 1999 (FGIC) 11-15-19 5.25% $1,000,000 $1,077,040 Western Michigan University Refunding Revenue Bonds Series 2003 (MBIA) 11-15-23 4.25 1,000,000 1,009,070 Western Township Utilities Authority Limited General Obligation Bonds Series 2002 (FGIC) 01-01-08 5.00 1,500,000 1,579,080 Williamston Community School District Unlimited General Obligation Bonds Series 1996 (MBIA) (Qualified School Bond Loan Fund) 05-01-25 5.50 1,000,000 1,202,350 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 1,391,025 - ------------------------------------------------------ Total municipal bonds (Cost: $56,641,910) $58,821,171 - ------------------------------------------------------ Municipal notes (1.7%) Issue(d,e,f) Effective Amount Value(a) yield payable at maturity Detroit Revenue Bonds Senior Lien V.R.D.N. Series 2003B (Dexia Credit Local) FSA 07-01-33 2.25% $600,000 $600,000 University of Michigan Refunding Revenue Bonds University of Michigan Hospitals V.R.D.N. Series 1992A 12-01-19 2.25 450,000 450,000 - ------------------------------------------------------ Total municipal notes (Cost: $1,050,000) $1,050,000 - ------------------------------------------------------ Total investments in securities (Cost: $57,691,910)(g) $59,871,171 ====================================================== Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (c) Municipal obligations include debt obligations issued by or on behalf of states, territories, possessions, or sovereign nations within the territorial boundaries of the United States. The securities represented 3.8% of net assets at June 30, 2005. - -------------------------------------------------------------------------------- 52 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL 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 -- Ambac Assurance 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) 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 June 30, 2005. (g) At June 30, 2005, the cost of securities for federal income tax purposes was $57,691,910 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $2,191,735 Unrealized depreciation (12,474) ------------------------------------------------------------------------ Net unrealized appreciation $2,179,261 ------------------------------------------------------------------------ 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.ameriprise.com. - -------------------------------------------------------------------------------- 53 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Investments in Securities AXP Minnesota Tax-Exempt Fund June 30, 2005 (Percentages represent value of investments compared to net assets) Municipal bonds (97.2%) 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) $3,252,238 Anoka County Housing & Redevelopment Authority Unlimited General Obligation Bonds Housing Development Series 2004 (AMBAC) 02-01-34 5.00 1,355,000 1,428,306 Anoka-Hennepin Independent School District #11 Unlimited General Obligation Bonds Series 2001A (School District Credit Enhancement Program) 02-01-09 5.00 2,415,000 2,582,360 02-01-10 5.00 1,000,000 1,081,680 02-01-13 5.00 4,175,000 4,506,829 02-01-15 5.00 1,990,000 2,137,738 02-01-16 5.00 2,000,000 2,147,420 Austin Housing & Redevelopment Authority Revenue Bonds Courtyard Residence Project Series 2000A 01-01-32 7.25 2,000,000 2,135,820 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 1,600,740 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 2,139,540 Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) City of Breckenridge Revenue Bonds Catholic Health Initiatives Series 2004A 05-01-30 5.00% $4,000,000 $4,209,480 City of Brooklyn Center Refunding Revenue Bonds Four Courts Apartments Project Series 1995B A.M.T. 06-15-09 7.58 1,745,000 1,738,735 City of Chaska Refunding Revenue Bonds Generating Facilities Series 2005A 10-01-30 5.00 2,000,000 2,086,180 City of Minneapolis Revenue Bonds Fairview Health Services Series 2002B (MBIA) 05-15-14 5.50 2,050,000 2,327,550 05-15-15 5.50 2,160,000 2,448,187 05-15-16 5.50 2,200,000 2,483,470 05-15-17 5.50 1,295,000 1,455,956 City of Minneapolis Unlimited General Obligation Bonds Convention Center Series 2002 12-01-12 5.00 1,500,000 1,625,970 City of Minneapolis Unlimited General Obligation Bonds Convention Center Series 2002A 12-01-08 5.00 4,315,000 4,618,042 City of Minneapolis Unlimited General Obligation Bonds Various Purpose Series 2001 12-01-11 5.00 3,035,000 3,352,613 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 54 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL 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 Sartell Revenue Bonds Foundation for Health Care Project Series 1999A 09-01-29 6.63% $1,000,000 $1,036,970 City of Sartell Revenue Bonds Foundation for Health Care Project Series 2001A 09-01-30 8.00 1,000,000 1,079,580 City of St. Paul Refunding Revenue Bonds Series 2003D (AMBAC) 12-01-08 4.00 3,500,000 3,624,985 City of St. Paul Unlimited General Obligation Bonds Capital Improvement Series 2003A 03-01-09 3.50 1,875,000 1,910,419 City of Vadnais Heights Refunding Revenue Bonds Cottages of Vadnais Heights Series 1997 A.M.T. 07-15-09 7.00 1,080,000 1,085,238 Commonwealth of Puerto Rico Unlimited General Obligation Bonds Public Improvement Series 2001 (FSA) 07-01-16 5.50 1,500,000(c) 1,768,665 County of Anoka Limited General Obligation Refunding Bonds Capital Improvement Series 2001C (MBIA) 02-01-09 4.60 2,960,000 3,128,365 County of Ramsey Unlimited General Obligation Refunding Bonds Capital Improvement Plan Series 2002B 02-01-10 5.25 2,150,000 2,357,970 02-01-13 5.25 3,560,000 3,900,977 02-01-14 5.25 3,840,000 4,193,510 Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) County of Washington Unlimited General Obligation Bonds Capital Improvement Plan Series 2000A 02-01-20 5.50% $1,000,000 $1,097,560 Eden Prairie Refunding Revenue Bonds Sterling Ponds Project Series 1999A A.M.T. 12-01-29 6.25 5,240,000(i) 4,970,140 Eden Prairie Refunding Revenue Bonds Sterling Ponds Project Series 1999B A.M.T. 12-01-29 6.25 505,000(i) 478,993 Edina Independent School District #273 Unlimited General Obligation Bonds Series 2004 02-01-12 4.00 3,700,000 3,860,654 02-01-22 4.25 3,000,000 3,028,950 02-01-23 4.50 3,000,000 3,087,180 02-01-24 4.50 3,400,000 3,512,234 Elk River Independent School District #728 Unlimited General Obligation Bonds Series 2002 II Inverse Floater (FSA) (School District Credit Enhancement Program) 02-01-18 10.88 1,200,000(h) 1,597,980 02-01-19 10.88 1,150,000(h) 1,516,942 02-01-20 10.88 950,000(h) 1,239,247 02-01-21 10.91 1,285,000(h) 1,661,222 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 3,290,640 Hennepin County Unlimited General Obligation Bonds Series 2003 12-01-06 4.00 2,000,000 2,037,740 12-01-23 4.75 2,000,000 2,083,920 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 55 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Minnesota Tax-Exempt Fund Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) 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 $3,029,276 02-01-14 5.25 3,680,000 4,030,520 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 1,990,117 Lakeville Independent School District #194 Unlimited General Obligation Bonds Series 1997A (School District Credit Enhancement Program) 02-01-22 5.13 2,400,000 2,528,208 Maplewood Revenue Bonds Care Institute Series 1994 01-01-24 7.75 3,775,000(b,i) 2,265,000 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 1,581,918 Metropolitan Council Minneapolis-St. Paul Metropolitan Area Unlimited General Obligation Bonds Transportation Series 2002C 02-01-08 5.00 3,240,000 3,420,403 02-01-09 5.00 3,240,000 3,474,770 Minneapolis & St. Paul Housing & Redevelopment Authority Revenue Bonds HealthPartners Obligation Group Project Series 2003 12-01-12 5.25 1,000,000 1,088,050 12-01-15 5.13 1,500,000 1,597,320 12-01-16 5.25 1,250,000 1,340,238 Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Minneapolis & St. Paul Housing & Redevelopment Authority Revenue Bonds HealthSpan Series 1993A (AMBAC) 11-15-18 4.75% $10,500,000 $10,588,934 Minneapolis & St. Paul Metropolitan Airports Commission Revenue Bonds Series 1998A (AMBAC) 01-01-24 5.20 4,000,000 4,202,120 Minneapolis & St. Paul Metropolitan Airports Commission Revenue Bonds Series 1999B (FGIC) A.M.T. 01-01-16 5.63 2,920,000 3,152,841 Minneapolis & St. Paul Metropolitan Airports Commission Revenue Bonds Series 2001B (FGIC) A.M.T. 01-01-16 5.75 4,875,000 5,341,733 Minneapolis & St. Paul Metropolitan Airports Commission Revenue Bonds Series 2001C (FGIC) 01-01-18 5.50 2,000,000 2,212,800 01-01-32 5.25 7,000,000 7,430,709 Minneapolis & St. Paul Metropolitan Airports Commission Subordinated Refunding Revenue Bonds Series 2005C (FGIC) 01-01-25 5.00 4,000,000 4,270,840 01-01-26 5.00 4,000,000 4,270,840 Minneapolis Community Development Agency Revenue Bonds Limited Tax - Common Bond Fund Series 1996-1 06-01-11 6.00 980,000 1,004,990 Minneapolis Community Development Agency Revenue Bonds Limited Tax - Common Bond Fund Series 1997A-7 06-01-12 5.50 250,000 263,425 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 56 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL 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 Community Development Agency Revenue Bonds Limited Tax - Common Bond Fund Series 2001A-2 A.M.T. 06-01-19 5.88% $1,000,000 $1,086,720 Minneapolis Special School District #1 Certificate of Participation Series 1998B (School District Credit Enhancement Program) 02-01-07 4.10 1,000,000 1,021,820 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 1,080,790 02-01-11 5.00 1,040,000 1,134,224 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 1,418,214 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 2,010,980 Minnesota Agricultural & Economic Development Board Pre-refunded Revenue Bonds Health Care System Series 2000A 11-15-22 6.38 4,845,000 5,661,092 11-15-29 6.38 2,910,000 3,400,160 Minnesota Agricultural & Economic Development Board Revenue Bonds Health Care System - Benedictine Health Series 1999A (MBIA) 02-15-16 4.75 1,000,000 1,054,700 Minnesota Agricultural & Economic Development Board Un-refunded Balance Revenue Bonds Health Care System Series 2000A 11-15-22 6.38 155,000 175,604 11-15-29 6.38 90,000 101,823 Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Minnesota Business Academy Taxable Capital Appreciation Note Zero Coupon Series 2002 06-30-07 6.00% $292,000(b,g,i) $58,400 Minnesota Higher Education Facilities Authority Revenue Bonds Macalester College 6th Series 2004B 03-01-17 5.00 2,395,000 2,619,914 Minnesota Higher Education Facilities Authority Revenue Bonds University of St. Thomas 5th Series 2004Y 10-01-34 5.25 2,800,000 2,998,604 Minnesota Housing Finance Agency Revenue Bonds Series 2002R II Inverse Floater A.M.T. 07-01-33 11.68 1,430,000(h) 1,566,880 Minnesota Housing Finance Agency Revenue Bonds Single Family Mortgage Series 1996J A.M.T. 07-01-21 5.60 125,000 128,384 Minnesota Housing Finance Agency Revenue Bonds Single Family Mortgage Series 1997K A.M.T. 01-01-26 5.75 1,205,000 1,235,101 Minnesota Public Facilities Authority Revenue Bonds Series 1998A 03-01-11 5.00 2,500,000 2,631,075 Minnesota Public Facilities Authority Revenue Bonds Series 2001A 03-01-08 5.00 3,000,000 3,166,710 03-01-20 5.00 4,000,000 4,248,320 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 57 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL 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 Public Facilities Authority Revenue Bonds Series 2002B 03-01-10 5.00% $2,500,000 $2,714,400 03-01-13 5.25 2,500,000 2,825,400 03-01-14 5.25 2,500,000 2,840,050 Minnesota State Municipal Power Agency Revenue Bonds Series 2004A 10-01-29 5.13 3,500,000 3,717,945 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 1,738,176 Northern Municipal Power Agency Refunding Revenue Bonds Capital Appreciation Zero Coupon Series 1989A (AMBAC) 01-01-10 3.80 2,000,000(g) 1,713,220 Northern Municipal Power Agency Refunding Revenue Bonds Series 1998B (AMBAC) 01-01-20 4.75 5,000,000 5,179,600 Northern Municipal Power Agency Revenue Bonds Series 1997 (FSA) 01-01-08 5.50 1,250,000 1,328,025 Northern Municipal Power Agency Revenue Bonds Series 1998 (FSA) 01-01-14 5.38 1,100,000 1,200,309 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 3,585,344 02-01-14 5.75 1,100,000 1,231,373 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 $1,716,434 02-01-12 5.00 3,455,000 3,807,859 02-01-15 5.25 3,585,000 3,976,912 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 3,058,198 Puerto Rico Electric Power Authority Revenue Bonds Series 1998DD (FSA) 07-01-13 5.13 3,000,000(c) 3,252,510 Puerto Rico Electric Power Authority Revenue Bonds Series 2003NN (MBIA) 07-01-32 5.00 2,820,000(c) 3,003,215 Puerto Rico Municipal Finance Agency Revenue Bonds Series 2002A (FSA) 08-01-17 5.25 2,250,000(c) 2,508,075 Puerto Rico Public Finance Corporation Revenue Bonds Commonwealth Appropriation Series 2004A (MBIA) 08-01-29 5.25 2,000,000(c) 2,222,360 Richfield Refunding Revenue Bonds Richfield Senior Housing Project Series 2004A 12-01-39 6.63 1,650,000 1,688,907 Shakopee Revenue Bonds St. Francis Regional Medical Center Series 2004 09-01-25 5.10 3,300,000 3,439,458 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 58 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Minnesota Tax-Exempt Fund Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) Southern Minnesota Municipal Power Agency Revenue Bonds Capital Appreciation Zero Coupon Series 1994A (MBIA) 01-01-19 6.67% $17,000,000(g) $9,603,129 Southern Minnesota Municipal Power Agency Revenue Bonds Series 2002A (AMBAC) 01-01-17 5.25 6,000,000 6,851,699 Southern Minnesota Municipal Power Agency Revenue Bonds Series 2003A (MBIA) 01-01-11 5.00 5,500,000 6,000,279 St. Cloud Housing & Redevelopment Authority Revenue Bonds State University Foundation Project Series 2002 05-01-18 5.13 3,000,000 3,253,530 St. Paul Housing & Redevelopment Authority Refunding Revenue Bonds FNMA Mortgage-backed Securities Program Series 1995 (FNMA) 03-01-28 6.80 310,000 317,115 St. Paul Housing & Redevelopment Authority Revenue Bonds Community of Peace Academy Project Series 2001A 12-01-30 7.88 2,390,000 2,595,014 St. Paul Housing & Redevelopment Authority Revenue Bonds Lyngblomsten Care Center Housing Project Series 1993 11-01-06 7.13 380,000 382,212 11-01-17 7.13 1,545,000 1,557,206 St. Paul Housing & Redevelopment Authority Revenue Bonds Minnesota Business Academy Project Series 2000 03-01-30 8.00 3,675,000(b,i) 2,900,751 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 $1,724,678 St. Paul Port Authority Revenue Bonds Office Building at Cedar Street Series 2003 12-01-23 5.00 5,000,000 5,342,600 12-01-27 5.13 5,350,000 5,720,595 State of Minnesota Unlimited General Obligation Bonds Series 2001 10-01-10 5.00 5,000,000 5,470,850 10-01-14 5.00 4,000,000 4,377,880 10-01-15 5.00 4,455,000 4,841,872 State of Minnesota Unlimited General Obligation Bonds Series 2002 08-01-06 5.00 5,000,000 5,125,650 08-01-10 5.00 4,075,000 4,451,530 11-01-15 5.25 3,575,000 4,022,376 State of Minnesota Unlimited General Obligation Refunding Bonds Various Purpose Series 1998 11-01-08 5.00 1,170,000 1,251,011 Steele County Revenue Bonds Elderly Housing Project Series 2000 06-01-30 6.88 2,205,000 2,432,975 Stillwater Revenue Bonds Health System Obligation Group Series 2005 06-01-25 5.00 1,750,000 1,833,475 06-01-35 5.00 3,595,000 3,716,871 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 59 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Minnesota Tax-Exempt Fund Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) 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 $2,567,850 University of Minnesota Revenue Bonds Residual Inverse Floater Series 2002 07-01-21 11.67 2,830,000(h) 4,334,088 University of Minnesota Revenue Bonds Series 1996A 07-01-13 5.75 2,000,000 2,324,760 Virginia Housing & Redevelopment Authority Revenue Bonds Series 2005 10-01-20 5.13 1,350,000 1,402,772 Western Minnesota Municipal Power Agency Refunding Revenue Bonds Series 1996A (AMBAC) 01-01-06 6.25 1,285,000 1,307,629 Western Minnesota Municipal Power Agency Revenue Bonds Series 2003A (MBIA) 01-01-26 5.00 7,250,000 7,690,944 01-01-30 5.00 5,000,000 5,271,050 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 1,380,609 02-01-09 5.00 1,375,000 1,471,731 Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(d,e) White Bear Lake Independent School District #624 Unlimited General Obligation Refunding Bonds Series 2002B (FGIC) (School District Credit Enhancement Program) 02-01-13 5.00% $1,405,000 $1,541,524 02-01-14 5.00 1,480,000 1,613,777 Willmar Unlimited General Obligation Bonds Rice Memorial Hospital Project Series 2002 (FSA) 02-01-11 5.00 1,025,000 1,116,779 02-01-12 5.00 1,120,000 1,229,525 02-01-13 5.00 1,200,000 1,326,324 - ------------------------------------------------------ Total municipal bonds (Cost: $373,274,435) $387,893,932 - ------------------------------------------------------ See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 60 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Minnesota Tax-Exempt Fund Municipal notes (1.3%) Issue(d,e,f) Effective Amount Value(a) yield payable at maturity Cohasset Refunding Revenue Bonds Minnesota Power & Light Company Project V.R.D.N. Series 1997A (ABN Amro Bank) 06-01-20 2.30% $1,300,000 $1,300,000 Cohasset Refunding Revenue Bonds Minnesota Power & Light Company Project V.R.D.N. Series 1997D (ABN Amro Bank) 12-01-07 2.30 210,000 210,000 Minnesota Higher Education Facilities Authority Revenue Bonds St. Olaf College V.R.D.N. 5th Series 2000H (Harris Trust & Savings Bank) 10-01-30 2.27 900,000 900,000 Municipal notes (continued) Issue(d,e,f) Effective Amount Value(a) yield payable at maturity Robbinsdale Revenue Bonds North Memorial Healthcare V.R.D.N Series 2003 AMBAC 05-15-33 2.70% $1,950,000 $1,950,000 St. Paul Housing & Redevelopment Authority Revenue Bonds Minnesota Public Radio Project V.R.D.N. Series 2005 (Allied Irish Bank) 10-01-25 2.30 770,000 770,000 - ------------------------------------------------------ Total municipal notes (Cost: $5,130,000) $5,130,000 - ------------------------------------------------------ Total investments in securities (Cost: $378,404,435)(j) $393,023,932 ====================================================== See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 61 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Minnesota Tax-Exempt Fund Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) 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 3.2% of net assets at June 30, 2005. (d) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- Ambac Assurance Corporation BIG -- Bond Investors Guarantee CGIC -- Capital Guaranty Insurance Company 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 June 30, 2005, the value of securities subject to alternative minimum tax represented 5.2% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note (f) The Fund is entitled to receive principal and interest from the party within parentheses after a day or a week's notice or upon maturity. The maturity date disclosed represents the final maturity. Interest rate varies to reflect current market conditions; rate shown is the effective rate on June 30, 2005. (g) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (h) Inverse floaters represent securities that pay interest at a rate that increases (decreases) in the same magnitude as, or in a multiple of, a decline (increase) in market short-term rates. Interest rate disclosed is the rate in effect on June 30, 2005. At June 30, 2005, the value of inverse floaters represented 3.0% of net assets. (i) Identifies issues considered to be illiquid as to their marketability. Information concerning such security holdings at June 30, 2005, 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 $3,520,070 - -------------------------------------------------------------------------------- 62 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Minnesota Tax-Exempt Fund Notes to investments in securities (continued) Security Acquisition Cost dates --------------------------------------------------------------------------------------- Eden Prairie Refunding Revenue Bonds Sterling Ponds Project Series 1999A A.M.T. 6.25% 2029 04-27-99 thru 12-02-04 $5,240,000 Eden Prairie Refunding Revenue Bonds Sterling Ponds Project Series 1999B A.M.T. 6.25% 2029 04-27-99 505,000 Maplewood Revenue Bonds Care Institute Series 1994 7.75% 2024 03-02-94 3,677,432 Minnesota Business Academy Taxable Capital Appreciation Note Zero Coupon Series 2002 6.00% 2007 09-30-02 258,394 St. Paul Housing & Redevelopment Authority Revenue Bonds Minnesota Business Academy Project Series 2000 8.00% 2030 03-09-00 3,581,001
(j) At June 30, 2005, the cost of securities for federal income tax purposes was $378,022,067 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $18,168,201 Unrealized depreciation (3,166,336) ------------------------------------------------------------------------- Net unrealized appreciation $15,001,865 ------------------------------------------------------------------------- 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.ameriprise.com. - -------------------------------------------------------------------------------- 63 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Investments in Securities AXP New York Tax-Exempt Fund June 30, 2005 (Percentages represent value of investments compared to net assets) Municipal bonds (97.7%) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) Albany Municipal Water Finance Authority Revenue Bonds Series 2003A (MBIA) 12-01-14 5.00% $2,550,000 $2,681,987 Battery Park City Authority Revenue Bonds Series 2003A 11-01-22 5.25 1,000,000 1,101,040 City of New York Unlimited General Obligation Bonds Series 2000II Inverse Floater (FGIC) 05-15-16 12.82 830,000(g) 1,178,285 City of New York Unlimited General Obligation Bonds Series 2002C (XLCA) 03-15-12 5.00 1,000,000 1,091,870 City of New York Unlimited General Obligation Bonds Series 2002E 08-01-16 5.75 2,000,000 2,250,280 City of New York Unlimited General Obligation Bonds Series 2003I 03-01-27 5.38 2,000,000 2,175,520 City of New York Unlimited General Obligation Bonds Series 2003J 06-01-18 5.50 2,000,000 2,214,320 06-01-20 5.50 2,000,000 2,204,320 City of New York Unlimited General Obligation Bonds Series 2004D 11-01-34 5.00 1,000,000 1,054,010 City of New York Unlimited General Obligation Bonds Series 2004E (FSA) 11-01-22 5.00 750,000 811,470 Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) Commonwealth of Puerto Rico Unlimited General Obligation Bonds Public Improvement Series 2004A 07-01-24 5.00% $500,000(d) $529,680 County of Erie Unlimited General Obligation Bonds Series 1995B (FGIC) 06-15-25 5.50 700,000 718,907 County of Monroe Unlimited General Obligation Refunding Bonds Public Improvement Series 1996 (MBIA) 03-01-15 6.00 1,250,000 1,487,113 Erie County Water Authority Refunding Revenue Bonds Series 1990A Escrowed to Maturity (AMBAC) 12-01-08 6.00 1,765,000 1,874,889 Long Island Power Authority Revenue Bonds Series 1998-8 (AMBAC) 04-01-09 5.25 1,000,000 1,079,280 Metropolitan Transportation Authority Pre-refunded Revenue Bonds Series 1998A (FGIC) 04-01-28 4.75 1,000,000 1,103,090 Metropolitan Transportation Authority Refunding Revenue Bonds Series 2002A 01-01-16 5.75 500,000 585,095 Metropolitan Transportation Authority Refunding Revenue Bonds Series 2002A (AMBAC) 11-15-19 5.50 1,000,000 1,126,640 Metropolitan Transportation Authority Revenue Bonds Series 2002A (FSA) 11-15-26 5.50 1,500,000 1,672,470 See accompanying notes to investments in securities. - ------------------------------------------------------------------------------- 64 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP New York Tax-Exempt Fund Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) New York City Housing Development Revenue Bonds Capital Fund New York City Housing Authority Program Series 2005A (FGIC) 07-01-25 5.00% $1,500,000 $1,608,435 New York City Municipal Water Finance Authority Revenue Bonds Refunded Balance Series 1996B (MBIA) 06-15-26 5.75 320,000 331,853 New York City Municipal Water Finance Authority Revenue Bonds Series 2002A 06-15-29 5.00 1,000,000 1,050,790 New York City Municipal Water Finance Authority Revenue Bonds Series 2004A 06-15-39 5.00 1,000,000 1,058,330 New York City Transitional Finance Authority Pre-refunded Revenue Bonds Future Tax Secured Series 1999C 05-01-25 5.50 440,000 485,844 New York City Transitional Finance Authority Revenue Bonds Future Tax Secured Series 2003D 02-01-31 5.00 1,000,000 1,052,050 New York City Transitional Finance Authority Revenue Bonds Future Tax Secured Series 2004C 02-01-33 5.00 1,000,000 1,056,310 New York City Transitional Finance Authority Un-refunded Revenue Bonds Future Tax Series 1999C 05-01-25 5.50 560,000 608,787 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 1,104,000 Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) New York Counties Tobacco Trust II Revenue Bonds Tobacco Settlement Pass Thru Bonds Series 2001 06-01-35 5.63% $500,000 $519,475 New York Local Government Assistance Corporation Revenue Bonds Capital Appreciation Zero Coupon Series 1993C (MBIA) 04-01-14 3.65 1,000,000(f) 721,600 New York Mortgage Agency Revenue Bonds Series II 2002B Inverse Floater A.M.T. 04-01-32 11.28 1,000,000(g) 1,071,430 New York Power Authority Revenue Bonds Series 2000A 11-15-30 5.25 1,000,000 1,066,160 New York State Dormitory Authority Pre-refunded Revenue Bonds Series 1990B 05-15-11 7.50 415,000 488,040 New York State Dormitory Authority Revenue Bonds Brooklyn Law School Series 2003B (XLCA) 07-01-30 5.13 1,000,000 1,069,200 New York State Dormitory Authority Revenue Bonds Catholic Health L.I. Obligation Group Series 2004 07-01-27 5.00 1,000,000 1,032,140 New York State Dormitory Authority Revenue Bonds City University System Consolidated 4th Generation Series 2003A (MBIA) 07-01-09 5.25 1,500,000 1,629,435 New York State Dormitory Authority Revenue Bonds City University System Consolidated Series 1993A 07-01-13 5.75 3,000,000 3,390,869 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 65 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP New York Tax-Exempt Fund Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) New York State Dormitory Authority Revenue Bonds Hospital Insured Mortgage Series 2004A (FHA/FSA) 02-15-13 5.25% $500,000 $559,045 08-15-13 5.25 500,000 562,415 New York State Dormitory Authority Revenue Bonds Memorial Sloan-Kettering Center Series 2003-1 (MBIA) 07-01-21 5.00 1,000,000 1,075,570 New York State Dormitory Authority Revenue Bonds Montefiore Hospital Series 2004 (FGIC/FHA) 08-01-19 5.00 735,000 802,723 New York State Dormitory Authority Revenue Bonds Pratt Institute Series 1999 (Radian Group Financial Guaranty) 07-01-20 6.00 1,500,000 1,675,245 New York State Dormitory Authority Revenue Bonds Series 2002B (AMBAC) 11-15-26 5.25 1,000,000 1,107,120 New York State Dormitory Authority Un-refunded Revenue Bonds Series 1990B 05-15-11 7.50 1,200,000 1,369,320 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 1,015,170 New York State Energy Research & Development Authority Revenue Bonds Residual Certificates Series 2000-379 Inverse Floater (MBIA) 01-01-21 11.70 330,000(g) 362,541 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 New York City Municipal Water Financing Project 2nd Series 2004 06-15-26 5.00% $1,000,000 $1,078,430 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 1,054,490 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 1,060,070 New York State Environmental Facilities Corporation Revenue Bonds Revolving Funds Series 2003 06-15-32 5.00 1,000,000 1,063,940 New York State Thruway Authority Revenue Bonds 2nd Generation Series 2003B (FSA) 04-01-21 4.75 835,000 879,105 New York State Thruway Authority Revenue Bonds 2nd Generation Series 2004A (MBIA) 04-01-19 5.00 1,000,000 1,089,220 New York State Thruway Authority Revenue Bonds Transportation Series 2003A (MBIA) 03-15-22 5.00 1,000,000 1,072,440 New York State Urban Development Corporation Refunding Revenue Bonds Service Contract Series 2005 (FSA) 01-01-17 5.00 1,000,000 1,111,240 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 66 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP New York Tax-Exempt Fund Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) New York State Urban Development Corporation Revenue Bonds Personal Income Tax Series 2002C-1 03-15-11 5.25% $1,000,000 $1,101,480 New York State Urban Development Corporation Revenue Bonds Series 2002A (XLCA) 01-01-11 5.25 1,000,000 1,104,510 New York State Urban Development Corporation Revenue Bonds Series 2002C (XLCA) 01-01-09 4.00 1,545,000 1,601,485 Niagara Falls Public Water Authority Revenue Bonds Series 2003A (MBIA) 07-15-28 5.50 1,000,000 1,027,090 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 1,584,840 Port Authority of New York & New Jersey Revenue Bonds Consolidated 134th Series 2004 07-15-34 5.00 1,000,000 1,063,100 Puerto Rico Municipal Finance Agency Revenue Bonds Series 2002A (FSA) 08-01-17 5.25 1,000,000(d) 1,114,700 Puerto Rico Public Finance Corporation Revenue Bonds Commonwealth Appropriation Series 2004A (MBIA) 08-01-29 5.25 1,000,000(d) 1,111,180 Sales Tax Asset Receivables Corporation Revenue Bonds Series 2004A (MBIA) 10-15-23 5.00 750,000 816,698 Suffolk County Industrial Development Agency Revenue Bonds 1st Mortgage Jeffersons Ferry Series 1999A 11-01-28 7.25 1,500,000 1,627,995 Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) Tobacco Settlement Financing Authority Asset-backed Revenue Bonds Series 2003A-1 06-01-16 5.50% $500,000 $543,035 Tobacco Settlement Financing Authority Revenue Bonds Series 2003C-1 06-01-14 5.50 500,000 536,735 06-01-15 5.50 1,000,000 1,087,000 Triborough Bridge & Tunnel Authority Refunding Revenue Bonds General Purpose Series 2002B 11-15-10 5.00 2,000,000 2,180,020 11-15-29 5.13 1,000,000 1,064,490 Triborough Bridge & Tunnel Authority Revenue Bonds Convention Center Project Series 1990E 01-01-11 6.00 1,145,000 1,296,518 Westchester Tobacco Asset Securitization Revenue Bonds Series 2005 06-01-26 5.00 875,000 877,258 - ------------------------------------------------------ Total municipal bonds (Cost: $78,787,018) $82,961,232 - ------------------------------------------------------ Municipal note (1.1%) Issue(b,e) Effective Amount Value(a) yield payable at maturity City of New York Unlimited General Obligation Bond Series 1994B-2 (Bank of Nova Scotia) MBIA 08-15-11 2.18% $900,000 $900,000 - ------------------------------------------------------ Total municipal note (Cost: $900,000) $900,000 - ------------------------------------------------------ Total investments in securities (Cost: $79,687,018)(h) $83,861,232 ====================================================== See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 67 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP New York 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 -- Ambac Assurance 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 June 30, 2005, the value of securities subject to alternative minimum tax represented 3.1% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note (d) Municipal obligations include debt obligations issued by or on behalf of states, territories, possessions, or sovereign nations within the territorial boundaries of the United States. The securities represented 3.2% of net assets at June 30, 2005. (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 June 30, 2005. At June 30, 2005, the value of inverse floaters represented 3.1% of net assets. - -------------------------------------------------------------------------------- 68 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP New York Tax-Exempt Fund Notes to investments in securities (continued) (h) At June 30, 2005, the cost of securities for federal income tax purposes was $79,677,832 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $4,191,316 Unrealized depreciation (7,916) ----------------------------------------------------------------------- Net unrealized appreciation $4,183,400 ----------------------------------------------------------------------- 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.ameriprise.com. - -------------------------------------------------------------------------------- 69 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Investments in Securities AXP Ohio Tax-Exempt Fund June 30, 2005 (Percentages represent value of investments compared to net assets) Municipal bonds (98.6%) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) Bowling Green State University Revenue Bonds Series 2003 (AMBAC) 06-01-12 5.00% $1,145,000 $1,264,996 Brookville Local School District Unlimited General Obligation Bonds Series 2003 (FSA) 12-01-18 5.25 1,000,000 1,114,090 Cincinnati City School District Limited General Obligation Bonds School Improvement Series 2002 (FSA) 06-01-09 5.00 1,355,000 1,456,652 06-01-21 5.25 2,600,000 2,853,499 City of Cincinnati Unlimited General Obligation Refunding Bonds Police & Fire Pension Series 2005C 12-01-30 4.50 500,000(d) 499,980 12-01-35 4.50 500,000(d) 498,335 City of Cincinnati Unlimited General Obligation Bonds Series 2000 12-01-16 5.25 1,000,000 1,098,860 City of Cleveland Revenue Bonds Series 2002K (FGIC) 01-01-10 5.00 2,000,000 2,163,219 City of Hamilton Refunding Revenue Bonds Series 2002A (FSA) 10-15-25 4.70 1,500,000 1,552,320 Cleveland State University Revenue Bonds Series 2003A (FGIC) 06-01-15 5.00 1,000,000 1,098,400 Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) Cleveland State University Revenue Bonds Series 2004 (FGIC) 06-01-24 5.25% $500,000 $546,410 Columbus Pre-refunded Unlimited General Obligation Bonds Series 1999-2 06-15-15 5.75 1,000,000 1,133,550 Columbus City School District Unlimited General Obligation Bonds School Facilities Construction & Improvement Series 2003 (FGIC) 12-01-11 5.00 1,000,000 1,101,610 Commonwealth of Puerto Rico Unlimited General Obligation Bonds Public Improvement Series 2001 (FSA) 07-01-16 5.50 500,000(e) 589,555 County of Coshocton Refunding Revenue Bonds Smurfit-Stone Container Series 2005 08-01-13 5.13 100,000 101,298 County of Cuyahoga Limited General Obligation Bonds Series 1993 05-15-13 5.60 500,000 547,540 County of Cuyahoga Refunding Revenue Bonds Judson Retirement Community Series 1996A 11-15-18 7.25 250,000 266,118 County of Cuyahoga Refunding Revenue Bonds Series 2003A 01-01-17 6.00 1,000,000 1,160,020 01-01-32 6.00 1,000,000 1,117,460 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 70 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Ohio Tax-Exempt Fund Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) County of Cuyahoga Revenue Bonds Canton Project Series 2000 01-01-30 7.50% $1,000,000 $1,130,620 County of Montgomery Revenue Bonds Catholic Health Initiatives Series 2004A 05-01-30 5.00 750,000 783,668 05-01-32 5.00 500,000 521,705 Dayton City School District Unlimited General Obligation Bonds School Facilities Construction & Improvement Series 2003A (FGIC) 12-01-27 5.00 1,250,000 1,326,975 12-01-31 5.00 1,000,000 1,056,040 Dayton City School District Unlimited General Obligation Bonds School Facilities Construction & Improvement Series 2003D (FGIC) 12-01-17 5.00 1,000,000 1,089,060 Franklin County Refunding Revenue Bonds OhioHealth Corporation Series 2003C 05-15-24 5.25 1,000,000 1,074,460 Hamilton County Convention Facilities Authority Revenue Bonds First Lien Series 2004 (FGIC) 12-01-33 5.00 1,000,000 1,056,590 Jackson Pre-refunded Revenue Bonds Consolidated Health System - Jackson Hospital Series 1999 (Radian Group Financial Guaranty) 10-01-20 6.13 1,000,000 1,133,060 Kenston Local School District Unlimited General Obligation Bonds School Improvement Series 2003 (MBIA) 12-01-16 5.00 1,000,000 1,094,080 Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) Lakewood Limited General Obligation Bonds Series 2003 12-01-19 5.00% $1,515,000 $1,623,641 Licking Heights Local School District Unlimited General Obligation Bonds Series 2004 (FGIC) 12-01-28 5.00 1,000,000 1,066,530 Miami University Refunding Revenue Bonds Series 2005 (AMBAC) 09-01-23 4.75 500,000 530,155 Ohio Municipal Electric Generation Agency Refunding Revenue Bonds Joint Venture 5 Certificates Series 2004 (AMBAC) 02-15-24 4.75 750,000 783,923 Ohio State Building Authority Pre-refunded Revenue Bonds State Facilities Adult Correctional Series 1999A 10-01-16 5.50 1,000,000 1,108,360 Ohio State Building Authority Refunding Revenue Bonds State Facilities Adult Correction Series 2001A (FSA) 10-01-14 5.50 1,000,000 1,117,650 Ohio State Building Authority Revenue Bonds Juvenile Correctional Building Series 2003 04-01-08 4.00 1,580,000 1,628,285 Ohio State Building Authority Revenue Bonds State Facilities Administration Building Fund Projects Series 1993A 10-01-07 5.60 1,500,000 1,593,375 Ohio State Building Authority Revenue Bonds State Facilities Adult Correction Series 2005A (FSA) 04-01-22 5.00 750,000 813,098 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 71 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Ohio Tax-Exempt Fund Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) Ohio State Higher Educational Facility Commission Revenue Bonds Oberlin College Series 1999 10-01-29 5.00% $1,000,000 $1,041,960 Ohio State Water Development Authority Revenue Bonds Water Quality Series 2004 12-01-16 5.00 750,000 829,350 Puerto Rico Electric Power Authority Revenue Bonds Series 1998DD (FSA) 07-01-13 5.13 1,000,000(e) 1,084,170 Puerto Rico Municipal Finance Agency Revenue Bonds Series 2002A (FSA) 08-01-17 5.25 750,000(e) 836,025 Puerto Rico Public Buildings Authority Refunding Revenue Bonds Government Facilities Series 2004J (AMBAC) 07-01-36 5.00 500,000(e) 551,005 State of Ohio Revenue Bonds Case Western Reserve University Project Series 2004A (AMBAC) 12-01-27 5.00 1,000,000 1,069,260 State of Ohio Unlimited General Obligation Bonds Common Schools Series 2003C 03-15-10 5.00 1,000,000 1,084,600 State of Ohio Unlimited General Obligation Bonds Common Schools Capital Facilities Series 2001A 06-15-13 5.00 1,500,000 1,623,195 Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) State of Ohio Unlimited General Obligation Bonds Common Schools Capital Facilities Series 2001B 09-15-20 5.00% $1,000,000 $1,074,730 State of Ohio Unlimited General Obligation Bonds Conservation Projects Series 2002A 09-01-09 4.00 1,115,000 1,159,076 State of Ohio Unlimited General Obligation Bonds Higher Education Series 2003A 05-01-11 5.00 1,000,000 1,095,400 State of Ohio Unlimited General Obligation Bonds Highway Capital Improvement Series 2002G 05-01-12 5.25 750,000 838,133 State of Ohio Unlimited General Obligation Bonds Highway Capital Improvement Series 2005I 05-01-14 5.00 1,000,000 1,120,180 Summit County Limited General Obligation Bonds Series 2003 12-01-18 5.25 1,490,000 1,682,985 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 1,103,750 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 72 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Ohio Tax-Exempt Fund Municipal bonds (continued) Name of Coupon Principal Value(a) issuer and rate amount title of issue(b,c) University of Akron Revenue Bonds Series 2003A (AMBAC) 01-01-22 5.00% $1,595,000 $1,707,957 University of Cincinnati Revenue Bonds Series 2001A (FGIC) 06-01-14 5.50 1,000,000 1,117,910 Warren County Limited General Obligation Bonds Series 1992 12-01-12 6.10 500,000 558,265 - ------------------------------------------------------ Total municipal bonds (Cost: $58,474,282) $60,273,138 - ------------------------------------------------------ Municipal notes (2.1%) Issue(c,f) Effective Amount Value(a) yield payable at maturity State of Ohio Refunding Revenue Bonds Sohio Air Project V.R.D.N. Series 1995 05-01-22 2.29% $1,100,000 $1,100,000 State of Ohio Revenue Bonds BP Exploration & Oil Project V.R.D.N. Series 2001 A.M.T. 08-01-34 2.36 200,000 200,000 - ------------------------------------------------------ Total municipal notes (Cost: $1,300,000) $1,300,000 - ------------------------------------------------------ Total investments in securities (Cost: $59,774,282)(g) $61,573,138 ====================================================== Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- Ambac Assurance Corporation BIG -- Bond Investors Guarantee CGIC -- Capital Guaranty Insurance Company 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 - -------------------------------------------------------------------------------- 73 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Ohio Tax-Exempt Fund Notes to investments in securities (continued) (c) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- At June 30, 2005, the value of securities subject to alternative minimum tax represented 0.3% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note (d) At June 30, 2005, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $998,750. (e) Municipal obligations include debt obligations issued by or on behalf of states, territories, possessions, or sovereign nations within the territorial boundaries of the United States. The securities represented 5.0% of net assets at June 30, 2005. (f) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on June 30, 2005. (g) At June 30, 2005, the cost of securities for federal income tax purposes was $59,774,282 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $1,816,998 Unrealized depreciation (18,142) ------------------------------------------------------------------------ Net unrealized appreciation $1,798,856 ------------------------------------------------------------------------ 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.ameriprise.com. - -------------------------------------------------------------------------------- 74 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Financial Statements Statements of assets and liabilities AXP State Tax-Exempt Funds
California Massachusetts Michigan Tax-Exempt Tax-Exempt Tax-Exempt June 30, 2005 Fund Fund Fund Assets Investments in securities, at value (Note 1) (identified cost $199,441,354, $71,009,539 and $57,691,910) $208,719,992 $73,826,682 $59,871,171 Cash in bank on demand deposit 87,662 30,539 81,779 Capital shares receivable 26,808 500 11,592 Accrued interest receivable 2,673,031 1,176,926 703,695 - ------------------------------------------------------------------------------------------------------------------ Total assets 211,507,493 75,034,647 60,668,237 - ------------------------------------------------------------------------------------------------------------------ Liabilities Dividends payable to shareholders 19,553 6,223 5,325 Capital shares payable 11,133 1,816 12,317 Payable for investment securities purchased 2,481,250 -- -- Accrued investment management services fee 2,682 964 778 Accrued distribution fee 49,164 17,920 14,280 Accrued transfer agency fee 248 67 101 Accrued administrative services fee 228 82 66 Other accrued expenses 42,801 38,875 43,274 - ------------------------------------------------------------------------------------------------------------------ Total liabilities 2,607,059 65,947 76,141 - ------------------------------------------------------------------------------------------------------------------ Net assets applicable to outstanding shares $208,900,434 $74,968,700 $60,592,096 ================================================================================================================== Represented by Shares of beneficial interest -- $.01 par value (Note 1) $ 396,426 $ 137,653 $ 113,221 Additional paid-in capital 197,523,084 71,828,392 58,153,483 Undistributed net investment income 30,957 94,283 -- Accumulated net realized gain (loss) 1,671,329 91,229 146,131 Unrealized appreciation (depreciation) on investments 9,278,638 2,817,143 2,179,261 - ------------------------------------------------------------------------------------------------------------------ Total -- representing net assets applicable to outstanding shares $208,900,434 $74,968,700 $60,592,096 ================================================================================================================== Net assets applicable to outstanding shares: Class A $189,684,740 $56,077,745 $53,273,688 Class B $ 16,159,650 $17,522,009 $ 5,477,255 Class C $ 3,056,044 $ 1,368,946 $ 1,841,153 Outstanding shares of beneficial interest: Class A shares 35,995,218 10,296,587 9,955,048 Class B shares 3,068,100 3,217,293 1,023,070 Class C shares 579,245 251,459 343,994 Net asset value per share: Class A $ 5.27 $ 5.45 $ 5.35 Class B $ 5.27 $ 5.45 $ 5.35 Class C $ 5.28 $ 5.44 $ 5.35 - ------------------------------------------------------------------------------------------------------------------ See accompanying notes to financial statements.
- -------------------------------------------------------------------------------- 75 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Statements of assets and liabilities AXP State Tax-Exempt Funds
Minnesota New York Ohio Tax-Exempt Tax-Exempt Tax-Exempt June 30, 2005 Fund Fund Fund Assets Investments in securities, at value (Note 1) (identified cost $378,404,435, $79,687,018 and $59,774,282) $393,023,932 $83,861,232 $61,573,138 Cash in bank on demand deposit -- 28,288 16,810 Capital shares receivable 51,780 96 1,380 Accrued interest receivable 6,014,032 1,066,294 576,642 Receivable for investment securities sold 824,967 -- -- - ------------------------------------------------------------------------------------------------------------------ Total assets 399,914,711 84,955,910 62,167,970 - ------------------------------------------------------------------------------------------------------------------ Liabilities Disbursements in excess of cash on demand deposit 189,187 -- -- Dividends payable to shareholders 35,073 8,664 4,922 Capital shares payable 89,699 18,605 6,121 Payable for investment securities purchased 372,313 -- 998,750 Accrued investment management services fee 5,024 1,089 785 Accrued distribution fee 94,151 20,186 14,473 Accrued transfer agency fee 600 149 109 Accrued administrative services fee 416 93 67 Other accrued expenses 70,221 35,448 33,522 - ------------------------------------------------------------------------------------------------------------------ Total liabilities 856,684 84,234 1,058,749 - ------------------------------------------------------------------------------------------------------------------ Net assets applicable to outstanding shares $399,058,027 $84,871,676 $61,109,221 ================================================================================================================== Represented by Shares of beneficial interest -- $.01 par value (Note 1) $ 745,331 $ 163,844 $ 114,290 Additional paid-in capital 382,647,349 80,291,289 59,249,232 Undistributed net investment income 382,387 9,181 40,206 Accumulated net realized gain (loss) 663,463 233,148 (93,363) Unrealized appreciation (depreciation) on investments 14,619,497 4,174,214 1,798,856 - ------------------------------------------------------------------------------------------------------------------ Total -- representing net assets applicable to outstanding shares $399,058,027 $84,871,676 $61,109,221 ================================================================================================================== Net assets applicable to outstanding shares: Class A $341,393,866 $72,589,870 $51,047,773 Class B $ 48,659,135 $10,908,968 $ 8,148,165 Class C $ 9,005,026 $ 1,372,838 $ 1,913,283 Outstanding shares of beneficial interest: Class A shares 63,764,004 14,013,395 9,547,336 Class B shares 9,087,318 2,105,995 1,523,978 Class C shares 1,681,783 265,013 357,731 Net asset value per share: Class A $ 5.35 $ 5.18 $ 5.35 Class B $ 5.35 $ 5.18 $ 5.35 Class C $ 5.35 $ 5.18 $ 5.35 - ------------------------------------------------------------------------------------------------------------------ See accompanying notes to financial statements.
- -------------------------------------------------------------------------------- 76 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Statements of operations AXP State Tax-Exempt Funds
California Massachusetts Michigan Tax-Exempt Tax-Exempt Tax-Exempt Year ended June 30, 2005 Fund Fund Fund Investment income Income: Interest $ 9,826,257 $3,214,702 $2,709,443 - ------------------------------------------------------------------------------------------------------------------ Expenses (Note 2): Investment management services fee 1,010,591 372,649 294,025 Distribution fee Class A 483,557 147,943 136,742 Class B 182,416 186,463 59,822 Class C 33,536 14,622 18,779 Transfer agency fee 81,792 47,716 33,540 Incremental transfer agency fee Class A 7,348 3,706 2,886 Class B 1,561 1,805 688 Class C 506 274 322 Administrative services fees and expenses 87,771 30,362 23,283 Compensation of board members 9,206 9,206 9,206 Custodian fees 20,645 11,067 8,835 Printing and postage 31,303 15,065 11,463 Registration fees 35,757 32,846 34,663 Audit fees 20,500 19,000 19,000 Other 6,676 6,359 5,302 - ------------------------------------------------------------------------------------------------------------------ Total expenses 2,013,165 899,083 658,556 Expenses waived/reimbursed by Ameriprise Financial (formerly AEFC) (Note 2) -- (47,331) (47,447) - ------------------------------------------------------------------------------------------------------------------ 2,013,165 851,752 611,109 Earnings credits on cash balances (Note 2) (7,647) (3,100) (4,290) - ------------------------------------------------------------------------------------------------------------------ Total net expenses 2,005,518 848,652 606,819 - ------------------------------------------------------------------------------------------------------------------ Investment income (loss) -- net 7,820,739 2,366,050 2,102,624 - ------------------------------------------------------------------------------------------------------------------ Realized and unrealized gain (loss) -- net Net realized gain (loss) on security transactions (Note 3) 2,843,277 522,273 545,582 Net change in unrealized appreciation (depreciation) on investments 6,675,883 2,650,326 1,522,358 - ------------------------------------------------------------------------------------------------------------------ Net gain (loss) on investments 9,519,160 3,172,599 2,067,940 - ------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations $17,339,899 $5,538,649 $4,170,564 ================================================================================================================== See accompanying notes to financial statements.
- -------------------------------------------------------------------------------- 77 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Statements of operations AXP State Tax-Exempt Funds
Minnesota New York Ohio Tax-Exempt Tax-Exempt Tax-Exempt Year ended June 30, 2005 Fund Fund Fund Investment income Income: Interest $17,388,342 $4,018,928 $2,585,287 - ------------------------------------------------------------------------------------------------------------------ Expenses (Note 2): Investment management services fee 1,895,714 434,449 307,214 Distribution fee Class A 877,625 196,842 136,871 Class B 517,111 120,762 84,836 Class C 92,150 16,217 21,311 Transfer agency fee 197,783 49,903 36,427 Incremental transfer agency fee Class A 17,007 4,290 2,998 Class B 4,803 1,297 921 Class C 1,329 260 378 Administrative services fees and expenses 163,503 36,031 24,486 Compensation of board members 10,673 9,206 9,206 Custodian fees 31,044 12,105 10,380 Printing and postage 75,405 15,335 11,290 Registration fees 33,391 31,840 30,080 Audit fees 22,000 19,500 19,000 Other 17,277 5,456 4,758 - ------------------------------------------------------------------------------------------------------------------ Total expenses 3,956,815 953,493 700,156 Expenses waived/reimbursed by Ameriprise Financial (formerly AEFC) (Note 2) -- (34,613) (43,339) - ------------------------------------------------------------------------------------------------------------------ 3,956,815 918,880 656,817 Earnings credits on cash balances (Note 2) (28,254) (3,884) (3,019) - ------------------------------------------------------------------------------------------------------------------ Total net expenses 3,928,561 914,996 653,798 - ------------------------------------------------------------------------------------------------------------------ Investment income (loss) -- net 13,459,781 3,103,932 1,931,489 - ------------------------------------------------------------------------------------------------------------------ Realized and unrealized gain (loss) -- net Net realized gain (loss) on security transactions (Note 3) 1,307,808 571,057 618,488 Net change in unrealized appreciation (depreciation) on investments 11,874,424 2,623,197 1,820,601 - ------------------------------------------------------------------------------------------------------------------ Net gain (loss) on investments 13,182,232 3,194,254 2,439,089 - ------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations $26,642,013 $6,298,186 $4,370,578 ================================================================================================================== See accompanying notes to financial statements.
- -------------------------------------------------------------------------------- 78 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Statements of changes in net assets AXP State Tax-Exempt Funds
California Tax-Exempt Fund Massachusetts Tax-Exempt Fund Year ended June 30, 2005 2004 2005 2004 Operations and distributions Investment income (loss) -- net $ 7,820,739 $ 9,492,210 $ 2,366,050 $ 2,864,585 Net realized gain (loss) on investments 2,843,277 4,271,954 522,273 118,188 Net change in unrealized appreciation (depreciation) on investments 6,675,883 (13,639,192) 2,650,326 (3,402,425) - -------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 17,339,899 124,972 5,538,649 (419,652) - -------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (7,236,425) (8,492,465) (1,880,881) (2,172,737) Class B (544,611) (769,181) (449,620) (567,432) Class C (100,096) (139,214) (35,315) (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 (42,061) (48,764) (6,105) (20,647) - -------------------------------------------------------------------------------------------------------------------- Total distributions (10,821,954) (12,304,033) (2,720,859) (3,823,179) - -------------------------------------------------------------------------------------------------------------------- Share transactions (Note 4) Proceeds from sales Class A shares (Note 2) 18,129,921 15,901,451 5,250,331 6,412,052 Class B shares 964,281 1,083,627 643,022 1,359,509 Class C shares 755,510 1,207,521 265,254 674,999 Reinvestment of distributions at net asset value Class A shares 7,334,232 8,050,801 1,789,144 2,473,261 Class B shares 670,599 873,630 419,010 680,143 Class C shares 132,696 177,893 38,737 61,014 Payments for redemptions Class A shares (35,789,588) (56,069,227) (12,453,873) (19,003,431) Class B shares (Note 2) (7,417,183) (6,190,835) (4,843,199) (4,718,999) Class C shares (Note 2) (1,664,249) (2,345,662) (600,562) (824,274) - -------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from share transactions (16,883,781) (37,310,801) (9,492,136) (12,885,726) - -------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (10,365,836) (49,489,862) (6,674,346) (17,128,557) Net assets at beginning of year 219,266,270 268,756,132 81,643,046 98,771,603 - -------------------------------------------------------------------------------------------------------------------- Net assets at end of year $208,900,434 $219,266,270 $ 74,968,700 $ 81,643,046 ==================================================================================================================== Undistributed net investment income $ 30,957 $ 91,350 $ 94,283 $ 94,049 - -------------------------------------------------------------------------------------------------------------------- See accompanying notes to financial statements.
- -------------------------------------------------------------------------------- 79 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Statements of changes in net assets AXP State Tax-Exempt Funds
Michigan Tax-Exempt Fund Minnesota Tax-Exempt Fund Year ended June 30, 2005 2004 2005 2004 Operations and distributions Investment income (loss) -- net $ 2,102,624 $ 2,515,023 $ 13,459,781 $ 15,515,294 Net realized gain (loss) on investments 545,582 119,015 1,307,808 2,656,487 Net change in unrealized appreciation (depreciation) on investments 1,522,358 (2,736,651) 11,874,424 (16,925,059) - -------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 4,170,564 (102,613) 26,642,013 1,246,722 - -------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (1,891,829) (2,226,533) (11,812,371) (13,145,714) Class B (159,945) (231,859) (1,350,479) (1,780,915) Class C (50,776) (56,704) (240,632) (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) (29,796) -- - -------------------------------------------------------------------------------------------------------------------- Total distributions (2,401,869) (3,607,123) (14,741,495) (15,189,205) - -------------------------------------------------------------------------------------------------------------------- Share transactions (Note 4) Proceeds from sales Class A shares (Note 2) 5,810,522 3,929,167 40,052,864 31,708,550 Class B shares 294,638 465,780 2,238,758 3,586,678 Class C shares 335,521 626,081 2,013,530 3,068,043 Reinvestment of distributions at net asset value Class A shares 1,756,355 2,623,733 10,737,021 10,715,648 Class B shares 131,427 261,994 1,294,698 1,489,197 Class C shares 53,472 73,298 234,993 228,169 Payments for redemptions Class A shares (11,580,469) (17,160,945) (66,760,048) (76,911,886) Class B shares (Note 2) (2,230,452) (2,429,975) (15,765,912) (11,748,894) Class C shares (Note 2) (559,800) (819,029) (2,730,362) (3,005,495) - -------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from share transactions (5,988,786) (12,429,896) (28,684,458) (40,869,990) - -------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (4,220,091) (16,139,632) (16,783,940) (54,812,473) Net assets at beginning of year 64,812,187 80,951,819 415,841,967 470,654,440 - -------------------------------------------------------------------------------------------------------------------- Net assets at end of year $ 60,592,096 $ 64,812,187 $399,058,027 $415,841,967 ==================================================================================================================== Undistributed (excess of distributions over) net investment income $ -- $ (74) $ 382,387 $ 326,088 - -------------------------------------------------------------------------------------------------------------------- See accompanying notes to financial statements.
- -------------------------------------------------------------------------------- 80 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Statements of changes in net assets AXP State Tax-Exempt Funds
New York Tax-Exempt Fund Ohio Tax-Exempt Fund Year ended June 30, 2005 2004 2005 2004 Operations and distributions Investment income (loss) -- net $ 3,103,932 $ 3,491,957 $ 1,931,489 $ 2,294,258 Net realized gain (loss) on investments 571,057 1,237,352 618,488 (246,174) Net change in unrealized appreciation (depreciation) on investments 2,623,197 (5,118,869) 1,820,601 (2,801,314) - -------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 6,298,186 (389,560) 4,370,578 (753,230) - -------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (2,732,716) (2,982,840) (1,682,964) (1,917,434) Class B (325,543) (443,612) (196,329) (277,749) Class C (43,807) (58,190) (49,329) (61,732) Net realized gain Class A (958,527) (1,792,067) -- (822,499) Class B (144,685) (349,327) -- (159,181) Class C (18,926) (45,440) -- (35,511) - -------------------------------------------------------------------------------------------------------------------- Total distributions (4,224,204) (5,671,476) (1,928,622) (3,274,106) - -------------------------------------------------------------------------------------------------------------------- Share transactions (Note 4) Proceeds from sales Class A shares (Note 2) 6,562,422 5,308,394 3,342,352 5,179,041 Class B shares 609,622 1,490,534 444,801 915,169 Class C shares 300,146 860,606 251,354 463,974 Reinvestment of distributions at net asset value Class A shares 3,143,127 4,083,913 1,306,745 2,178,569 Class B shares 374,395 611,810 152,859 347,672 Class C shares 61,961 97,082 47,057 94,195 Payments for redemptions Class A shares (17,872,425) (22,699,309) (12,063,570) (14,186,759) Class B shares (Note 2) (5,445,727) (3,905,116) (2,673,642) (3,712,886) Class C shares (Note 2) (999,298) (1,130,447) (755,439) (1,192,556) - -------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from share transactions (13,265,777) (15,282,533) (9,947,483) (9,913,581) - -------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (11,191,795) (21,343,569) (7,505,527) (13,940,917) Net assets at beginning of year 96,063,471 117,407,040 68,614,748 82,555,665 - -------------------------------------------------------------------------------------------------------------------- Net assets at end of year $ 84,871,676 $ 96,063,471 $ 61,109,221 $ 68,614,748 ==================================================================================================================== Undistributed net investment income $ 9,181 $ 7,315 $ 40,206 $ 37,339 - -------------------------------------------------------------------------------------------------------------------- See accompanying notes to financial statements.
- -------------------------------------------------------------------------------- 81 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Notes to Financial Statements AXP State Tax-Exempt Funds 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 year of ownership. o Class C shares may be subject to a CDSC. All classes of shares have identical voting, dividend and liquidation rights. The distribution fee and transfer agency fees (class specific expenses) differ among classes. Income, expenses (other than class-specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. Each Fund's significant accounting policies are summarized below: Use of estimates Preparing financial statements that conform to U.S. generally accepted accounting principles requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. - -------------------------------------------------------------------------------- 82 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL 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. Illiquid securities At June 30, 2005, investments in securities for California Tax-Exempt Fund and Minnesota Tax-Exempt Fund include 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 June 30, 2005, was $47,337 and $13,925,522 representing 0.02% and 3.49% 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 June 30, 2005, the outstanding forward-commitments for the Funds are as follows:
When-issued Other Fund securities forward-commitments - ------------------------------------------------------------------------------------------- California Tax-Exempt Fund $2,481,250 $-- Ohio Tax-Exempt Fund 998,750 --
- -------------------------------------------------------------------------------- 83 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Option transactions To produce incremental earnings, protect gains and facilitate buying and selling of securities for investments, the Funds may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Funds give up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Funds may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Funds pay a premium whether or not the option is exercised. The Funds also have the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. The Funds also may write over-the-counter options where completing the obligation depends upon the credit standing of the other party. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Funds will realize a gain or loss when the option transaction expires or closes. When options on debt securities or futures are exercised, the Funds will realize a gain or loss. When other options are exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of the premium received or paid. Futures transactions To gain exposure to or protect itself from market changes, the Funds may buy and sell financial futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. 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. - -------------------------------------------------------------------------------- 84 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT 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 year ended June 30, 2005. 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. Federal taxes Each Fund's policy is to comply with all sections of the Internal Revenue Code that apply to regulated investment companies and to distribute substantially all of its taxable income to shareholders. No provision for income or excise taxes is thus required. Each Fund is treated as a separate entity for federal income tax purposes. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of deferred losses on certain futures contracts and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Funds. The tax character of distributions paid for the years indicated is as follows:
Year ended June 30, 2005 2004 - ------------------------------------------------------------------------------------------- California Tax-Exempt Fund Class A Distributions paid from: Ordinary income -- tax-exempt interest distributions(a) $7,236,561 $8,492,465 Long-term capital gain 2,650,174 2,563,129 Class B Distributions paid from: Ordinary income -- tax-exempt interest distributions(a) 544,611 769,181 Long-term capital gain 248,451 291,280 Class C Distributions paid from: Ordinary income -- tax-exempt interest distributions(a) 99,960 139,214 Long-term capital gain 42,197 48,764
(a) Tax-exempt distributions were 98.70% and 98.76% for the years ended 2005 and 2004, respectively. - -------------------------------------------------------------------------------- 85 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT
Year ended June 30, 2005 2004 - ------------------------------------------------------------------------------------------- Massachusetts Tax-Exempt Fund Class A Distributions paid from: Ordinary income -- tax-exempt interest distributions(b) $1,880,881 $2,888,124 Long-term capital gain 266,380 43,018 Class B Distributions paid from: Ordinary income -- tax-exempt interest distributions(b) 449,620 811,827 Long-term capital gain 82,558 14,697 Class C Distributions paid from: Ordinary income -- tax-exempt interest distributions(b) 35,315 64,342 Long-term capital gain 6,105 1,171
(b) Tax-exempt distributions were 97.10% and 74.21% for the years ended 2005 and 2004, respectively. Michigan Tax-Exempt Fund Class A Distributions paid from: Ordinary income -- tax-exempt interest distributions(c) $1,950,028 $2,833,949 Long-term capital gain 203,131 332,310 Class B Distributions paid from: Ordinary income -- tax-exempt interest distributions(c) 166,262 312,118 Long-term capital gain 22,604 43,883 Class C Distributions paid from: Ordinary income -- tax-exempt interest distributions(c) 52,795 74,909 Long-term capital gain 7,049 9,954
(c) Tax-exempt distributions were 95.09% and 78.22% for the years ended 2005 and 2004, respectively. Minnesota Tax-Exempt Fund Class A Distributions paid from: Ordinary income -- tax-exempt distributions(d) $11,812,371 $13,145,714 Long-term capital gain 1,142,029 -- Class B Distributions paid from: Ordinary income -- tax-exempt distributions(d) 1,350,479 1,780,915 Long-term capital gain 166,188 -- Class C Distributions paid from: Ordinary income -- tax-exempt distributions(d) 240,632 262,576 Long-term capital gain 29,796 --
(d) Tax-exempt distributions were 100% and 99.97% for the years ended 2005 and 2004, respectively. - -------------------------------------------------------------------------------- 86 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT
Year ended June 30, 2005 2004 - ------------------------------------------------------------------------------------------- New York Tax-Exempt Fund Class A Distributions paid from: Ordinary income -- tax-exempt distributions(e) $2,774,686 $3,845,797 Long-term capital gain 916,557 929,110 Class B Distributions paid from: Ordinary income -- tax-exempt distributions(e) 331,878 611,845 Long-term capital gain 138,350 181,094 Class C Distributions paid from: Ordinary income -- tax-exempt distributions(e) 44,636 80,074 Long-term capital gain 18,097 23,556
(e) Tax-exempt distributions were 97.38% and 75.85% for the years ended 2005 and 2004, respectively. Ohio Tax-Exempt Fund Class A Distributions paid from: Ordinary income -- tax-exempt distributions(f) $1,682,964 $2,567,342 Long-term capital gain -- 172,591 Class B Distributions paid from: Ordinary income -- tax-exempt distributions(f) 196,329 403,527 Long-term capital gain -- 33,403 Class C Distributions paid from: Ordinary income -- tax-exempt distributions(f) 49,329 89,791 Long-term capital gain -- 7,452
(f) Tax-exempt distributions were 98.41% and 73.82% for the years ended 2005 and 2004, respectively. At June 30, 2005, the components of distributable earnings on a tax basis for each Fund are as follows:
Accumulated Unrealized Undistributed long-term appreciation Fund income gain (loss) (depreciation) - ------------------------------------------------------------------------------------------- California Tax-Exempt Fund $124,056 $1,768,843 $ 9,107,578 Massachusetts Tax-Exempt Fund 98,396 173,109 2,737,373 Michigan Tax-Exempt Fund 48,928 235,959 2,045,830 Minnesota Tax-Exempt Fund 35,092 726,191 14,939,137 New York Tax-Exempt Fund 43,695 404,358 3,977,154 Ohio Tax-Exempt Fund 45,129 (87,465) 1,792,957
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. - -------------------------------------------------------------------------------- 87 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT 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 Ameriprise Financial, Inc. (formerly American Express Financial Corporation) to manage its portfolio and provide administrative services. Under an Investment Management Services Agreement, Ameriprise Financial (the Investment Manager) 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 the current Administrative Services Agreement, each Fund pays Ameriprise Financial a fee for administration and accounting services at a percentage of each Fund's average daily net assets that declines from 0.04% to 0.02% annually as each Fund's assets increase. It is expected that the fee schedule to the agreement will be revised effective Oct. 1, 2005. Under the new agreement, the fee percentage of each Fund's average daily net assets will decline from 0.07% to 0.04% 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. 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, RiverSource Service Corporation (formerly American Express Client Service Corporation) (the Transfer Agent) maintains shareholder accounts and records. Each Fund pays the Transfer Agent an annual fee per shareholder account for this service as follows: o Class A $20.50 o Class B $21.50 o Class C $21.00 The incremental transfer agency fee is the amount charged to the specific classes for the additional expense above the base fee of $18.50. Beginning May 20, 2005, the Transfer Agent implemented an annual closed account fee of $5 per inactive account, charged on a pro rata basis for 12 months from the date the account becomes inactive. These fees were insignificant for the year ended June 30, 2005 and are included in the transfer agency fees on the statement of operations. - -------------------------------------------------------------------------------- 88 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Each Fund has agreements with Ameriprise Financial Services, Inc. (formerly 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 year ended June 30, 2005, Ameriprise Financial 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 0.88 1.64 1.64 Ohio Tax-Exempt Fund 0.88 1.64 1.64
Of these waived fees and expenses, the transfer agency fees waived are as follows:
Fund Amount - ----------------------------------------------------------------------------------------- Massachusetts Tax-Exempt Fund Class A $27,257 Class B 7,159 Class C 694 The management fees waived at the Fund level were $12,221. Michigan Tax-Exempt Fund Class A 21,065 Class B 2,012 Class C 738 The management fees waived at the Fund level were $23,632. New York Tax-Exempt Fund Class A 30,198 Class B 3,805 Class C 610 Ohio Tax-Exempt Fund Class A 22,346 Class B 2,981 Class C 894 The management fees waived at the Fund level were $17,118.
In addition, Ameriprise Financial and its affiliates have agreed to extend the current agreement to waive certain fees and expenses through Sept. 30, 2005. It is expected that a new agreement to waive certain fees and expenses will be effective on Oct. 1, 2005 until June 30, 2006, such that net expenses will not exceed 0.79% for Class A, 1.55% for Class B and 1.55% for Class C of the Fund's average daily net assets for Massachusetts Tax-Exempt Fund, Michigan Tax-Exempt Fund, New York Tax-Exempt Fund and Ohio Tax-Exempt Fund. It is expected that a new agreement to waive certain fees and expenses will be effective on Oct. 1, 2005 until June 30, 2006, such that net expenses will not exceed 0.79% for Class A, 1.55% for Class B and 1.55% for Class C of the Fund's average daily net assets for California Tax-Exempt Fund and Minnesota Tax-Exempt Fund. - -------------------------------------------------------------------------------- 89 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Sales charges received by the Distributor for distributing the Funds' shares for the year ended June 30, 2005, are as follows:
Fund Class A Class B Class C - ---------------------------------------------------------------------------------------- California Tax-Exempt Fund $192,743 $23,790 $ 961 Massachusetts Tax-Exempt Fund 63,249 31,698 365 Michigan Tax-Exempt Fund 53,701 12,868 1,135 Minnesota Tax-Exempt Fund 407,587 49,706 1,798 New York Tax-Exempt Fund 102,178 28,142 2,370 Ohio Tax-Exempt Fund 40,732 13,998 277
During the year ended June 30, 2005, 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 $ 7,647 Massachusetts Tax-Exempt Fund 3,100 Michigan Tax-Exempt Fund 4,290 Minnesota Tax-Exempt Fund 28,254 New York Tax-Exempt Fund 3,884 Ohio Tax-Exempt Fund 3,019
3. SECURITIES TRANSACTIONS For the year ended June 30, 2005, 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 $56,071,475 $68,644,654 Massachusetts Tax-Exempt Fund 6,519,907 18,234,372 Michigan Tax-Exempt Fund 5,734,389 12,730,258 Minnesota Tax-Exempt Fund 58,169,766 77,796,976 New York Tax-Exempt Fund 26,769,142 37,536,557 Ohio Tax-Exempt Fund 20,997,983 29,538,824
Realized gains and losses are determined on an identified cost basis. - -------------------------------------------------------------------------------- 90 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT 4. SHARE TRANSACTIONS Transactions in shares for each Fund for the years indicated are as follows:
California Tax-Exempt Fund Year ended June 30, 2005 Class A Class B Class C - ------------------------------------------------------------------------------------------- Sold 3,470,204 184,660 144,458 Issued for reinvested distributions 1,403,867 128,452 25,370 Redeemed (6,850,880) (1,423,411) (317,324) - ------------------------------------------------------------------------------------------- Net increase (decrease) (1,976,809) (1,110,299) (147,496) - ------------------------------------------------------------------------------------------- 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 Year ended June 30, 2005 Class A Class B Class C - ------------------------------------------------------------------------------------------- Sold 973,442 118,798 49,187 Issued for reinvested distributions 330,855 77,493 7,167 Redeemed (2,306,644) (898,813) (111,173) - ------------------------------------------------------------------------------------------- Net increase (decrease) (1,002,347) (702,522) (54,819) - ------------------------------------------------------------------------------------------- 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) - ------------------------------------------------------------------------------------------- Michigan Tax-Exempt Fund Year ended June 30, 2005 Class A Class B Class C - ------------------------------------------------------------------------------------------- Sold 1,092,631 55,503 63,091 Issued for reinvested distributions 329,971 24,678 10,044 Redeemed (2,177,836) (420,994) (105,325) - ------------------------------------------------------------------------------------------- Net increase (decrease) (755,234) (340,813) (32,190) - ------------------------------------------------------------------------------------------- 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) - ------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 91 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Minnesota Tax-Exempt Fund Year ended June 30, 2005 Class A Class B Class C - ------------------------------------------------------------------------------------------- Sold 7,546,438 419,686 378,689 Issued for reinvested distributions 2,015,244 243,032 44,107 Redeemed (12,549,607) (2,978,564) (513,275) - ------------------------------------------------------------------------------------------- Net increase (decrease) (2,987,925) (2,315,846) (90,479) - ------------------------------------------------------------------------------------------- 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 Year ended June 30, 2005 Class A Class B Class C - ------------------------------------------------------------------------------------------- Sold 1,273,990 118,256 58,049 Issued for reinvested distributions 609,569 72,640 12,015 Redeemed (3,468,592) (1,058,818) (193,383) - ------------------------------------------------------------------------------------------- Net increase (decrease) (1,585,033) (867,922) (123,319) - ------------------------------------------------------------------------------------------- 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) - ------------------------------------------------------------------------------------------- Ohio Tax-Exempt Fund Year ended June 30, 2005 Class A Class B Class C - ------------------------------------------------------------------------------------------- Sold 634,596 83,991 47,441 Issued for reinvested distributions 246,552 28,844 8,876 Redeemed (2,278,127) (509,146) (142,885) - ------------------------------------------------------------------------------------------- Net increase (decrease) (1,396,979) (396,311) (86,568) - ------------------------------------------------------------------------------------------- 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) - -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 92 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT 5. 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 year ended June 30, 2005. 6. CAPITAL LOSS CARRY-OVER For federal income tax purposes, capital loss carry-overs at June 30, 2005 are as follows:
Fund Carry-over Expiration date - ------------------------------------------------------------------------------------------- Ohio Tax-Exempt Fund $87,465 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. - -------------------------------------------------------------------------------- 93 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL 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, 2005 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) .20 .21 .23 .24 .25 Net gains (losses) (both realized and unrealized) .23 (.20) .14 .05 .15 - ------------------------------------------------------------------------------------------------------------------ Total from investment operations .43 .01 .37 .29 .40 - ------------------------------------------------------------------------------------------------------------------ Less distributions: Dividends from net investment income (.20) (.21) (.23) (.24) (.25) Distributions from realized gains (.07) (.06) -- -- -- - ------------------------------------------------------------------------------------------------------------------ Total distributions (.27) (.27) (.23) (.24) (.25) - ------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $5.27 $5.11 $5.37 $5.23 $5.18 - ------------------------------------------------------------------------------------------------------------------ Ratios/supplemental data Net assets, end of period (in millions) $190 $194 $237 $234 $231 - ------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average daily net assets(b) .86% .86% .85% .84% .85% - ------------------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average daily net assets 3.71% 4.03% 4.34% 4.56% 4.79% - ------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate (excluding short-term securities) 28% 30% 95% 16% 11% - ------------------------------------------------------------------------------------------------------------------ Total return(c) 8.53% .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) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 94 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP California Tax-Exempt Fund Class B Per share income and capital changes(a)
Fiscal period ended June 30, 2005 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) .16 .17 .19 .20 .21 Net gains (losses) (both realized and unrealized) .23 (.20) .14 .06 .14 - ------------------------------------------------------------------------------------------------------------------ Total from investment operations .39 (.03) .33 .26 .35 - ------------------------------------------------------------------------------------------------------------------ Less distributions: Dividends from net investment income (.16) (.17) (.19) (.20) (.21) Distributions from realized gains (.07) (.06) -- -- -- - ------------------------------------------------------------------------------------------------------------------ Total distributions (.23) (.23) (.19) (.20) (.21) - ------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $5.27 $5.11 $5.37 $5.23 $5.17 - ------------------------------------------------------------------------------------------------------------------ Ratios/supplemental data Net assets, end of period (in millions) $16 $21 $27 $27 $24 - ------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average daily net assets(b) 1.61% 1.61% 1.60% 1.59% 1.60% - ------------------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average daily net assets 2.95% 3.28% 3.58% 3.81% 3.99% - ------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate (excluding short-term securities) 28% 30% 95% 16% 11% - ------------------------------------------------------------------------------------------------------------------ Total return(c) 7.72% (.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) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 95 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP California Tax-Exempt Fund Class C Per share income and capital changes(a)
Fiscal period ended June 30, 2005 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) .16 .17 .19 .20 .21 Net gains (losses) (both realized and unrealized) .23 (.20) .14 .06 .15 - ------------------------------------------------------------------------------------------------------------------ Total from investment operations .39 (.03) .33 .26 .36 - ------------------------------------------------------------------------------------------------------------------ Less distributions: Dividends from net investment income (.16) (.17) (.19) (.20) (.21) Distributions from realized gains (.07) (.06) -- -- -- - ------------------------------------------------------------------------------------------------------------------ Total distributions (.23) (.23) (.19) (.20) (.21) - ------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $5.28 $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) 1.62% 1.62% 1.61% 1.60% 1.60% - ------------------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average daily net assets 2.94% 3.27% 3.56% 3.86% 4.04% - ------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate (excluding short-term securities) 28% 30% 95% 16% 11% - ------------------------------------------------------------------------------------------------------------------ Total return(c) 7.71% (.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) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 96 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Massachusetts Tax-Exempt Fund Class A Per share income and capital changes(a)
Fiscal period ended June 30, 2005 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) .17 .18 .19 .22 .27 Net gains (losses) (both realized and unrealized) .22 (.19) .16 .09 .17 - -------------------------------------------------------------------------------------------------------------------------- Total from investment operations .39 (.01) .35 .31 .44 - -------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (.17) (.18) (.19) (.22) (.27) Distributions from realized gains (.03) (.06) (.02) -- -- - -------------------------------------------------------------------------------------------------------------------------- Total distributions (.20) (.24) (.21) (.22) (.27) - -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.45 $5.26 $5.51 $5.37 $5.28 - -------------------------------------------------------------------------------------------------------------------------- Ratios/supplemental data Net assets, end of period (in millions) $56 $59 $73 $66 $65 - -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) .88%(c) .88%(c) .88%(c) .91% .95% - -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.17% 3.35% 3.57% 4.11% 5.04% - -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 9% 14% 141% 53% 4% - -------------------------------------------------------------------------------------------------------------------------- Total return(d) 7.42% (.24%) 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) Ameriprise Financial waived/reimbursed the Fund for certain expenses. Had Ameriprise Financial not done so, the annual ratios of expenses for Class A would have been 0.94%, 0.93% and 0.92% for the years ended June 30, 2005, 2004 and 2003, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 97 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Massachusetts Tax-Exempt Fund Class B Per share income and capital changes(a)
Fiscal period ended June 30, 2005 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) .13 .14 .15 .18 .23 Net gains (losses) (both realized and unrealized) .22 (.19) .16 .09 .17 - -------------------------------------------------------------------------------------------------------------------------- Total from investment operations .35 (.05) .31 .27 .40 - -------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (.13) (.14) (.15) (.18) (.23) Distributions from realized gains (.03) (.06) (.02) -- -- - -------------------------------------------------------------------------------------------------------------------------- Total distributions (.16) (.20) (.17) (.18) (.23) - -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.45 $5.26 $5.51 $5.37 $5.28 - -------------------------------------------------------------------------------------------------------------------------- Ratios/supplemental data Net assets, end of period (in millions) $18 $21 $24 $24 $18 - -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) 1.64%(c) 1.64%(c) 1.63%(c) 1.66% 1.70% - -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.41% 2.59% 2.81% 3.34% 4.28% - -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 9% 14% 141% 53% 4% - -------------------------------------------------------------------------------------------------------------------------- Total return(d) 6.61% (.99%) 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) Ameriprise Financial waived/reimbursed the Fund for certain expenses. Had Ameriprise Financial not done so, the annual ratios of expenses for Class B would have been 1.69%, 1.69% and 1.68% for the years ended June 30, 2005, 2004 and 2003, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 98 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Massachusetts Tax-Exempt Fund Class C Per share income and capital changes(a)
Fiscal period ended June 30, 2005 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) .13 .14 .15 .18 .23 Net gains (losses) (both realized and unrealized) .21 (.19) .16 .09 .17 - -------------------------------------------------------------------------------------------------------------------------- Total from investment operations .34 (.05) .31 .27 .40 - -------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (.13) (.14) (.15) (.18) (.23) Distributions from realized gains (.03) (.06) (.02) -- -- - -------------------------------------------------------------------------------------------------------------------------- Total distributions (.16) (.20) (.17) (.18) (.23) - -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.44 $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) 1.64%(c) 1.64%(c) 1.66% 1.70% - -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.41% 2.58% 2.88% 3.32% 4.30% - -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 9% 14% 141% 53% 4% - -------------------------------------------------------------------------------------------------------------------------- Total return(d) 6.41% (.97%) 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) Ameriprise Financial waived/reimbursed the Fund for certain expenses. Had Ameriprise Financial not done so, the annual ratios of expenses for Class C would have been 1.70%, 1.69% and 1.68% for the years ended June 30, 2005, 2004 and 2003, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 99 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Michigan Tax-Exempt Fund Class A Per share income and capital changes(a)
Fiscal period ended June 30, 2005 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) .18 .19 .22 .24 .27 Net gains (losses) (both realized and unrealized) .17 (.18) .19 .06 .18 - -------------------------------------------------------------------------------------------------------------------------- Total from investment operations .35 .01 .41 .30 .45 - -------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (.18) (.19) (.22) (.24) (.27) Distributions from realized gains (.03) (.08) (.05) -- -- - -------------------------------------------------------------------------------------------------------------------------- Total distributions (.21) (.27) (.27) (.24) (.27) - -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.35 $5.21 $5.47 $5.33 $5.27 - -------------------------------------------------------------------------------------------------------------------------- Ratios/supplemental data Net assets, end of period (in millions) $53 $56 $70 $70 $67 - -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) .88%(c) .88%(c) .88%(c) .92% .95% - -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.45% 3.55% 4.06% 4.57% 5.09% - -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 9% 32% 113% 33% 4% - -------------------------------------------------------------------------------------------------------------------------- Total return(d) 6.80% .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) Ameriprise Financial waived/reimbursed the Fund for certain expenses. Had Ameriprise Financial not done so, the annual ratios of expenses for Class A would have been 0.96%, 0.94% and 0.93% for the years ended June 30, 2005, 2004 and 2003, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 100 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Michigan Tax-Exempt Fund Class B Per share income and capital changes(a)
Fiscal period ended June 30, 2005 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) .14 .15 .18 .20 .23 Net gains (losses) (both realized and unrealized) .17 (.18) .19 .06 .18 - -------------------------------------------------------------------------------------------------------------------------- Total from investment operations .31 (.03) .37 .26 .41 - -------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (.14) (.15) (.18) (.20) (.23) Distributions from realized gains (.03) (.08) (.05) -- -- - -------------------------------------------------------------------------------------------------------------------------- Total distributions (.17) (.23) (.23) (.20) (.23) - -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.35 $5.21 $5.47 $5.33 $5.27 - -------------------------------------------------------------------------------------------------------------------------- Ratios/supplemental data Net assets, end of period (in millions) $5 $7 $9 $8 $6 - -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) 1.64%(c) 1.63%(c) 1.63%(c) 1.67% 1.70% - -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.69% 2.79% 3.28% 3.82% 4.34% - -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 9% 32% 113% 33% 4% - -------------------------------------------------------------------------------------------------------------------------- Total return(d) 5.99% (.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) Ameriprise Financial waived/reimbursed the Fund for certain expenses. Had Ameriprise Financial not done so, the annual ratios of expenses for Class B would have been 1.71%, 1.70% and 1.69% for the years ended June 30, 2005, 2004 and 2003, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 101 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Michigan Tax-Exempt Fund Class C Per share income and capital changes(a)
Fiscal period ended June 30, 2005 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) .14 .15 .18 .20 .22 Net gains (losses) (both realized and unrealized) .17 (.18) .19 .06 .18 - -------------------------------------------------------------------------------------------------------------------------- Total from investment operations .31 (.03) .37 .26 .40 - -------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (.14) (.15) (.18) (.20) (.22) Distributions from realized gains (.03) (.08) (.05) -- -- - -------------------------------------------------------------------------------------------------------------------------- Total distributions (.17) (.23) (.23) (.20) (.22) - -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.35 $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) 1.64%(c) 1.63%(c) 1.66% 1.70% - -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.70% 2.80% 3.27% 3.80% 4.36% - -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 9% 32% 113% 33% 4% - -------------------------------------------------------------------------------------------------------------------------- Total return(d) 5.99% (.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) Ameriprise Financial waived/reimbursed the Fund for certain expenses. Had Ameriprise Financial not done so, the annual ratios of expenses for Class C would have been 1.72%, 1.70% and 1.69% for the years ended June 30, 2005, 2004 and 2003, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 102 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Minnesota Tax-Exempt Fund Class A Per share income and capital changes(a)
Fiscal period ended June 30, 2005 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) .18 .19 .22 .25 .28 Net gains (losses) (both realized and unrealized) .17 (.17) .17 .06 .14 - -------------------------------------------------------------------------------------------------------------------------- Total from investment operations .35 .02 .39 .31 .42 - -------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (.18) (.19) (.22) (.25) (.28) Distributions from realized gains (.02) -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Total distributions (.20) (.19) (.22) (.25) (.28) - -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.35 $5.20 $5.37 $5.20 $5.14 - -------------------------------------------------------------------------------------------------------------------------- Ratios/supplemental data: Net assets, end of period (in millions) $341 $347 $393 $375 $357 - -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) .85% .84% .84% .83% .84% - -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.37% 3.60% 4.26% 4.82% 5.45% - -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 15% 23% 73% 36% 4% - -------------------------------------------------------------------------------------------------------------------------- Total return(c) 6.73% .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) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 103 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Minnesota Tax-Exempt Fund Class B Per share income and capital changes(a)
Fiscal period ended June 30, 2005 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) .14 .15 .18 .21 .24 Net gains (losses) (both realized and unrealized) .17 (.17) .17 .06 .14 - -------------------------------------------------------------------------------------------------------------------------- Total from investment operations .31 (.02) .35 .27 .38 - -------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (.14) (.15) (.18) (.21) (.24) Distributions from realized gains (.02) -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Total distributions (.16) (.15) (.18) (.21) (.24) - -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.35 $5.20 $5.37 $5.20 $5.14 - -------------------------------------------------------------------------------------------------------------------------- Ratios/supplemental data Net assets, end of period (in millions) $49 $59 $68 $64 $53 - -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) 1.60% 1.59% 1.59% 1.59% 1.60% - -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.62% 2.85% 3.48% 4.02% 4.70% - -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 15% 23% 73% 36% 4% - -------------------------------------------------------------------------------------------------------------------------- Total return(c) 5.94% (.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) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 104 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Minnesota Tax-Exempt Fund Class C Per share income and capital changes(a)
Fiscal period ended June 30, 2005 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) .14 .15 .18 .21 .24 Net gains (losses) (both realized and unrealized) .17 (.17) .17 .06 .14 - -------------------------------------------------------------------------------------------------------------------------- Total from investment operations .31 (.02) .35 .27 .38 - -------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (.14) (.15) (.18) (.21) (.24) Distributions from realized gains (.02) -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Total distributions (.16) (.15) (.18) (.21) (.24) - -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.35 $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% 1.60% 1.60% 1.59% 1.59% - -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.62% 2.84% 3.44% 4.04% 4.74% - -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 15% 23% 73% 36% 4% - -------------------------------------------------------------------------------------------------------------------------- Total return(c) 5.94% (.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) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 105 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP New York Tax-Exempt Fund Class A Per share income and capital changes(a)
Fiscal period ended June 30, 2005 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) .18 .18 .20 .22 .25 Net gains (losses) (both realized and unrealized) .17 (.18) .22 .04 .20 - -------------------------------------------------------------------------------------------------------------------------- Total from investment operations .35 -- .42 .26 .45 - -------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (.18) (.18) (.20) (.22) (.25) Distributions from realized gains (.06) (.11) (.02) -- -- - -------------------------------------------------------------------------------------------------------------------------- Total distributions (.24) (.29) (.22) (.22) (.25) - -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.18 $5.07 $5.36 $5.16 $5.12 - -------------------------------------------------------------------------------------------------------------------------- Ratios/supplemental data Net assets, end of period (in millions) $73 $79 $97 $92 $88 - -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) .88%(c) .88%(c) .88%(c) .90% .91% - -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.47% 3.44% 3.88% 4.38% 4.90% - -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 30% 36% 91% 44% 13% - -------------------------------------------------------------------------------------------------------------------------- Total return(d) 7.04% (.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) Ameriprise Financial waived/reimbursed the Fund for certain expenses. Had Ameriprise Financial not done so, the annual ratios of expenses for Class A would have been 0.92%, 0.93% and 0.90% for the years ended June 30, 2005, 2004 and 2003, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 106 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP New York Tax-Exempt Fund Class B Per share income and capital changes(a)
Fiscal period ended June 30, 2005 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) .14 .14 .16 .19 .21 Net gains (losses) (both realized and unrealized) .17 (.18) .22 .04 .20 - -------------------------------------------------------------------------------------------------------------------------- Total from investment operations .31 (.04) .38 .23 .41 - -------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (.14) (.14) (.16) (.19) (.21) Distributions from realized gains (.06) (.11) (.02) -- -- - -------------------------------------------------------------------------------------------------------------------------- Total distributions (.20) (.25) (.18) (.19) (.21) - -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.18 $5.07 $5.36 $5.16 $5.12 - -------------------------------------------------------------------------------------------------------------------------- Ratios/supplemental data Net assets, end of period (in millions) $11 $15 $18 $18 $16 - -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) 1.64%(c) 1.63%(c) 1.63%(c) 1.65% 1.66% - -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.70% 2.69% 3.13% 3.60% 4.14% - -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 30% 36% 91% 44% 13% - -------------------------------------------------------------------------------------------------------------------------- Total return(d) 6.23% (.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) Ameriprise Financial waived/reimbursed the Fund for certain expenses. Had Ameriprise Financial not done so, the annual ratios of expenses for Class B would have been 1.67%, 1.69% and 1.66% for the years ended June 30, 2005, 2004 and 2003, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 107 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP New York Tax-Exempt Fund Class C Per share income and capital changes(a)
Fiscal period ended June 30, 2005 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) .14 .14 .16 .19 .21 Net gains (losses) (both realized and unrealized) .17 (.18) .22 .05 .19 - -------------------------------------------------------------------------------------------------------------------------- Total from investment operations .31 (.04) .38 .24 .40 - -------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (.14) (.14) (.16) (.19) (.21) Distributions from realized gains (.06) (.11) (.02) -- -- - -------------------------------------------------------------------------------------------------------------------------- Total distributions (.20) (.25) (.18) (.19) (.21) - -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.18 $5.07 $5.36 $5.16 $5.11 - -------------------------------------------------------------------------------------------------------------------------- Ratios/supplemental data Net assets, end of period (in millions) $1 $2 $2 $1 $-- - -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) 1.64%(c) 1.63%(c) 1.64%(c) 1.66% 1.66% - -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.70% 2.68% 3.07% 3.69% 4.09% - -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 30% 36% 91% 44% 13% - -------------------------------------------------------------------------------------------------------------------------- Total return(d) 6.23% (.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) Ameriprise Financial waived/reimbursed the Fund for certain expenses. Had Ameriprise Financial not done so, the annual ratios of expenses for Class C would have been 1.68%, 1.69% and 1.66% for the years ended June 30, 2005, 2004 and 2003, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 108 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Ohio Tax-Exempt Fund Class A Per share income and capital changes(a)
Fiscal period ended June 30, 2005 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) .16 .17 .18 .22 .27 Net gains (losses) (both realized and unrealized) .19 (.20) .19 .08 .14 - -------------------------------------------------------------------------------------------------------------------------- Total from investment operations .35 (.03) .37 .30 .41 - -------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (.16) (.17) (.18) (.22) (.27) Distributions from realized gains -- (.07) (.11) -- -- - -------------------------------------------------------------------------------------------------------------------------- Total distributions (.16) (.24) (.29) (.22) (.27) - -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.35 $5.16 $5.43 $5.35 $5.27 - -------------------------------------------------------------------------------------------------------------------------- Ratios/supplemental data Net assets, end of period (in millions) $51 $56 $67 $69 $67 - -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) .88%(c) .88%(c) .88%(c) .91% .93% - -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.07% 3.13% 3.40% 4.22% 4.98% - -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 33% 17% 194% 33% 3% - -------------------------------------------------------------------------------------------------------------------------- Total return(d) 6.90% (.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) Ameriprise Financial waived/reimbursed the Fund for certain expenses. Had Ameriprise Financial not done so, the annual ratios of expenses for Class A would have been 0.95%, 0.95% and 0.92% for the years ended June 30, 2005, 2004 and 2003, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 109 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Ohio Tax-Exempt Fund Class B Per share income and capital changes(a)
Fiscal period ended June 30, 2005 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) .12 .13 .14 .18 .23 Net gains (losses) (both realized and unrealized) .19 (.20) .20 .07 .14 - -------------------------------------------------------------------------------------------------------------------------- Total from investment operations .31 (.07) .34 .25 .37 - -------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (.12) (.13) (.14) (.18) (.23) Distributions from realized gains -- (.07) (.11) -- -- - -------------------------------------------------------------------------------------------------------------------------- Total distributions (.12) (.20) (.25) (.18) (.23) - -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.35 $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) 1.63%(c) 1.63%(c) 1.66% 1.68% - -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.31% 2.38% 2.62% 3.46% 4.23% - -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 33% 17% 194% 33% 3% - -------------------------------------------------------------------------------------------------------------------------- Total return(d) 6.10% (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) Ameriprise Financial waived/reimbursed the Fund for certain expenses. Had Ameriprise Financial not done so, the annual ratios of expenses for Class B would have been 1.70%, 1.71% and 1.68% for the years ended June 30, 2005, 2004 and 2003, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 110 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Ohio Tax-Exempt Fund Class C Per share income and capital changes(a)
Fiscal period ended June 30, 2005 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) .12 .13 .14 .18 .22 Net gains (losses) (both realized and unrealized) .19 (.20) .19 .07 .15 - -------------------------------------------------------------------------------------------------------------------------- Total from investment operations .31 (.07) .33 .25 .37 - -------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (.12) (.13) (.14) (.18) (.22) Distributions from realized gains -- (.07) (.11) -- -- - -------------------------------------------------------------------------------------------------------------------------- Total distributions (.12) (.20) (.25) (.18) (.22) - -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.35 $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) 1.63%(c) 1.63%(c) 1.66% 1.68% - -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.31% 2.38% 2.54% 3.45% 4.26% - -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 33% 17% 194% 33% 3% - -------------------------------------------------------------------------------------------------------------------------- Total return(d) 6.10% (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) Ameriprise Financial waived/reimbursed the Fund for certain expenses. Had Ameriprise Financial not done so, the annual ratios of expenses for Class C would have been 1.71%, 1.71% and 1.68% for the years ended June 30, 2005, 2004 and 2003, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 111 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Report of Independent Registered Public Accounting Firm THE BOARD AND SHAREHOLDERS AXP CALIFORNIA TAX-EXEMPT TRUST AXP SPECIAL TAX-EXEMPT SERIES TRUST We have audited the accompanying statements of assets and liabilities, including the schedules of investments in securities, of AXP California Tax-Exempt Fund (a fund within AXP California Tax-Exempt Trust) and AXP Massachusetts Tax-Exempt Fund, AXP Michigan Tax-Exempt Fund, AXP Minnesota Tax-Exempt Fund, AXP New York Tax-Exempt Fund and AXP Ohio Tax-Exempt Fund (funds within AXP Special Tax-Exempt Series Trust) as of June 30, 2005, the related statements of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period ended June 30, 2005, and the financial highlights for each of the years in the five-year period ended June 30, 2005. These financial statements and the financial highlights are the responsibility of fund management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AXP California Tax-Exempt Fund, AXP Massachusetts Tax-Exempt Fund, AXP Michigan Tax-Exempt Fund, AXP Minnesota Tax-Exempt Fund, AXP New York Tax-Exempt Fund and AXP Ohio Tax-Exempt Fund as of June 30, 2005, and the results of their operations, changes in their net assets and the financial highlights for each of the periods stated in the first paragraph above, in conformity with U.S. generally accepted accounting principles. KPMG LLP Minneapolis, Minnesota August 22, 2005 - -------------------------------------------------------------------------------- 112 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Federal Income Tax Information (UNAUDITED) Each Fund is required by the Internal Revenue Code of 1986 to tell its shareholders about the tax treatment of the dividends it pays during its fiscal year. The dividends listed below are reported to you on your year-end statement. AXP California Tax-Exempt Fund Fiscal year ended June 30, 2005 Class A Income distributions -- 98.70% are tax-exempt. Payable date Per share July 26, 2004 $0.01585 Aug. 25, 2004 0.01517 Sept. 24, 2004 0.01700 Oct. 25, 2004 0.01623 Nov. 24, 2004 0.01562 Dec. 22, 2004 0.01465 Jan. 27, 2005 0.01891 Feb. 24, 2005 0.01507 March 30, 2005 0.01950 April 28, 2005 0.01527 May 26, 2005 0.01584 June 29, 2005 0.01825 Total $0.19736 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share Dec. 22, 2004 $0.07212 Total distributions $0.26948 - -------------------------------------------------------------------------------- 113 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Class B Income distributions -- 98.70% are tax-exempt. Payable date Per share July 26, 2004 $0.01251 Aug. 25, 2004 0.01227 Sept. 24, 2004 0.01375 Oct. 25, 2004 0.01286 Nov. 24, 2004 0.01235 Dec. 22, 2004 0.01160 Jan. 27, 2005 0.01503 Feb. 24, 2005 0.01201 March 30, 2005 0.01583 April 28, 2005 0.01214 May 26, 2005 0.01291 June 29, 2005 0.01454 Total $0.15780 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share Dec. 22, 2004 $0.07212 Total distributions $0.22992 - -------------------------------------------------------------------------------- 114 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Class C Income distributions -- 98.70% are tax-exempt. Payable date Per share July 26, 2004 $0.01254 Aug. 25, 2004 0.01226 Sept. 24, 2004 0.01375 Oct. 25, 2004 0.01285 Nov. 24, 2004 0.01235 Dec. 22, 2004 0.01158 Jan. 27, 2005 0.01504 Feb. 24, 2005 0.01200 March 30, 2005 0.01584 April 28, 2005 0.01214 May 26, 2005 0.01290 June 29, 2005 0.01453 Total $0.15778 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share Dec. 22, 2004 $0.07212 Total distributions $0.22990 Source of distributions For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50% of its assets in tax-exempt obligations at the end of each fiscal quarter. Federal taxation Tax-exempt distributions are exempt from federal income taxes and should not be included in shareholders' gross income. The income from this Fund is subject to the alternative minimum tax (AMT). The AMT percentage at June 30, 2005 was 8.09%. Other taxation Tax-exempt distributions may be subject to state and local taxes. Each shareholder should consult a tax advisor about reporting this income for state and local tax purposes. - -------------------------------------------------------------------------------- 115 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Massachusetts Tax-Exempt Fund Fiscal year ended June 30, 2005 Class A Income distributions -- 97.10% are tax-exempt. Payable date Per share July 26, 2004 $0.01422 Aug. 25, 2004 0.01421 Sept. 24, 2004 0.01397 Oct. 25, 2004 0.01435 Nov. 24, 2004 0.01409 Dec. 22, 2004 0.01326 Jan. 27, 2005 0.01676 Feb. 24, 2005 0.01322 March 30, 2005 0.01601 April 28, 2005 0.01358 May 26, 2005 0.01319 June 29, 2005 0.01636 Total $0.17322 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share Dec. 22, 2004 $0.02410 Total distributions $0.19732 Class B Income distributions -- 97.10% are tax-exempt. Payable date Per share July 26, 2004 $0.01084 Aug. 25, 2004 0.01060 Sept. 24, 2004 0.01060 Oct. 25, 2004 0.01085 Nov. 24, 2004 0.01071 Dec. 22, 2004 0.01010 Jan. 27, 2005 0.01264 Feb. 24, 2005 0.01004 March 30, 2005 0.01222 April 28, 2005 0.01033 May 26, 2005 0.01015 June 29, 2005 0.01251 Total $0.13159 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share Dec. 22, 2004 $0.02410 Total distributions $0.15569 - -------------------------------------------------------------------------------- 116 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Class C Income distributions -- 97.10% are tax-exempt. Payable date Per share July 26, 2004 $0.01124 Aug. 25, 2004 0.01061 Sept. 24, 2004 0.01062 Oct. 25, 2004 0.01085 Nov. 24, 2004 0.01068 Dec. 22, 2004 0.01009 Jan. 27, 2005 0.01266 Feb. 24, 2005 0.01003 March 30, 2005 0.01219 April 28, 2005 0.01033 May 26, 2005 0.01014 June 29, 2005 0.01251 Total $0.13195 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share Dec. 22, 2004 $0.02410 Total distributions $0.15605 Source of distributions For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50% of its assets in tax-exempt obligations at the end of each fiscal quarter. Federal taxation Tax-exempt distributions are exempt from federal income taxes and should not be included in shareholders' gross income. The income from this Fund is subject to the alternative minimum tax (AMT). The AMT percentage at June 30, 2005 was 4.83%. Other taxation Tax-exempt distributions may be subject to state and local taxes. Each shareholder should consult a tax advisor about reporting this income for state and local tax purposes. - -------------------------------------------------------------------------------- 117 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Michigan Tax-Exempt Fund Fiscal year ended June 30, 2005 Class A Income distributions -- 95.09% are tax-exempt. Payable date Per share July 26, 2004 $0.01582 Aug. 25, 2004 0.01540 Sept. 24, 2004 0.01509 Oct. 25, 2004 0.01572 Nov. 24, 2004 0.01513 Dec. 22, 2004 0.01999 Jan. 27, 2005 0.01826 Feb. 24, 2005 0.01421 March 30, 2005 0.01716 April 28, 2005 0.01450 May 26, 2005 0.01366 June 29, 2005 0.01658 Total $0.19152 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share Dec. 22, 2004 $0.01986 Total distributions $0.21138 Class B Income distributions -- 95.09% are tax-exempt. Payable date Per share July 26, 2004 $0.01235 Aug. 25, 2004 0.01204 Sept. 24, 2004 0.01177 Oct. 25, 2004 0.01228 Nov. 24, 2004 0.01183 Dec. 22, 2004 0.01689 Jan. 27, 2005 0.01419 Feb. 24, 2005 0.01109 March 30, 2005 0.01341 April 28, 2005 0.01132 May 26, 2005 0.01056 June 29, 2005 0.01280 Total $0.15053 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share Dec. 22, 2004 $0.01986 Total distributions $0.17039 - -------------------------------------------------------------------------------- 118 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Class C Income distributions -- 95.09% are tax-exempt. Payable date Per share July 26, 2004 $0.01231 Aug. 25, 2004 0.01203 Sept. 24, 2004 0.01178 Oct. 25, 2004 0.01228 Nov. 24, 2004 0.01181 Dec. 22, 2004 0.01690 Jan. 27, 2005 0.01420 Feb. 24, 2005 0.01109 March 30, 2005 0.01338 April 28, 2005 0.01131 May 26, 2005 0.01056 June 29, 2005 0.01280 Total $0.15045 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share Dec. 22, 2004 $0.01986 Total distributions $0.17031 Source of distributions For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50% of its assets in tax-exempt obligations at the end of each fiscal quarter. Federal taxation Tax-exempt distributions are exempt from federal income taxes and should not be included in shareholders' gross income. The income from this Fund is subject to the alternative minimum tax (AMT). The AMT percentage at June 30, 2005 was 0%. Other taxation Tax-exempt distributions may be subject to state and local taxes. Each shareholder should consult a tax advisor about reporting this income for state and local tax purposes. - -------------------------------------------------------------------------------- 119 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Minnesota Tax-Exempt Fund Fiscal year ended June 30, 2005 Class A Income distributions -- 100% are tax-exempt. Payable date Per share July 26, 2004 $0.01541 Aug. 25,2004 0.01458 Sept. 24, 2004 0.01462 Oct. 25, 2004 0.01517 Nov. 24, 2005 0.01452 Dec. 22, 2004 0.01372 Jan. 27, 2005 0.01776 Feb. 24, 2005 0.01388 March 30, 2005 0.01707 April 28, 2005 0.01410 May 26, 2005 0.01403 June 29, 2005 0.01606 Total $0.18092 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share Dec. 22, 2004 $0.01719 Total distributions $0.19811 Class B Income distributions -- 100% are tax-exempt. Payable date Per share July 26, 2004 $0.01201 Aug. 25,2004 0.01163 Sept. 24, 2004 0.01133 Oct. 25, 2004 0.01176 Nov. 24, 2005 0.01122 Dec. 22, 2004 0.01063 Jan. 27, 2005 0.01379 Feb. 24, 2005 0.01077 March 30, 2005 0.01335 April 28, 2005 0.01092 May 26, 2005 0.01094 June 29, 2005 0.01230 Total $0.14065 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share Dec. 22, 2004 $0.01719 Total distributions $0.15784 - -------------------------------------------------------------------------------- 120 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Class C Income distributions -- 100% are tax-exempt. Payable date Per share July 26, 2004 $0.01203 Aug. 25,2004 0.01161 Sept. 24, 2004 0.01131 Oct. 25, 2004 0.01174 Nov. 24, 2005 0.01119 Dec. 22, 2004 0.01061 Jan. 27, 2005 0.01377 Feb. 24, 2005 0.01075 March 30, 2005 0.01333 April 28, 2005 0.01090 May 26, 2005 0.01093 June 29, 2005 0.01227 Total $0.14044 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share Dec. 22, 2004 $0.01719 Total distributions $0.15763 Source of distributions For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50% of its assets in tax-exempt obligations at the end of each fiscal quarter. Federal taxation Tax-exempt distributions are exempt from federal income taxes and should not be included in shareholders' gross income. The income from this Fund is subject to the alternative minimum tax (AMT). The AMT percentage at June 30, 2005 was 7.00%. Other taxation Tax-exempt distributions may be subject to state and local taxes. Each shareholder should consult a tax advisor about reporting this income for state and local tax purposes. - -------------------------------------------------------------------------------- 121 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP New York Tax-Exempt Fund Fiscal year ended June 30, 2005 Class A Income distributions -- 97.38% are tax-exempt. Payable date Per share July 26, 2004 $0.01482 Aug. 25, 2004 0.01461 Sept. 24, 2004 0.01389 Oct. 25, 2004 0.01500 Nov. 24, 2004 0.01465 Dec. 22, 2004 0.01680 Jan. 27, 2005 0.01737 Feb. 24, 2005 0.01386 March 30, 2005 0.01703 April 28, 2005 0.01412 May 26, 2005 0.01407 June 29, 2005 0.01757 Total $0.18379 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share Dec. 22, 2004 $0.05940 Total distributions $0.24319 Class B Income distributions -- 97.38% are tax-exempt. Payable date Per share July 26, 2004 $0.01147 Aug. 25, 2004 0.01130 Sept. 24, 2004 0.01073 Oct. 25, 2004 0.01164 Nov. 24, 2004 0.01141 Dec. 22, 2004 0.01380 Jan. 27, 2005 0.01354 Feb. 24, 2005 0.01073 March 30, 2005 0.01334 April 28, 2005 0.01102 May 26, 2005 0.01097 June 29, 2005 0.01392 Total $0.14387 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share Dec. 22, 2004 $0.05940 Total distributions $0.20327 - -------------------------------------------------------------------------------- 122 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Class C Income distributions -- 97.38% are tax-exempt. Payable date Per share July 26, 2004 $0.01152 Aug. 25, 2004 0.01126 Sept. 24, 2004 0.01073 Oct. 25, 2004 0.01165 Nov. 24, 2004 0.01145 Dec. 22, 2004 0.01376 Jan. 27, 2005 0.01350 Feb. 24, 2005 0.01078 March 30, 2005 0.01344 April 28, 2005 0.01104 May 26, 2005 0.01097 June 29, 2005 0.01392 Total $0.14402 Capital gain distribution -- taxable as long-term capital gain. Payable date Per share Dec. 22, 2004 $0.05940 Total distributions $0.20342 Source of distributions For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50% of its assets in tax-exempt obligations at the end of each fiscal quarter. Federal taxation Tax-exempt distributions are exempt from federal income taxes and should not be included in shareholders' gross income. The income from this Fund is subject to the alternative minimum tax (AMT). The AMT percentage at June 30, 2005 was 5.33%. Other taxation Tax-exempt distributions may be subject to state and local taxes. Each shareholder should consult a tax advisor about reporting this income for state and local tax purposes. - -------------------------------------------------------------------------------- 123 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Ohio Tax-Exempt Fund Fiscal year ended June 30, 2005 Class A Income distributions -- 98.41% are tax-exempt. Payable date Per share July 26, 2004 $0.01453 Aug. 25, 2004 0.01360 Sept. 24, 2004 0.01357 Oct. 25, 2004 0.01379 Nov. 24, 2004 0.01337 Dec. 22, 2004 0.01264 Jan. 27, 2005 0.01622 Feb. 24, 2005 0.01233 March 30, 2005 0.01452 April 28, 2005 0.01240 May 26, 2005 0.01243 June 29, 2005 0.01528 Total distributions $0.16468 Class B Income distributions -- 98.41% are tax-exempt. Payable date Per share July 26, 2004 $0.01044 Aug. 25, 2004 0.01029 Sept. 24, 2004 0.01028 Oct. 25, 2004 0.01038 Nov. 24, 2004 0.01029 Dec. 22, 2004 0.00957 Jan. 27, 2005 0.01219 Feb. 24, 2005 0.00920 March 30, 2005 0.01082 April 28, 2005 0.00921 May 26, 2005 0.00933 June 29, 2005 0.01150 Total distributions $0.12350 - -------------------------------------------------------------------------------- 124 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Class C Income distributions -- 98.41% are tax-exempt. Payable date Per share July 26, 2004 $0.01052 Aug. 25, 2004 0.01032 Sept. 24, 2004 0.01026 Oct. 25, 2004 0.01037 Nov. 24, 2004 0.01029 Dec. 22, 2004 0.00955 Jan. 27, 2005 0.01218 Feb. 24, 2005 0.00921 March 30, 2005 0.01081 April 28, 2005 0.00922 May 26, 2005 0.00933 June 29, 2005 0.01150 Total distributions $0.12356 Source of distributions For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50% of its assets in tax-exempt obligations at the end of each fiscal quarter. Federal taxation Tax-exempt distributions are exempt from federal income taxes and should not be included in shareholders' gross income. The income from this Fund is subject to the alternative minimum tax (AMT). The AMT percentage at June 30, 2005 was 1.26%. Other taxation Tax-exempt distributions may be subject to state and local taxes. Each shareholder should consult a tax advisor about reporting this income for state and local tax purposes. - -------------------------------------------------------------------------------- 125 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Fund Expense Examples (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in each Fund and to compare these costs with the ongoing costs of investing in other mutual funds. These examples are based on an investment of $1,000 invested at the beginning of the period and held for the six months ended June 30, 2005. Actual Expenses The first line of each table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled "Expenses paid during the period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line of each table provides information about hypothetical account values and hypothetical expenses based on each Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare each 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in each table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of each table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - -------------------------------------------------------------------------------- 126 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP California Tax-Exempt Fund
Beginning Ending Expenses account value account value paid during Annualized Jan. 1, 2005 June 30, 2005 the period(a) expense ratio Class A Actual(b) $1,000 $1,030.80 $4.38(c) .87% Hypothetical (5% return before expenses) $1,000 $1,020.48 $4.36(c) .87% Class B Actual(b) $1,000 $1,027.00 $8.14(c) 1.62% Hypothetical (5% return before expenses) $1,000 $1,016.76 $8.10(c) 1.62% Class C Actual(b) $1,000 $1,028.90 $8.20(c) 1.63% Hypothetical (5% return before expenses) $1,000 $1,016.71 $8.15(c) 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 181/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended June 30, 2005: +3.08% for Class A, +2.70% for Class B and +2.89% for Class C. (c) Pending final approval from the Fund's Board of Directors (Board), it is expected that, effective Oct. 1, 2005, the fee schedule under the Administrative Services Agreement between Ameriprise Financial and the Fund will be revised. It is also expected that Ameriprise Financial and its affiliates will contractually agree to waive certain fees and to absorb certain expenses until June 30, 2006, unless sooner terminated at the discretion of the Board. Under this expense cap/fee waiver agreement, net expenses will not exceed 0.79% for Class A; 1.55% for Class B and 1.55% for Class C. If the revised fee schedule under the Administrative Services Agreement and the cap/waiver agreement had been in place for the entire six-month period ended June 30, 2005, the actual expenses paid would have been $3.98 for Class A, $7.79 for Class B and $7.80 for Class C; the hypothetical expenses paid would have been $3.96 for Class A, $7.75 for Class B and $7.75 for Class C. - -------------------------------------------------------------------------------- 127 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Massachusetts Tax-Exempt Fund
Beginning Ending Expenses account value account value paid during Annualized Jan. 1, 2005 June 30, 2005 the period(a) expense ratio Class A Actual(b) $1,000 $1,023.40 $4.41(c) .88% Hypothetical (5% return before expenses) $1,000 $1,020.43 $4.41(c) .88% Class B Actual(b) $1,000 $1,019.60 $8.21(c) 1.64% Hypothetical (5% return before expenses) $1,000 $1,016.66 $8.20(c) 1.64% Class C Actual(b) $1,000 $1,017.70 $8.20(c) 1.64% Hypothetical (5% return before expenses) $1,000 $1,016.66 $8.20(c) 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 181/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended June 30, 2005: +2.34% for Class A, +1.96% for Class B, and +1.77% for Class C. (c) Pending final approval from the Fund's Board of Directors (Board), it expected that, effective Oct. 1, 2005, the fee schedule under the Administrative Services Agreement between Ameriprise Financial and the Fund will be revised. It is also expected that Ameriprise Financial and its affiliates will contractually agree to waive certain fees and to absorb certain expenses until June 30, 2006, unless sooner terminated at the discretion of the Board. Under this expense cap/fee waiver agreement, net expenses will not exceed 0.79% for Class A; 1.55% for Class B and 1.55% for Class C. If the revised fee schedule under the Administrative Services Agreement and the cap/waiver agreement had been in place for the entire six-month period ended June 30, 2005, the actual expenses paid would have been $3.96 for Class A, $7.76 for Class B and $7.75 for Class C; the hypothetical expenses paid would have been $3.96 for Class A, $7.75 for Class B and $7.75 for Class C. - -------------------------------------------------------------------------------- 128 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Michigan Tax-Exempt Fund
Beginning Ending Expenses account value account value paid during Annualized Jan. 1, 2005 June 30, 2005 the period(a) expense ratio Class A Actual(b) $1,000 $1,022.80 $4.41(c) .88% Hypothetical (5% return before expenses) $1,000 $1,020.43 $4.41(c) .88% Class B Actual(b) $1,000 $1,019.00 $8.21(c) 1.64% Hypothetical (5% return before expenses) $1,000 $1,016.66 $8.20(c) 1.64% Class C Actual(b) $1,000 $1,018.90 $8.21(c) 1.64% Hypothetical (5% return before expenses) $1,000 $1,016.66 $8.20(c) 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 181/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended June 30, 2005: +2.28% for Class A, +1.90% for Class B and +1.89% for Class C. (c) Pending final approval from the Fund's Board of Directors (Board), it is expected that, effective Oct. 1, 2005, the fee schedule under the Administrative Services Agreement between Ameriprise Financial and the Fund will be revised. It is also expected that Ameriprise Financial and its affiliates will contractually agree to waive certain fees and to absorb certain expenses until June 30, 2006, unless sooner terminated at the discretion of the Board. Under this expense cap/fee waiver agreement, net expenses will not exceed 0.79% for Class A; 1.55% for Class B and 1.55% for Class C. If the revised fee schedule under the Administrative Services Agreement and the cap/waiver agreement had been in place for the entire six-month period ended June 30, 2005, the actual expenses paid would have been $3.96 for Class A, $7.76 for Class B and $7.76 for Class C; the hypothetical expenses paid would have been $3.96 for Class A, $7.75 for Class B and $7.75 for Class C. - -------------------------------------------------------------------------------- 129 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Minnesota Tax-Exempt Fund
Beginning Ending Expenses account value account value paid during Annualized Jan. 1, 2005 June 30, 2005 the period(a) expense ratio Class A Actual(b) $1,000 $1,020.60 $4.21(c) .84% Hypothetical (5% return before expenses) $1,000 $1,020.63 $4.21(c) .84% Class B Actual(b) $1,000 $1,016.80 $7.95(c) 1.59% Hypothetical (5% return before expenses) $1,000 $1,016.91 $7.95(c) 1.59% Class C Actual(b) $1,000 $1,016.80 $8.00(c) 1.60% Hypothetical (5% return before expenses) $1,000 $1,016.86 $8.00(c) 1.60%
(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 181/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended June 30, 2005: +2.06% for Class A, +1.68% for Class B and +1.68% for Class C. (c) Pending final approval from the Fund's Board of Directors (Board), it is expected that, effective Oct. 1, 2005, the fee schedule under the Administrative Services Agreement between Ameriprise Financial and the Fund will be revised. It is also expected that Ameriprise Financial and its affiliates will contractually agree to waive certain fees and to absorb certain expenses until June 30, 2006, unless sooner terminated at the discretion of the Board. Under this expense cap/fee waiver agreement, net expenses will not exceed 0.79% for Class A; 1.55% for Class B and 1.55% for Class C. If the revised fee schedule under the Administrative Services Agreement and the cap/waiver agreement had been in place for the entire six-month period ended June 30, 2005, the actual expenses paid would have been $3.96 for Class A, $7.75 for Class B and $7.75 for Class C; the hypothetical expenses paid would have been $3.96 for Class A, $7.75 for Class B and $7.75 for Class C. - -------------------------------------------------------------------------------- 130 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP New York Tax-Exempt Fund
Beginning Ending Expenses account value account value paid during Annualized Jan. 1, 2005 June 30, 2005 the period(a) expense ratio Class A Actual(b) $1,000 $1,025.60 $4.42(c) .88% Hypothetical (5% return before expenses) $1,000 $1,020.43 $4.41(c) .88% Class B Actual(b) $1,000 $1,021.70 $8.22(c) 1.64% Hypothetical (5% return before expenses) $1,000 $1,016.66 $8.20(c) 1.64% Class C Actual(b) $1,000 $1,021.70 $8.22(c) 1.64% Hypothetical (5% return before expenses) $1,000 $1,016.66 $8.20(c) 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 181/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended June 30, 2005: +2.56% for Class A, +2.17% for Class B and +2.17% for Class C. (c) Pending final approval from the Fund's Board of Directors (Board), it is expected that, effective Oct. 1, 2005, the fee schedule under the Administrative Services Agreement between Ameriprise Financial and the Fund will be revised. It is also expected that Ameriprise Financial and its affiliates will contractually agree to waive certain fees and to absorb certain expenses until June 30, 2006, unless sooner terminated at the discretion of the Board. Under this expense cap/fee waiver agreement, net expenses will not exceed 0.79% for Class A; 1.55% for Class B and 1.55% for Class C. If the revised fee schedule under the Administrative Services Agreement and the cap/waiver agreement had been in place for the entire six-month period ended June 30, 2005, the actual expenses paid would have been $3.97 for Class A, $7.77 for Class B and $7.77 for Class C; the hypothetical expenses paid would have been $3.96 for Class A, $7.75 for Class B and $7.75 for Class C. - -------------------------------------------------------------------------------- 131 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT AXP Ohio Tax-Exempt Fund
Beginning Ending Expenses account value account value paid during Annualized Jan. 1, 2005 June 30, 2005 the period(a) expense ratio Class A Actual(b) $1,000 $1,022.70 $4.41(c) .88% Hypothetical (5% return before expenses) $1,000 $1,020.43 $4.41(c) .88% Class B Actual(b) $1,000 $1,018.90 $8.21(c) 1.64% Hypothetical (5% return before expenses) $1,000 $1,016.66 $8.20(c) 1.64% Class C Actual(b) $1,000 $1,018.80 $8.21(c) 1.64% Hypothetical (5% return before expenses) $1,000 $1,016.66 $8.20(c) 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 181/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended June 30, 2005: +2.27% for Class A, +1.89% for Class B, and +1.88% for Class C. (c) Pending final approval from the Fund's Board of Directors (Board), it is expected that, effective Oct. 1, 2005, the fee schedule under the Administrative Services Agreement between Ameriprise Financial and the Fund will be revised. It is also expected that Ameriprise Financial and its affiliates will contractually agree to waive certain fees and to absorb certain expenses until June 30, 2006, unless sooner terminated at the discretion of the Board. Under this expense cap/fee waiver agreement, net expenses will not exceed 0.79% for Class A; 1.55% for Class B and 1.55% for Class C. If the revised fee schedule under the Administrative Services Agreement and the cap/waiver agreement had been in place for the entire six-month period ended June 30, 2005, the actual expenses paid would have been $3.96 for Class A, $7.76 for Class B and $7.76 for Class C; the hypothetical expenses paid would have been $3.96 for Class A, $7.75 for Class B and $7.75 for Class C. - -------------------------------------------------------------------------------- 132 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Board Members and Officers Shareholders elect a board that oversees the Fund's operations. The board appoints officers who are responsible for day-to-day business decisions based on policies set by the board. The following is a list of the Fund's board members. Each member oversees 14 Master Trust portfolios and 90 American Express mutual funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the board. Independent Board Members
Name, Position held address, with Fund and Principal occupation age length of service during past five years Other directorships - ---------------------------------------------------------------------------------------------------------------- Arne H. Carlson Board member Chair, Board Services 901 S. Marquette Ave. since 1999 Corporation (provides Minneapolis, MN 55402 administrative services Age 70 to boards). Former Governor of Minnesota - ---------------------------------------------------------------------------------------------------------------- Philip J. Carroll, Jr. Board member Retired Chairman and Scottish Power PLC, 901 S. Marquette Ave. since 2002 CEO, Fluor Corporation Vulcan Materials Company, Minneapolis, MN 55402 (engineering and Inc. (construction Age 67 construction) since 1998 materials/chemicals) - ---------------------------------------------------------------------------------------------------------------- Livio D. DeSimone Board member Retired Chair of the Cargill, Incorporated 30 Seventh Street East since 2001 Board and Chief (commodity merchants and Suite 3050 Executive Officer, processors), General St. Paul, MN 55101-4901 Minnesota Mining and Mills, Inc. (consumer Age 71 Manufacturing (3M) foods), Vulcan Materials Company (construction materials/ chemicals), Milliken & Company (textiles and chemicals), and Nexia Biotechnologies, Inc. - ---------------------------------------------------------------------------------------------------------------- Patricia M. Flynn Board member Trustee Professor of BostonFed Bancorp, Inc. 901 S. Marquette Ave. since 2004 Economics and (holding company) and its Minneapolis, MN 55402 Management, Bentley subsidiary Boston Federal Age 54 College since 2002; Savings Bank former Dean, McCallum Graduate School of Business, Bentley College from 1999 to 2002 - ---------------------------------------------------------------------------------------------------------------- Anne P. Jones Board member Attorney and Consultant 901 S. Marquette Ave. since 1985 Minneapolis, MN 55402 Age 70 - ---------------------------------------------------------------------------------------------------------------- Stephen R. Lewis, Jr. Board member Retired President and Valmont Industries, Inc. 901 S. Marquette Ave. since 2002 Professor of Economics, (manufactures irrigation Minneapolis, MN 55402 Carleton College systems) Age 66 - ---------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 133 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Independent Board Members (continued) Name, Position held address, with Fund and Principal occupation age length of service during past five years Other directorships - ------------------------------------------------------------------------------------------------------------- Catherine James Paglia Board member Director, Enterprise Strategic Distribution, 901 S. Marquette Ave. since 2004 Asset Management, Inc. Inc. (transportation, Minneapolis, MN 55402 (private real estate and distribution and Age 52 asset management company) logistics consultants) since 1999 - ------------------------------------------------------------------------------------------------------------- Alan K. Simpson Board member Former three-term United 1201 Sunshine Ave. since 1997 States Senator for Wyoming Cody, WY 82414 Age 73 - ------------------------------------------------------------------------------------------------------------- Alison Taunton-Rigby Board member Founder and Chief Hybridon, Inc. 901 S. Marquette Ave. since 2002 Executive Officer, (biotechnology) Minneapolis, MN 55402 RiboNovix, Inc. since Age 61 2004; President, Forester Biotech since 2000; prior to that, President and CEO, Aquila Biopharmaceuticals, Inc. - ------------------------------------------------------------------------------------------------------------- Board Member Affiliated with Ameriprise Financial, Inc. (formerly AEFC)* Name, Position held address, with Fund and Principal occupation age length of service during past five years Other directorships - ------------------------------------------------------------------------------------------------------------- William F. Truscott Board member Senior Vice President - 53600 Ameriprise Financial Center since 2001, Chief Investment Officer Minneapolis, MN 55474 Vice President of Ameriprise Financial, Age 44 since 2002 Inc. and RiverSource Investments, LLC since 2001. Former Chief Investment Officer and Managing Director, Zurich Scudder Investments - ------------------------------------------------------------------------------------------------------------
* Interested person by reason of being an officer, director and/or employee of Ameriprise Financial, Inc. (formerly American Express Financial Corporation) or of RiverSource Investments, LLC, its wholly owned subsidiary. - -------------------------------------------------------------------------------- 134 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT The board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the board. In addition to Mr. Truscott, who is vice president, the Fund's other officers are: Other Officers
Name, Position held address, with Fund and Principal occupation age length of service during past five years Other directorships - ----------------------------------------------------------------------------------------------------------------- Jeffrey P. Fox Treasurer Vice President - Investment 105 Ameriprise Financial Center since 2002 Accounting, Ameriprise Financial, Minneapolis, MN 55474 Inc., since 2002; Vice President - Age 50 Finance, American Express Company, 2000-2002; Vice President - Corporate Controller, Ameriprise Financial, Inc., 1996-2000 - ----------------------------------------------------------------------------------------------------------------- Paula R. Meyer President Senior Vice President and General 596 Ameriprise Financial Center since 2002 Manager - Mutual Funds, Ameriprise Minneapolis, MN 55474 Financial, Inc. since 2002; Vice Age 51 President and Managing Director - American Express Funds, Ameriprise Financial, Inc. 2000-2002; Vice President, Ameriprise Financial, Inc. 1998-2000 - ----------------------------------------------------------------------------------------------------------------- Leslie L. Ogg Vice President, President of Board Services 901 S. Marquette Ave. General Counsel, Corporation Minneapolis, MN 55402 and Secretary Age 66 since 1978 - ----------------------------------------------------------------------------------------------------------------- Beth E. Weimer Chief Compliance Vice President and Chief 172 Ameriprise Financial Center Officer since 2004 Compliance Officer, Ameriprise Minneapolis, MN 55474 Financial, Inc. since 2001; Vice Age 52 President and Chief Compliance Officer, Ameriprise Financial Services, Inc. (formerly American Express Financial Advisors), 2001-2005; Partner, Arthur Andersen Regulatory Risk Services, 1998-2001 - -----------------------------------------------------------------------------------------------------------------
The SAI has additional information about the Fund's directors and is available, without charge, upon request by calling (800) 862-7919. - -------------------------------------------------------------------------------- 135 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT Approval of Investment Management Services Agreement AXP California Tax-Exempt Fund AXP Massachusetts Tax-Exempt Fund AXP Michigan Tax-Exempt Fund AXP Minnesota Tax-Exempt Fund AXP New York Tax-Exempt Fund AXP Ohio Tax-Exempt Fund Ameriprise Financial, Inc. (formerly American Express Financial Corporation or AEFC), (the investment manager), is a wholly-owned subsidiary of American Express Company. Under an Investment Management Services Agreement (the Agreement), the investment manager provides investment advice and other services to the Fund. Throughout the year, the Funds' Board of Trustees and the Board's Investment Review Committee monitor these services. Each year the Board determines whether to continue the Agreement by evaluating the quality and level of service received and the costs associated with those services. The investment manager prepares detailed reports for the Board and its Contracts Committee in March and April and provides data prepared by independent organizations to assist the Board in making this determination. The Board gives considerable weight to the work, deliberations and conclusions of the Contracts and Investment Review Committees in determining whether to continue the Agreement. On February 1, 2005, American Express Company announced its intention to pursue a spin-off of AEFC by distributing shares of the common stock of AEFC to shareholders of American Express Company. At a meeting held in person on April 14, 2005, the Board, including a majority of the independent members, approved the continuation of the Agreement for an interim period, not to exceed one year, ending on the later of (i) the effective date of the spin-off or (ii) the approval by the Fund's shareholders of a new investment management services agreement with the investment manager (the Interim Period). The spin-off will not result in an "assignment" of the Agreement under the Investment Company Act of 1940 and, therefore, will not cause the termination of the Agreement according to its terms. In connection with the spin-off the investment manager has proposed that going forward, services under the Agreement be provided by an affiliate, RiverSource Investments, LLC (RiverSource). Independent counsel advised the Board that it would be prudent, in connection with the spin-off, to consider a new agreement with RiverSource and to seek shareholder approval of that agreement as soon as practical thereafter. Investment performance is a major factor in the evaluation process, and the Board reviewed the Fund's performance over a range of different periods by comparing its performance to relevant Lipper and broader market indices. For AXP California Tax-Exempt Fund The Board considered that over time the Fund's investment performance should be above the median for a peer group of funds with similar investment goals and noted that the Fund's investment performance in 2004 approximated the median. - -------------------------------------------------------------------------------- 136 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT For AXP Massachusetts Tax-Exempt Fund The Board considered that over time the Fund's investment performance should be above median for a peer group of funds with similar investment goals and noted that the Fund's investment performance in 2004 was below median. The Board also considered the fact that Ameriprise Financial has implemented a new fixed income sector team approach to managing the Fund and performance has begun to improve. For AXP Michigan Tax-Exempt Fund The Board considered that over time the Fund's investment performance should be above the median for a peer group of funds with similar investment goals and noted that the Fund's investment performance in 2004 exceeded the median. For AXP Minnesota Tax-Exempt Fund The Board considered that over time the Fund's investment performance should be above median for a peer group of funds with similar investment goals and noted that the Fund's investment performance in 2004 was below median. The Board also considered the fact that Ameriprise Financial has implemented a new fixed income sector team approach to managing the Fund and performance has begun to improve. For AXP New York Tax-Exempt Fund The Board considered that over time the Fund's investment performance should be above median for a peer group of funds with similar investment goals and noted that the Fund's investment performance in 2004 approximated the median. The Board also considered the fact that Ameriprise Financial has implemented a new fixed income sector team approach to managing the Fund and performance has begun to improve. For AXP Ohio Tax-Exempt Fund The Board considered that over time the Fund's investment performance should be above median for a peer group of funds with similar investment goals and noted that the Fund's investment performance in 2004 was below median. The Board also considered the fact that Ameriprise Financial has implemented a new fixed income sector team approach to managing the Fund and performance has begun to improve. The Board noted that, in addition to portfolio management and investment research, the investment manager provides portfolio trading, daily net asset value calculation, management of cash flow, product development, administration of its compliance and legal departments, access to distribution, accounting and recordkeeping, and reporting to the Board and shareholders. To evaluate these services, the Board referred to surveys and benchmarks established by commercial providers, trade associations and the investment manager's internal processes. The Board concluded that the services provided were consistent with services provided by investment managers to comparable mutual funds. - -------------------------------------------------------------------------------- 137 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT The Board also evaluated the price paid for the services provided by the investment manager, noting the existence of a pricing philosophy, established by the Board and the investment manager, that seeks to maintain total Fund expenses within a range of the median expenses charged to comparable funds sold through financial advisors. The Board considered detailed information set forth in an annual report on fees and expenses, including, among other things, data showing a comparison of the Fund's expenses with median expenses paid by funds in its comparison group and data showing the Fund's contribution to the investment manager's profitability. For AXP California Tax-Exempt Fund The Board determined that while the Fund's expenses are slightly higher than the median for its comparison group, a fee waiver has been added to be consistent with other AXP state tax-exempt funds. For AXP Massachusetts Tax-Exempt Fund The Board determined that the total expense ratio of the Fund is below median of its comparison group. However, the fee waiver has been increased to be consistent with other AXP state tax-exempt funds. For AXP Michigan Tax-Exempt Fund The Board determined that while the Fund's expenses are somewhat higher than the median for its comparison group, the fee waiver has been increased to be consistent with other AXP state tax-exempt funds. For AXP Minnesota Tax-Exempt Fund The Board determined that the total expense ratio of the Fund is below the median of its comparison group. Subsequent to the Board's consideration of the annual renewal of the Agreement, Ameriprise Financial proposed a fee waiver that would be consistent with other AXP state tax-exempt funds. For AXP New York Tax-Exempt Fund The Board determined that while the Fund's expenses are slightly higher than the median for its comparison group, the existing fee waiver has been increased to reduce further the expenses the Fund will pay. For AXP Ohio Tax-Exempt Fund The Board determined that while the Fund's expenses are relatively high for its comparison group, the existing fee waiver has been increased to reduce further the expenses the Fund will pay. The Board considered the economies of scale that might be realized by the investment manager as the Fund grew and took note of the extent to which Fund shareholders also might benefit from such growth. The Board considered that the Agreement provided for lower fees as assets increase at pre-established breakpoints and concluded that the Agreement satisfactorily provided for sharing these economies of scale. - -------------------------------------------------------------------------------- 138 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT The Board took into account the Contracts Committee's discussion comparing the fees the investment manager charges to the Fund with those it charges to institutional clients, noting that the relatively higher fees paid by the Fund were principally attributable to the additional services required to manage a regulated mutual fund, like the Fund, and the operation of a large mutual fund family. The Board also considered the profitability realized by the investment manager and its affiliates from its relationship with the Fund. The Board took into account the services acquired by the investment manager through the use of commission dollars paid by the Fund on portfolio transactions. The Board concluded that the investment manager's overall costs and profitability were appropriate, although profitability may be too low on an ongoing basis. The Board noted that the fees paid by the Fund should permit the investment manager to offer competitive compensation to its personnel, make necessary investments in its business and earn an appropriate profit. Based on the foregoing, the Board concluded that the fees paid to the investment manager under the Agreement were fair and reasonable and determined to approve renewal of the Agreement for the Interim Period. - -------------------------------------------------------------------------------- 139 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL 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 www.ameriprise.com; 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 www.ameriprise.com 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. - -------------------------------------------------------------------------------- 140 -- AXP STATE TAX-EXEMPT FUNDS -- 2005 ANNUAL REPORT American Express Funds 70100 Ameriprise Financial Center Minneapolis, MN 55474 This report must be accompanied or preceded by the Fund's current prospectus. Distributed by Ameriprise Financial Services, Inc. (formerly known as American Express Financial Advisors Inc.). Member NASD. American Express Company is separate from Ameriprise Financial Services, Inc. and is not a broker-dealer. Item 2. (a) The Registrant has adopted a code of ethics that applies to the Registrant's principal executive officer and principal financial officer. A copy of the code of ethics is filed as an exhibit to this form N-CSR. (b) During the period covered by this report, there were not any amendments to the provisions of the code of ethics adopted in 2(a) above. (c) During the period covered by this report, there were not any implicit or explicit waivers to the provisions of the code of ethics adopted in 2(a). Item 3. The Registrant's board of directors has determined that independent directors Livio D. DeSimone and Anne P. Jones, each qualify as audit committee financial experts. Item 4. Principal Accountant Fees and Services Fund - Related Fees* (a) Audit Fees. The fees paid for the years ended June 30, to KPMG LLP for professional services rendered for the audits of the annual financial statements for AXP California Tax-Exempt Trust were as follows: 2005 - $19,500; 2004 - $18,029 (b) Audit - Related Fees. The fees paid for the years ended June 30, to KPMG LLP for additional professional services rendered in connection with the registrant's security count pursuant to Rule 17f-2 for AXP California Tax-Exempt Trust were as follows: 2005 - $50; 2004 - $49 (c) Tax Fees. The fees paid for the years ended June 30, to KPMG LLP for tax compliance related services for AXP California Tax-Exempt Trust were as follows: 2005 - $2,550; 2004 - $2,275 (d) All Other Fees. The fees paid for the years ended June 30, to KPMG LLP for additional professional services rendered for AXP California Tax-Exempt Trust were as follows: 2005 - $40; 2004 - None (e) (1) Audit Committee Pre-Approval Policy. Pursuant to Sarbanes-Oxley pre-approval requirements, all services to be performed by KPMG LLP for the registrant and to the registrant's investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant must be pre-approved by the audit committee. (e) (2) 100% of the services performed for items (b) through (d) above during 2005 and 2004 were pre-approved by the audit committee. (f) Not applicable. (g) Non-Audit Fees. The fees paid for the years ended June 30, by the registrant for non-audit services to KPMG LLP were as follows: 2005 - None; 2004 - None The fees paid for the years ended June 30, to KPMG LLP by the registrant's investment adviser, and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant were as follows: 2005 - $75,900; 2004 - $71,000 (h) 100% of the services performed for item (g) above during 2005 and 2004 were pre-approved by the audit committee. *2004 represents bills paid 7/1/03 - 6/30/04 2005 represents bills paid 7/1/04 - 6/30/05 Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. The complete schedule of investments is included in Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not applicable. Item 9. Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. Item 10. Submission of matters to a vote of security holders. Not applicable. Item 11. Controls and Procedures. (a) Based upon their evaluation of the registrant's disclosure controls and procedures as conducted within 90 days of the filing date of this Form N-CSR, the registrant's Principal Financial Officer and Principal Executive Officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. (b) There were no changes in the registrant's internal controls over financial reporting that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits. (a)(1) Code of ethics as applies to the Registrant's principal executive officer and principal financial officer, as required to be disclosed under Item 2 of Form N-CSR, is attached as Ex. 99.CODE ETH. (a)(2) Separate certification for the Registrant's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached as EX.99.CERT. (a)(3) Not applicable. (b) A certification by the Registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment Company Act of 1940, is attached as EX.99.906 CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) AXP California Tax-Exempt Trust By /s/ Paula R. Meyer ------------------ Paula R. Meyer President and Principal Executive Officer Date September 1, 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 September 1, 2005 By /s/ Jeffrey P. Fox ------------------ Jeffrey P. Fox Treasurer and Principal Financial Officer Date September 1, 2005 EX-99.CODE ETH 2 code-ethics.txt CODE OF ETHICS AMERICAN EXPRESS FUNDS PREFERRED MASTER TRUST GROUP (THE AXP FUNDS) CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS I. Purpose of the Code; Covered Officers This code of ethics ("Code") for the AXP Funds (collectively, "Funds," and each, "Fund") applies to the Funds' Principal Executive Officer and Principal Financial Officer (the "Covered Officers," each of whom is identified in Exhibit A) for the purpose of promoting, in connection with his or her duties: o honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; o full, fair, accurate, timely, and understandable disclosure in reports and documents that a Fund files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Funds; o compliance with laws and governmental rules and regulations applicable to the conduct of the Funds' business and their financial reporting; o the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and o accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. II. Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his or her service to, the Funds. For example, a conflict of interest would arise if a Covered Officer, or a member of his or her family, receives improper personal benefits as a result of his or her position with the Funds. Certain conflicts of interest arise out of the relationships between Covered Officers and the Funds and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions, such as the purchase or sale of securities or other property, with the Funds because of their status as "affiliated persons" of the Funds. The compliance programs and -1- procedures of the Funds and of American Express Financial Corporation ("AEFC"), the investment adviser to the Funds, are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the Funds and AEFC, of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties, whether formally for the Funds or for AEFC, or for both, be involved in establishing policies and implementing decisions that will have different effects on AEFC and the Funds. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Funds and AEFC and is consistent with the performance by the Covered Officers of their duties as officers of the Funds. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Funds. Each Covered Officer must: o not use his or her personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Funds whereby the Covered Officer would benefit personally to the detriment of the Funds; o not cause the Funds to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit of the Funds; o not use material non-public knowledge of portfolio transactions made or contemplated for the Company to trade personally or cause others to trade personally in contemplation of the market effect of such transactions; III. Disclosure and Compliance o Each Covered Officer should familiarize himself or herself with the disclosure requirements generally applicable to the Funds; o Each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about the Funds to others, whether within or outside the Funds, including to the Funds' directors and auditors, and to governmental regulators and self-regulatory organizations; o Each Covered Officer should, to the extent appropriate within his or her area of responsibility, consult with other officers and employees of the Funds and AEFC with the goal of promoting full, fair, accurate, timely, and understandable disclosure in the reports -2- and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and o It is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules, and regulations. IV. Reporting and Accountability Each Covered Officer must: o upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Board that he or she has received, read, and understands the Code; o annually thereafter affirm to the Board that he or she has complied with the requirements of the Code; o not retaliate against any other Covered Officer or any employee of AEFC or its affiliated persons for reports of potential violations that are made in good faith; and o notify the general counsel of the Funds ("Funds General Counsel") promptly if he or she knows of any violation of this Code. Failure to do so is itself a violation of this Code. The Funds General Counsel is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. However, any approvals or waivers sought by a Covered Officers will be considered by the Board Effectiveness Committees (the "Committees"). The Funds will follow these procedures in investigating and enforcing this Code: o The Funds General Counsel will take all appropriate action to investigate any potential violations reported to him; o If, after such investigation, the Funds General Counsel believes that no violation has occurred, he or she is not required to take any further action; o Any matter that the Funds General Counsel believes is a violation will be reported to the Committees; o If the Committees concur that a violation has occurred, they will inform the Board, and the Board will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer; o The Committees will be responsible for granting waivers, as appropriate; and o Any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. V. Other Policies and Procedures This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, AEFC, or any -3- affiliate of AEFC govern or purport to govern the activities of the Covered Officers, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. AEFC's code of ethics under Rule 17j-1 under the Investment Company Act is a separate requirement applying to the Covered Officers and others, and is not part of this Code. VI. Amendments Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of each Fund's Board, including a majority of its independent directors. Date: July, 2003 -4- Exhibit A Persons Covered by this Code of Ethics Paula R. Meyer President Jeffrey P. Fox Treasurer -5- EX-99.CERT 3 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: August 25, 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: August 25, 2005 /s/ Jeffrey P. Fox -------------------------------- Name: Jeffrey P. Fox Title: Treasurer and Chief Financial Officer EX-99.906 CERT 4 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: August 25, 2005 /s/ Paula R. Meyer ------------------- Paula R. Meyer President and Chief Executive Officer Date: August 25, 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-----