AXP(SM)
High Yield
Tax-Exempt Fund
1999 annual report
(prospectus enclosed)
American
Express(R)
Funds
(icon of) padlock
AXP High Yield Tax-Exempt Fund seeks to provide shareholders with a high yield
generally exempt from federal income taxes.
(This annual report includes a prospectus that describes in detail the Fund's
objective, investment strategy, risks, sales charges, fees and other matters of
interest. Please read the prospectus carefully before you invest or send money.)
AMERICAN
EXPRESS(R)(logo)
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More Yield,
Less Taxes
Most of the time, making money means paying taxes. But investors still can enjoy
income that generally is free from federal taxes by taking advantage of
tax-exempt bonds. AXP High Yield Tax-Exempt Fund strives to provide the maximum
amount of tax-free income by focusing on municipal bonds that pay above-average
interest. However, certain income may be subject to state or local or the
alternative minimum tax. To reduce the investment risk, the Fund holds a large,
widely diversified portfolio of bonds providing protection to shareholders
seeking to avoid the impact of default by an individual bond. The result may be
a superior after-tax return for investors in higher tax brackets.
AXP HIGH YIELD TAX-EXEMPT FUND
(This annual report is not part of the prospectus.)
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Table of Contents
1999 ANNUAL REPORT
The purpose of this annual report is to tell investors how the Fund performed.
From the Chairman 4
From the Portfolio Manager 5
Fund Facts 6
The 10 Largest Holdings 7
Making the Most of the Fund 8
The Fund's Long-term Performance 9
Independent Auditors' Report (Fund) 11
Financial Statements (Fund) 12
Notes to Financial Statements (Fund) 15
Independent Auditors' Report (Portfolio) 20
Financial Statements (Portfolio) 21
Notes to Financial Statements (Portfolio) 24
Investments in Securities 28
Federal Income Tax Information 80
2000 PROSPECTUS
The prospectus, which is bound into the middle of this annual report, describes
the Fund in detail.
The Fund 3p
Goal 3p
Investment Strategy 3p
Risks 5p
Past Performance 6p
Fees and Expenses 8p
Management 9p
Buying and Selling Shares 9p
Valuing Fund Shares 9p
Investment Options 10p
Purchasing Shares 11p
Transactions through Third Parties 14p
Sales Charges 14p
Exchanging/Selling Shares 18p
Distributions and Taxes 23p
Master/Feeder Structure 25p
Other Information 26p
Financial Highlights 27p
Appendix 29p
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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(picture of) Arne H. Carlson
Arne H. Carlson
Chairman of the board
From the Chairman
We are in an extraordinary period for investing in financial assets, with many
stocks at their all-time highs. Looking at year 2000, American Express Financial
Corporation, the Fund's investment manager, expects the economy to continue to
grow and long-term interest rates to rise only slightly. This is a great time to
take a close look at your goals and investments. We encourage you to:
o Consult a professional investment adviser who can help you cut through
mountains of data.
o Set financial goals that extend beyond those achievable through retirement
plans of your employer.
o Learn as much as you can about your current investments.
The portfolio manager's letter that follows provides a review of the Fund's
investment strategies and performance. The annual report contains other valuable
information as well. The Fund's prospectus describes its investment objectives
and how it intends to achieve those objectives. As experienced investors know,
information is vital to making good investment decisions.
So, take a moment and decide again whether the Fund's investment objectives and
management style fit with your other investments to help you reach your
financial goals. And make it a practice on a regular basis to assess your
investment options.
Sincerely,
Arne H. Carlson
AXP HIGH YIELD TAX-EXEMPT FUND
(This annual report is not part of the prospectus.)
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(picture of) Kurt Larson
Kurt Larson
Portfolio manager
From the Portfolio Manager
Rising interest rates led to slightly higher interest income for AXP High Yield
Tax-Exempt Fund during the past fiscal year --December 1998 through November
1999. However, because the interest-rate trend resulted in a decline in net
asset value, the Fund's Class A shares (excluding the sales charge) experienced
a loss of 1.86% on a total return basis.
At the outset of the period, with worries about a potential global recession on
the wane, investors refocused their attention on the remarkably robust U.S.
economy. Despite ongoing reports of still-benign inflation, they concluded that
an increase in consumer prices was becoming a greater possibility.
That concern was later reinforced by the Federal Reserve Board, which increased
short-term interest rates three times in an effort to cool off the economy and,
ultimately, take some pressure off inflation. The result was increased selling
pressure on bonds, which in turn drove long-term interest rates up and bond
prices down for much of the 12 months. Most affected were U.S. Treasury bonds,
but municipal issues were penalized as well, particularly during the summer and
fall.
DEMAND DROPS
Looking at other market fundamentals, the supply of municipal bonds declined
early in the period, then increased in the second half of the fiscal year. On
the demand side, institutional buying slacked off as the period progressed. That
also weakened the support for bond prices.
As for changes to the portfolio, they were minor. I kept the duration (a
function of the average maturity of the bonds owned that affects the Fund's
sensitivity to interest-rate swings) in the neutral-to-slightly-short range. In
the end, that cushioned the decline in net asset value somewhat when interest
rates rose.
My main focus, though, continued to be on keeping the interest income as high as
prudently possible. In keeping with that, I added to investments in lower-rated
bonds, which provided more income. At period-end, about 23% of the portfolio was
invested in low-grade bonds.
As the new fiscal year begins, the biggest issue facing the bond market centers
on what the Federal Reserve Board might do with short-term interest rates in the
months ahead. My view is that the question may hang over the market until,
perhaps, spring. Therefore, over the near term at least, I plan to stick with an
investment approach that focuses mainly on enhancing the Fund's yield.
Kurt Larson
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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Fund Facts
Class A -- 12-month performance
(All figures per share)
Net asset value (NAV)
Nov. 30, 1999 $ 4.34
Nov. 30, 1998 $ 4.68
Decrease $ 0.34
Distributions -- Dec. 1, 1998 - Nov. 30, 1999
From income $ 0.26
From capital gains $ --
Total distributions $ 0.26
Total return* -1.86%**
Class B -- 12-month performance
(All figures per share)
Net asset value (NAV)
Nov. 30, 1999 $ 4.34
Nov. 30, 1998 $ 4.68
Decrease $ 0.34
Distributions -- Dec. 1, 1998 - Nov. 30, 1999
From income $ 0.23
From capital gains $ --
Total distributions $ 0.23
Total return* -2.58%**
Class Y -- 12-month performance
(All figures per share)
Net asset value (NAV)
Nov. 30, 1999 $ 4.35
Nov. 30, 1998 $ 4.68
Decrease $ 0.33
Distributions -- Dec. 1, 1998 - Nov. 30, 1999
From income $ 0.26
From capital gains $ --
Total distributions $ 0.26
Total return* -1.56%**
*The prospectus discusses the effect of sales charges, if any, on the various
classes.
**The total return is a hypothetical investment in the Fund with all
distributions reinvested.
AXP HIGH YIELD TAX-EXEMPT FUND
(This annual report is not part of the prospectus.)
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The 10 Largest Holdings
Percent Value
(of net assets) (as of Nov. 30, 1999)
New York City Municipal Water Finance
Authority Water & Sewer System Revenue Bonds
Series A
6.25% 2021 1.04% $56,537,849
New Hampshire Industrial Development
Authority Pollution Control Revenue Bonds
State Public Service Series 1991B
7.50% 2021 .98 53,006,382
Eastern North Carolina Municipal Power Agency
Power System Refunding Revenue Bonds Series 1991A
5.75% 2019 .92 49,743,099
Northern California Power Agency
Geothermal 3 Revenue Bonds
5.00% 2009 .91 49,537,172
Utah Intermountain Power Agency
Power Supply Refunding Revenue Bonds
Series 1996C
5.70% 2017 .84 45,374,859
Washington Public Power Supply System
Nuclear Project 1 Revenue Bonds Series 1990A
6.00% 2017 .72 39,332,947
Texas Alliance Airport Authority Special
Facility Revenue Bonds American Airlines
Series 1990 A.M.T.
7.50% 2029 .72 38,916,195
Midland County Michigan Economic
Development Corporation Pollution Control
Limited Obligation Refunding Revenue Bonds
Midland Cogeneration Series 1990
A.M.T.
9.50% 2009 .67 36,470,367
Eastern North Carolina Municipal Power Agency
Power System Refunding Revenue Bonds Series 1989A
5.50% 2011 .66 36,077,454
California Foothill/Eastern Transportation
Corridor Agency Toll Road Revenue Bonds Series 1995A
5.00% 2035 .64 34,909,499
Note: Investment income from certain securities may be subject to the
Alternative Minimum Tax (A.M.T.).
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
(Icon of a pie chart)
The 10 holdings listed here make up 8.10% of net assets
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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Making the Most of the Fund
BUILD YOUR ASSETS SYSTEMATICALLY
One of the best ways to invest in the Fund is by dollar-cost averaging -- a
time-tested strategy that can make market fluctuations work for you. To
dollar-cost average, simply invest a fixed amount of money regularly. You'll
automatically buy more shares when the Fund's share price is low, fewer shares
when it is high. The chart below shows how dollar-cost averaging works. In these
three hypothetical scenarios, you will see six months of share price
fluctuations.
This strategy does not ensure a profit or avoid a loss if the market declines.
But, if you can continue to invest regularly through changing market conditions
even when the price of your shares fall or the market declines, it can be an
effective way to accumulate shares to meet your long-term goals.
How dollar-cost averaging works
Jan Feb Mar Apr May Jun
$15 $16 $18 $20
$10 $10 $12 $14
$ 5
Accumulated shares* Average market Your average
price per share cost per share
42.25 $15 $14.20
- -------------------------------------------------------------------------------
Jan Feb Mar Apr May Jun
$15
$10 $10 $10
$ 5 $8 $5 $5 $8
Accumulated shares* Average market Your average
price per share cost per share
85.0 $7.66 $7.05
- -------------------------------------------------------------------------------
Jan Feb Mar Apr May Jun
$15
$10 $10 $8 $6 $7
$ 5 $4 $4
Accumulated shares* Average market Your average
price per share cost per share
103.5 $6.50 $5.80
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$100 invested per month. Total invested: $600.
*Shares purchased is determined by dividing the amount invested per month by the
current share price.
THREE WAYS TO BENEFIT FROM A MUTUAL FUND:
o your shares increase in value when the Fund's investments do well
o you receive capital gains when the gains on investments sold by the Fund
exceed losses
o you receive income when the Fund's stock dividends, interest and short-term
gains exceed its expenses.
All three make up your total return. You potentially can increase your
investment if, like most investors, you reinvest your dividends and capital gain
distributions to buy additional shares of the Fund or another fund.
AXP HIGH YIELD TAX-EXEMPT FUND
(This annual report is not part of the prospectus.)
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The Fund's Long-term Performance
How $10,000 has grown in AXP High Yield Tax-Exempt Fund
$20,000 X Lipper General
Municipal Debt Index
X Lehman Brothers X $17,428
Municipal Bond Index AXP High Yield
$10,000 Tax-Exempt Fund
Class A
$9,500
(The printed version of this chart contains
a line graph with three lines corresponding
to the two Indices and Fund noted above.)
'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99
Average annual total returns (as of Nov. 30, 1999)
1 year 5 years 10 years Since
inception*
Class A -6.77% +5.79% +5.71% --%
Class B -6.29% --% --% +4.40%
Class Y -1.56% --% --% +5.71%
*Inception date was March 20, 1995.
Assumes: Holding period from 12/1/89 to 11/30/99. Returns do not reflect taxes
payable on distributions. Reinvestment of all income and capital gain
distributions for the Fund has a value of $8,820. Also see "Past Performance" in
the Fund's current prospectus.
On the graph above you can see how the Fund's total return compared to two
widely cited performance indexes, the Lehman Brothers Municipal Bond Index and
the Lipper General Municipal Debt Index. In comparing AXP High Yield Tax-Exempt
Fund (Class A) to the two indexes, you should take into account the fact that
the Fund's performance reflects the maximum sales charge of 5%, while such
charges are not reflected in the performance of the indexes.
Your investment and return values fluctuate so that your shares, when redeemed,
may be worth more or less than the original cost. Average annual total return
figures reflect the impact of the applicable sales charge up to a maximum of 5%.
This was a period of widely fluctuating security prices. Past performance is no
guarantee of future results.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
<PAGE>
Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of a
representative list of general obligation, revenue, insured and prefunded bonds.
The index is frequently used as a general measure of tax-exempt bond market
performance. The index reflects reinvestment of all distributions and changes in
the market prices, but excludes brokerage commissions or other fees. However,
the securities used to create the index may not be representative of the bonds
held in the Fund.
The Lipper General Municipal Debt Index, an unmanaged index published by Lipper
Analytical Services, Inc., includes 30 funds that are generally similar to the
Fund, although some funds in the index may have somewhat different investment
policies or objectives.
AXP HIGH YIELD TAX-EXEMPT FUND
(This annual report is not part of the prospectus.)
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The financial statements contained in Post-Effective Amendment #38 to
Registration Statement No. 2-63552 filed on or about January 26, 2000, are
incorporated herein by reference.
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Federal Income Tax Information
(Unaudited)
The 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 High Yield Tax-Exempt Fund, Inc.
Fiscal year ended Nov. 30, 1999
Class A
Exempt-interest dividends -- taxable status explained below.
Payable date Per share
Dec. 22, 1998 $0.02039
Jan. 25, 1999 0.02404
Feb. 25, 1999 0.02359
March 24, 1999 0.01877
April 26, 1999 0.02378
May 27, 1999 0.02278
June 23, 1999 0.01948
July 26, 1999 0.02299
Aug. 26, 1999 0.02157
Sept. 22, 1999 0.01940
Oct. 25, 1999 0.02351
Nov. 23, 1999 0.02016
Total distributions $0.26046
AXP HIGH YIELD TAX-EXEMPT FUND
(This annual report is not part of the prospectus.)
<PAGE>
Class B
Exempt-interest dividends -- taxable status explained below.
Payable date Per share
Dec. 22, 1998 $0.01768
Jan. 25, 1999 0.02076
Feb. 25, 1999 0.02059
March 24, 1999 0.01615
April 26, 1999 0.02060
May 27, 1999 0.01982
June 23, 1999 0.01698
July 26, 1999 0.01989
Aug. 26, 1999 0.01870
Sept. 22, 1999 0.01693
Oct. 25, 1999 0.02051
Nov. 23, 1999 0.01755
Total distributions $0.22616
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
<PAGE>
Class Y
Exempt-interest dividends -- taxable status explained below.
Payable date Per share
Dec. 22, 1998 $0.02065
Jan. 25, 1999 0.02439
Feb. 25, 1999 0.02392
March 24, 1999 0.01912
April 26, 1999 0.02370
May 27, 1999 0.02270
June 23, 1999 0.01984
July 26, 1999 0.02204
Aug. 26, 1999 0.02221
Sept. 22, 1999 0.01928
Oct. 25, 1999 0.02420
Nov. 23, 1999 0.02081
Total distributions $0.26286
Federal taxation
Exempt-interest dividends are exempt from federal income taxes and should not be
included in shareholders' gross income.
Other taxation
Exempt-interest dividends may be subject to state and local taxes. Each
shareholder should consult a tax advisor about reporting this income for state
and local tax purposes.
AXP HIGH YIELD TAX-EXEMPT FUND
(This annual report is not part of the prospectus.)
<PAGE>
Source of income by state
Percentages of income from municipal securities earned by the Fund from various
states during the year ended Nov. 30, 1999 are listed below.
Alabama 0.299%
Alaska 0.235
Arizona 1.330
Arkansas 0.141
California 8.955
Colorado 7.251
Connecticut 0.159
Florida 4.813
Georgia 2.090
Hawaii 0.426
Idaho 0.009
Illinois 8.132
Indiana 2.454
Iowa 0.657
Kansas 0.116
Kentucky 0.939
Louisiana 2.840
Maine 0.130
Maryland 0.774
Massachusetts 3.119
Michigan 4.884
Minnesota 4.235
Mississippi 0.915
Missouri 0.670
Nebraska 0.024
Nevada 0.821
New Hampshire 2.259
New Jersey 0.141
New Mexico 1.922
New York 7.946
North Carolina 3.502
North Dakota 0.305
Ohio 3.321
Oklahoma 1.232
Oregon 0.617
Pennsylvania 4.032
Puerto Rico 0.532
South Carolina 1.135
South Dakota 0.555
Tennessee 0.420
Texas 7.471
Utah 2.020
Virginia 0.752
Washington 2.714
Washington, DC 0.617
West Virginia 1.186
Wisconsin 0.673
Wyoming 0.230
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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American
Express(R)
Funds
AXP High Yield Tax-Exempt Fund
IDS Tower 10
Minneapolis, MN 55440-0010
PRSRT STD AUTO
U.S. POSTAGE
PAID
SPENCER, IA
PERMIT NO. 85
Distributed by American Express Financial Advisors Inc. Member NASD. American
Express Company is separate from American Express Financial Advisors Inc. and is
not a broker-dealer.
AMERICAN
EXPRESS(R) (logo)
S-6430 R (1/00)
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STATEMENT OF DIFFERENCES
Difference Description
1) The layout is different 1) Some of the layout in the
throughout the annual report. annual report to
shareholders is in two
columns.
2) There are pictures, icons 2) Each picture, icon and
and graphs throughout the graph is described in
annual report. parentheses.
