<PAGE>
PAGE 1
1996 ANNUAL REPORT
IDS Tax-Exempt Bond Fund
(prospectus enclosed)
(Icon of) shield with a Greek column enclosed
The goal of IDS Tax-Exempt Bond Fund, Inc. is to earn as much
current income exempt from federal income taxes as possible with
only modest risk to the shareholder's investment by investing
primarily in investment-grade bonds and other debt securities.
(This annual report includes a prospectus that describes in detail
the Fund's objective, investment policies, risks, sales charges,
fees and other matters of interest. Please read the prospectus
carefully before you invest or send money.)
AMERICAN
EXPRESS
Financial
Advisors
Distributed by American Express Financial Advisors Inc.
<PAGE>
PAGE 2
(Icon of) shield with a Greek column enclosed
Double-barreled benefit
Most of the public facilities that we take for granted - schools,
water and sewer systems, highways, government buildings - are, in
effect, largely funded by loans from citizens. These loans take
the form of state and local government bonds (called "municipals"),
which are bought by investors, including Tax-Exempt Bond Fund. The
government gets the funding it needs, while the bond-buyers,
including Fund shareholders, get ongoing interest income. But
there's another, bigger benefit with municipals: Investors pay no
federal taxes on the income they generate and potentially no state
taxes. A portion of the income may be subject to the Alternative
Minimum Tax.
<PAGE>
PAGE 3
Contents
(Icon of) One open book inside of another.
The purpose of this annual report is to tell investors how the Fund
performed.
The prospectus, which is bound into the middle of this annual
report, describes the Fund in detail.
1996 annual report
From the president 4
From the portfolio manager 4
Ten largest holdings 6
Making the most of the Fund 7
Long-term performance 8
Independent auditors' report 9
Financial statements 10
Notes to financial statements 13
Investments in securities 21
IDS mutual funds 32
Federal income tax information 36
1996 prospectus
The Fund in brief 3p
Goal 3p
Investment policies and risks 3p
Manager and distributor 3p
Portfolio manager 3p
Alternative purchase arrangements 4p
Sales charge and Fund expenses 5p
Performance 7p
Financial highlights 7p
Total returns 9p
Yield 10p
Investment policies and risks 12p
Facts about investments and their risks 12p
Alternative investment option 14p
Valuing Fund shares 15p
How to purchase, exchange or redeem shares 16p
Alternative purchase arrangements 16p
How to purchase shares 18p
How to exchange shares 21p
How to redeem shares 22p
Reductions and waivers of the sales charge 27p
Special shareholder services 32p
Services 32p
Quick telephone reference 32p
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PAGE 4
Distributions and taxes 33p
Dividend and capital gain distributions 33p
Reinvestments 34p
Taxes 34p
How to determine the correct TIN 36p
How the Fund is organized 37p
Shares 37p
Voting rights 37p
Shareholder meetings 37p
Board members and officers 37p
Investment manager 39p
Administrator and transfer agent 40p
Distributor 41p
About American Express Financial Corporation 43p
General information 43p
Appendices 44p
1997 Federal tax information 44p
Descriptions of derivative instruments 45p
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PAGE 5
To our shareholders
(Photo of) William R. Pearce, President of the Fund
(Photo of) Terry L. Seierstad, Portfolio manager
From the president
If you're an experienced investor, you know that the past two years
have been unusually strong ones in many worldwide financial
markets. Perhaps just as important, you also know that history
shows that bull markets don't last forever. Though they're often
unpredictable, declines - whether they're brief or long-lasting,
moderate or substantial - are always a possibility.
That fact reinforces the need for investors to periodically review
their long-term goals and examine whether their investment program
remains on track to achieving them. Your quarterly investment
statements are one part of that monitoring process. The other is a
meeting with your American Express financial advisor. That becomes
even more important if there's a major change in your financial
situation or in the financial markets.
William R. Pearce
From the portfolio manager
A rebound by the bond market allowed IDS Tax-Exempt Bond Fund to
recover from a market sell-off early in the fiscal year and
ultimately post a positive total return for the past 12 months.
For the December 1995 through November 1996 period, investors in
the Fund's Class A shares realized a total return (net asset value
change plus dividends) of 4%.
The primary forces that propelled the bond market so strongly in
1995 - moderate economic growth and low inflation - were still in
force when the period began. Combined with hope for an agreement
to balance the federal budget, those factors allowed the market to
carry its forward momentum through December and into 1996.
Inflation worries send rates up, market down
Within weeks, however, the balanced-budget talks broke down, while
concerns that a strengthening economy might soon lead to an
increase in the inflation rate began rising. Together, these
factors sent long-term interest rates higher and, consequently,
bond prices sharply lower during February and March. Fortunately,
the inflation fears subsequently proved to be unfounded, which
drove long-term interest rates down and enabled the bond market to
make up the lost ground and more during the final three months of
the fiscal year.
The Fund's performance roughly tracked that of the broad bond
market, although the Fund's value declined somewhat more during
February and March and rebounded less strongly during the recovery.
The pattern resulted from the portfolio's duration - a function of
the average maturity of the securities owned in the portfolio and,
ultimately, the key factor in how much the Fund's net asset value
is affected by a change in long-term interest rates. The longer
the duration, the greater the effect a rate change has on the Fund.<PAGE>
PAGE 6
When rates began rising early in 1996, I began shortening the
portfolio's longer-than-average duration. While this effort
provided some cushion against the market's subsequent fall, it
wasn't enough to avoid the negative impact on the Fund's net asset
value. From that point, I maintained a conservative duration
position through the rest of the fiscal year. That strategy had
little effect on performance during the summer, but it did temper
the Fund's gain when long-term rates came back down in the fall.
Primary emphasis on dividends
To lessen the future volatility of the Fund's net asset value, I
plan to continue structuring the portfolio with a close-to-neutral
duration. While that won't make the Fund immune to the effect of
interest-rate swings, it should keep its fluctuations more in line
with those of the bond market overall. In turn, I expect to
continue to focus on keeping the Fund's tax-free dividend as high
as prudently possible by adding higher-yielding bonds to the
portfolio.
As for the municipal bond market, I think the long-term outlook
remains promising, based on expectations for ongoing moderate
economic growth and well-controlled inflation. Therefore, I
believe any meaningful upturns in long-term interest rates will
most likely prove to be temporary.
Terry L. Seierstad
Class A
12-month performance
(All figures per share)
Net asset value (NAV)
______________________________
Nov. 30, 1996 $4.01
______________________________
Nov. 30, 1995 $4.06
______________________________
Decrease $0.05
______________________________
Distributions
Dec. 1, 1995 - Nov. 30, 1996
______________________________
From income $0.20
______________________________
From capital gains $ --
______________________________
Total distributions $0.20
______________________________
Total return* 4.0%**
______________________________
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PAGE 7
Class B
12-month performance
(All figures per share)
Net asset value (NAV)
_______________________________
Nov. 30, 1996 $4.01
_______________________________
Nov. 30, 1995 $4.06
_______________________________
Decrease $0.05
_______________________________
Distributions
Dec. 1, 1995 - Nov. 30, 1996
_______________________________
From income $0.17
_______________________________
From capital gains $ --
_______________________________
Total distributions $0.17
_______________________________
Total return* 3.2%**
_______________________________
Class Y
12-month performance
(All figures per share)
Net asset value (NAV)
_______________________________
Nov. 30, 1996 $4.01
_______________________________
Nov, 30, 1995 $4.06
_______________________________
Decrease $0.05
_______________________________
Distributions
Dec. 1, 1995 - Nov. 30, 1996
_______________________________
From income $0.21
_______________________________
From capital gains $ --
_______________________________
Total distributions $0.21
_______________________________
Total return* 4.2%**
_______________________________
*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.<PAGE>
PAGE 8
<TABLE>
<CAPTION>
IDS Tax-Exempt Bond Fund, Inc.
The Fund's ten largest holdings
The ten holdings listed here make up 21.66% of the Fund's assets
_____________________________________________________________________________________
Percent Value
(of Fund's net assets) (as of Nov. 30, 1996)
_____________________________________________________________________________________
<S> <C> <C>
New York Urban Development Correctional Capital
Facility Revenue Bonds Series 4
5.375% 2023 2.88% $31,337,375
San Antonio Electric & Gas Systems Refunding
Revenue Bonds Series 1989-1989A 2.53 27,457,763
6.50% 2012
San Antonio Texas Water Refunding Revenue Bonds
6.40% 2007 2.50 27,211,250
Delaware County Pennsylvania Industrial Development
Authority Pollution Control Refunding Revenue Bonds
Philadelphia Electric Company
7.375% 2021 2.32 25,208,751
Illinois Public Building Commission of Chicago
Building Revenue Bonds Board of Education of Chicago
Series 1990A
6.50% 2018 2.32 25,207,745
Georgia Municipal Electric Authority
Special Obligation Bonds Project #1
4th Crossover Series X
6.50% 2020 2.07 22,537,827
Eastern North Carolina Municipal Power Agency System
Refunding Revenue Bonds Series 1989A
6.50% 2024 1.85 20,141,600
District of Columbia General Obligation Bonds
Series 1994B Zero Coupon
6.64% 2013-14 1.78 19,357,468
Washington Issaquah School District #411 King County
Unlimited Tax General Obligation Refunding Bonds 1992
6.375% 2008 1.72 18,693,842
New York Dormitory Authority New York City
Court Facility Lease Revenue Bonds Series 1993A
5.25% 2021 1.69 18,351,600
</TABLE>
<PAGE>
PAGE 9
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.
This 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, it can be an effective way to
accumulate shares to meet your long-term goals.
How dollar-cost averaging works
Month Amount Per-share Number of shares purchased
invested market price
Jan $100 $20 5.00 XXXXX
Feb 100 18 5.56 XXXXXx
March 100 17 5.88 XXXXXx
April 100 15 6.67 XXXXXXx
May 100 16 6.25 XXXXXXx
June 100 18 5.56 XXXXXx
July 100 17 5.88 XXXXXx
Aug 100 19 5.26 XXXXXx
Sept 100 21 4.76 XXXXx
Oct 100 20 5.00 XXXXX
(footnotes to table) By investing an equal number of dollars each
month...
(arrow in table pointing to April) you automatically buy more
shares when the per share market price is low...
(arrow in table pointing to September) and fewer shares when the
per share market price is high.
You have paid an average price of only $17.91 per share over the 10
months, while the average market price actually was $18.10.
<PAGE>
PAGE 10
The Fund's long-term performance
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. And 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.
How your $10,000 has grown in IDS Tax-Exempt Bond Fund
$20,000
$18,304
Tax-Exempt
Bond Fund
Class A
Lehman Muni Index
IDS High Yield Tax-Exempt
$9,500
'86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96
Average annual total return
(as of Nov. 30, 1996)
1 year Since inception 5 years 10 years
Class A -1.19% --% +5.88% +6.22%
Class B* -0.75% +4.69% --% --%
Class Y* +4.20% +7.86% --% --%
*Inception date was March 20, 1995.
On the graph above you can see how the Fund's total return compared
to widely cited performance measure, Lehman Brothers Municipal Bond
Index. In comparing Tax-Exempt Bond Fund to the index, 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 index. Class B and Class Y are not shown.
The performance of Class B and Class Y will vary from the
performance of Class A based on differences in sales charges and
fees. If you were actually to buy either individual bonds or bond
mutual funds, any sales charges that you pay would reduce your
total return as well.
<PAGE>
PAGE 11
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 deduction of the
maximum 5% sales charge. This was a period of widely fluctuating
security prices. Past performance is no guarantee of future
results.
Assumes: Holding period from 12/1/86 to 11/30/96. Returns do not
reflect taxes payable on distributions. Reinvestment of all income
and capital gain distributions for the Fund, with a value of
$9,366. Also see "Performance" in the Fund's current prospectus.
Lehman Brothers Municipal Bond 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. However, the securities used to create
the index may not be representative of the bonds held in Tax-Exempt
Bond Fund.
<PAGE>
<PAGE>
Independent auditors' report
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The board and shareholders
IDS Tax-Exempt Bond Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of IDS Tax-Exempt Bond Fund (a series
of IDS Tax-Exempt Bond Fund, Inc.) as of November 30, 1996, and the related
statement of operations for the year then ended and the statements of changes in
net assets for each of the years in the two-year period ended November 30, 1996,
and the financial highlights for each of the years in the five-year period ended
November 30, 1996, the eleven months ended November 30, 1991, and for each of
the years in the four-year period ended December 31, 1990. 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 generally accepted auditing
standards. 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. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased and sold but not received or delivered, we
request confirmations from brokers, and where replies are not received, we carry
out other appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IDS Tax-Exempt Bond Fund at
November 30, 1996, and the results of its operations, changes in its net assets
and the financial highlights for the periods stated in the first paragraph
above, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 3, 1997
<PAGE>
Financial statements
Statement of assets and liabilities
IDS Tax-Exempt Bond Fund
Nov. 30, 1996
- --------------------------------------------------------------------------------
Assets
- --------------------------------------------------------------------------------
Investments in securities, at value (Note 1)
(identified cost $980,005,230) $1,087,065,931
Accrued interest receivable 17,330,685
Receivable for investment securities sold 40,000
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Total assets 1,104,436,616
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Liabilities
- --------------------------------------------------------------------------------
Disbursements in excess of cash on demand deposit 196,176
Dividends payable to shareholders 475,833
Payable for investment securities purchased 16,330,029
Accrued investment management services fee 26,585
Accrued distribution fee 811
Accrued service fee 10,384
Accrued transfer agency fee 9,643
Accrued administrative services fee 2,350
Other accrued expenses 96,491
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Total liabilities 17,148,302
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Net assets applicable to outstanding capital stock $1,087,288,314
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Represented by
- --------------------------------------------------------------------------------
Capital stock -- $.01 par value $ 2,710,061
Additional paid-in-capital 1,023,578,205
Undistributed net investment income 87,424
Accumulated net realized loss (Notes 1 and 6) (40,548,452)
Unrealized appreciation (Note 4) 101,461,076
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Total -- representing net assets applicable to
outstanding capital stock $1,087,288,314
- --------------------------------------------------------------------------------
Net assets applicable to outstanding shares: Class A $1,067,458,361
Class B $ 19,820,326
Class Y $ 9,627
Net asset value per share of outstanding capital stock:
Class A shares 266,064,386 $ 4.01
Class B shares 4,939,343 $ 4.01
Class Y shares 2,400 $ 4.01
See accompanying notes to financial statements.
<PAGE>
Financial statements
Statement of operations
IDS Tax-Exempt Bond Fund
Year ended Nov. 30, 1996
- --------------------------------------------------------------------------------
Investment income
- --------------------------------------------------------------------------------
Income:
Interest $ 65,584,560
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Expenses (Note 2):
Investment management services fee 4,982,303
Distribution fee -- Class B 129,268
Transfer agency fee 510,849
Incremental transfer agency fee - Class B 935
Service fee
Class A 1,878,202
Class B 30,014
Administrative services fee 439,645
Compensation of board members 16,827
Compensation of officers 10,419
Custodian fees 48,293
Postage 72,486
Registration fees 77,030
Reports to shareholders 26,142
Audit fees 35,000
Administrative 8,469
Other 17,363
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Total expenses 8,283,245
Earnings credits on cash balances (Note 2) (19,020)
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Total net expenses 8,264,225
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Investment income -- net 57,320,335
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Realized and unrealized gain (loss) -- net
- --------------------------------------------------------------------------------
Net realized gain on security transactions (Note 3) 267,164
Net realized gain on financial futures contracts 3,656,388
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Net realized gain on investments 3,923,552
Net change in unrealized appreciation or depreciation (19,137,045)
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Net loss on investments (15,213,493)
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Net increase in net assets resulting from operations $42,106,842
<PAGE>
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See accompanying notes to financial statements.
<PAGE>
Financial statements
Statements of changes in net assets
IDS Tax-Exempt Bond Fund
Year ended Nov. 30,
- --------------------------------------------------------------------------------
Operations and distributions 1996 1995
- --------------------------------------------------------------------------------
Investment income -- net $ 57,320,335 $ 62,026,347
Net realized gain (loss) on investments 3,923,552 (4,584,252)
Net change in unrealized appreciation or
depreciation (19,137,045) 156,869,653
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Net increase in net assets resulting from
operations 42,106,842 214,311,748
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Distributions to shareholders from:
Net investment income
Class A (56,736,844) (61,798,018)
Class B (763,420) (228,530)
Class Y (493) (338)
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Total distributions (57,500,757) (62,026,886)
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Capital share transactions (Note 5)
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Proceeds from sales
Class A shares (Note 2) 83,652,708 218,907,812
Class B shares 8,693,815 13,834,432
Class Y shares -- 8,505
Reinvestment of distributions at net asset value
Class A shares 38,617,746 41,880,852
Class B shares 649,236 191,220
Class Y shares 493 334
Payments for redemptions
Class A shares (201,981,153) (304,525,136)
Class B shares (Note 2) (3,055,212) (904,711)
Class Y shares -- (20)
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Decrease in net assets from capital share
transactions (73,422,367) (30,606,712)
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Total increase (decrease) in net assets (88,816,282) 121,678,150
Net assets at beginning of year 1,176,104,596 1,054,426,446
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Net assets at end of year
(including undistributed net investment income of
$87,424 and $96,129) $1,087,288,314 $1,176,104,596
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See accompanying notes to financial statements.
<PAGE>
Notes to financial statements
IDS Tax-Exempt Bond Fund
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1. Summary of significant accounting policies
IDS Tax-Exempt Bond Fund (a series of IDS Tax-Exempt Bond Fund, Inc.) is
registered under the Investment Company Act of 1940 (as amended) as a
diversified, open-end management investment company. IDS Tax-Exempt Bond Fund,
Inc. has 10 billion authorized shares of capital stock that can be allocated
among the separate series as designated by the board. The Fund invests primarily
in investment-grade bonds and other debt securities whose interest is exempt
from federal income tax. The Fund offers Class A, Class B and Class Y shares.
Class A shares are sold with a front-end sales charge. Class B shares may be
subject to a contingent deferred sales charge and such shares automatically
convert to Class A after eight years. Class Y shares have no sales charge and
are offered only to qualifying institutional investors.
All classes of shares have identical voting, dividend, liquidation and other
rights, and the same terms and conditions, except that the level of distribution
fee, transfer agency fee and service fee (class specific expenses) differs 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.
Significant accounting policies followed by the Fund are summarized below:
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increase and decrease in net assets from operations
during the period. Actual results could differ from those estimates.
Valuation of securities
All securities are valued at the close of each business day. Securities for
which market quotations are not readily available are valued at fair value
according to methods selected in good faith by the board. Determination of fair
value involves, among other things, reference to market indexes, matrixes and
data from independent brokers. Short-term securities maturing in more than 60
days from the valuation date are valued at the market price or approximate
market value based on current interest rates; those maturing in 60 days or less
are valued at amortized cost.
Option transactions
In order to produce incremental earnings, protect gains and facilitate buying
and selling of securities for investment purposes, the Fund may buy and sell put
and call options and write covered call options on the portfolio securities and
may write cash-secured put options. The risk in writing a call option is that
the Fund gives up the opportunity of profit if the market price of the security
increases. The risk in writing a put option is that the Fund 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 Fund pays a premium whether or not the
option is exercised. The Fund also has the additional risk of not being able to
enter into a closing transaction if a liquid secondary market does not exist.
The Fund may write over-the-counter options where the completion of the
obligation is dependent 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 Fund may
realize a gain or loss upon expiration or closing of the option transaction.
When options on debt securities or futures are exercised, the Fund 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 premium
received or paid.
Futures transactions
In order to gain exposure to or protect itself from changes in the market, the
Fund may buy and sell interest rate futures contracts. Risks of entering into
futures contracts and related options include the possibility that there may be
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 Fund is 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 Fund 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 Fund recognizes a realized gain or loss when the contract is closed
or expires.
Securities purchased on a when-issued basis
Delivery and payment for securities that have been purchased by the Fund on a
forward-commitment or when-issued basis can take place one month or more after
the transaction date. During this period, such securities are subject to market
fluctuations, and they may affect the Fund's net assets the same as owned
securities. The Fund designates cash or liquid high-grade short-term debt
securities at least equal to the amount of its commitment. As of Nov. 30, 1996,
the Fund had entered into outstanding when-issued or forward commitments of
$12,623,067.
<PAGE>
Federal taxes
Since the Fund's policy is to comply with all sections of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to shareholders, no provision for income or excise taxes is
required.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of the deferral of 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 Fund.
On the statement of assets and liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income has been increased by $171,717,
and accumulated net realized loss has been increased by $88,375, resulting in a
reclassification adjustment to decrease paid-in-capital by $83,342.
Dividends to shareholders
Dividends from net investment income, declared daily and payable monthly, are
reinvested in additional shares of the 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.
<PAGE>
Other
Security transactions are accounted for on the date securities are purchased
or sold. Interest income, including level-yield amortization of premium and
discount, is accrued daily.
- ------------------------------------------------------------------------------
2. Expenses and sales charges
Effective March 20, 1995, the Fund entered into agreements with American Express
Financial Corporation (AEFC) for managing its portfolio, providing
administrative services and serving as transfer agent. Under its Investment
Management Services Agreement, AEFC determines which securities will be
purchased, held or sold. The management fee is a percentage of the Fund's
average daily net assets in reducing percentages from 0.45% to 0.35% annually.
Under an Administrative Services Agreement, the Fund pays AEFC for
administration and accounting services at a percentage of the Fund's average
daily net assets in reducing percentages from 0.04% to 0.02% annually.
Under a separate Transfer Agency Agreement, AEFC maintains shareholder accounts
and records. The Fund pays AEFC an annual fee per shareholder account for this
service as follows: o Class A $15.50 o Class B $16.50 o Class Y $15.50
Also effective March 20, 1995, the Fund entered into agreements with American
Express Financial Advisors Inc. for distribution and shareholder servicing-
related services. Under a Plan and Agreement of Distribution, the Fund pays a
distribution fee at an annual rate of 0.75% of the Fund's average daily net
assets attributable to Class B shares for distribution-related services.
<PAGE>
Under a Shareholder Service Agreement, the Fund pays a fee for service provided
to shareholders by financial advisors and other servicing agents. The fee is
calculated at a rate of 0.175% of the Fund's average daily net assets
attributable to Class A and Class B shares.
Sales charges by American Express Financial Advisors Inc. for distributing
Fund shares were $1,153,818 for Class A and $16,712 for Class B for the year
ended Nov. 30, 1996.
During the year ended Nov. 30, 1996, the Fund's custodian and transfer agency
fees were reduced by $19,020 as a result of earnings credits from overnight cash
balances.
Prior to April 30, 1996, the Fund had a retirement plan for its independent
board members. The plan was terminated April 30, 1996. The retirement plan
expense amounted to $6,932 for the period. The total liability for the plan is
$40,121, which will be paid out at some future date.
- ------------------------------------------------------------------------------
3. Securities transactions
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $639,105,559 and $678,004,217, respectively, for the
year ended Nov. 30, 1996. Realized gains and losses are determined on an
identified cost basis.
- ------------------------------------------------------------------------------
4. Interest rate futures contracts
At Nov. 30, 1996, investments in securities included securities valued at
$4,274,960 that were pledged as collateral to cover initial margin deposits on
800 open sales contracts. The market value of the open contracts at Nov. 30,
1996 was $92,975,000 with a net unrealized loss of $5,599,625.
- ------------------------------------------------------------------------------
5. Capital share transactions
Transactions in shares of capital stock for the years indicated are as follows:
- --------------------------------------------------------------------------------
Year ended Nov. 30, 1996
Class A Class B Class Y
- --------------------------------------------------------------------------------
Sold 21,003,086 2,184,310 --
Issued for reinvested 9,722,609 163,650 125
distributions
Redeemed (50,899,679) (771,956) --
- --------------------------------------------------------------------------------
Net increase (decrease) (20,173,984) 1,576,004 125
- --------------------------------------------------------------------------------
<PAGE>
Year ended Nov. 30, 1995
Class A Class B* Class Y*
- --------------------------------------------------------------------------------
Sold 57,695,876 3,544,563 2,195
Issued for reinvested
distributions 10,859,855 48,794 85
Redeemed (79,935,787) (230,018) (5)
- --------------------------------------------------------------------------------
Net increase (decrease) (11,380,056) 3,363,339 2,275
- --------------------------------------------------------------------------------
*Inception date was March 20, 1995.
- --------------------------------------------------------------------------------
6. Capital loss carryover
For federal income tax purposes, the Fund has a capital loss carryover of
approximately $20,006,606 at Nov. 30, 1996, that will expire in 2002 if not
offset by subsequent capital gains. It is unlikely the board will authorize a
distribution of any realized capital gains until the available capital loss
carryover has been offset or expires.
- ------------------------------------------------------------------------------
7. Financial highlights
"Financial highlights" showing per share data and selected information is
presented on pages 7 and 8 of the prospectus.
<PAGE>
<TABLE>
Investments in securities
(Percentages represent
IDS Tax-Exempt Bond Fund, Inc. value of investments
Nov. 30,1996 compared to net assets)
- --------------------------------------------------------------------------------
Municipal bonds (93.3%)
- --------------------------------------------------------------------------------
Name of issuer and title of issue (b,c)
<CAPTION>
Coupon Maturity Principal Value(a)
rate year amount
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alabama (0.4%)
Mobile Industrial Development Board Solid Waste
Refunding Revenue Bonds
Mobile Energy Services 6.95% 2020 $ 3,750,000 $4,003,275
- ------------------------------------------------------------------------------------------------------------------------------
Alaska (0.7%)
North Slope Borough General Obligation Bonds
Series 1994B Zero Coupon (CGIC Insured) 7.05 2004 3,000,000(d) 2,059,560
North Slope Borough General Obligation Bonds
Series 1994B Zero Coupon (CGIC Insured) 7.15 2005 3,000,000(d) 1,943,580
State Housing Finance Veterans Mortgage Corporation
Collateralized Bonds Series 1990 7.50 2030 3,205,000 3,376,115
--------------
Total 7,379,255
- -----------------------------------------------------------------------------------------------------------------------------
Arizona (3.6%)
Maricopa County Arizona Industrial Development Authority
Multi-family Housing Revenue Bonds SeriesA 6.625 2026 2,500,000 2,561,800
Phoenix Arizona Industrial Development Authority
Refunding Revenue Bonds Christian Care Apartments 6.25 2016 2,000,000 2,003,120
Phoenix Industrial Development Authority
Single Family Mortgage
Revenue Capital Appreciation Bonds
Escrowed to Maturity Zero Coupon 6.74 2014 39,000,000(d) 14,376,570
Phoenix Junior Lien Street & Highway User
Refunding Revenue Bonds Series 1992 6.25 2011 10,350,000 11,062,494
Tucson Street & Highway User Revenue Bonds
Series 1991B 6.25 2010 8,250,000 8,881,538
--------------
Total 38,885,522
- -----------------------------------------------------------------------------------------------------------------------------
California (9.1%)
Foothill/Eastern Transportation Corridor Agency
Toll Road Revenue Bonds Series 1995A 5.00 2035 17,000,000 14,850,010
Los Angeles County Certificate of Participation
Inverse Floater 6.71 2015 3,600,000(e) 3,720,168
Orange County Certificate of Participation Civic Center Facility
Capital Appreciation Refunding Bonds
Zero Coupon (AMBAC Insured) 6.75 2018 13,795,000(d) 4,022,070
Regional Airports Improvement Corporation
Lease Refunding Revenue Bonds 6.35 2025 5,000,000 5,135,400
See accompanying notes to investments in securities.
<PAGE>
Sacramento Cogeneration Authority Revenue Bonds
Proctor & Gamble Series 1995 6.50 2014 5,000,000 5,257,550
Sacramento Power Cogeneration Authority
Revenue Bonds Series 1995 6.00 2022 2,700,000 2,724,516
San Francisco City & County Redevelopment Financing Authority
Tax Allocation Refunding Bonds Series B 5.25 2021 16,660,000 15,735,203
San Jose Redevelopment Agency Merged Area
Tax Allocation Bonds Series 1993 (MBIA Insured) 4.75 2024 9,000,000 7,998,840
Southern California Public Power Authority Revenue Bonds
Mead Adelanto Series A (AMBAC Insured) 4.875 2020 6,590,000 6,000,459
State Public Works Board California Community Colleges
Lease Revenue Bonds Series 1994B 7.00 2019 3,900,000 4,561,908
State Public Works Board University of California
Lease Refunding Revenue Bonds
Series A (AMBAC Insured) 5.00 2023 6,000,000 5,475,000
State Public Works Board University of California
Lease Refunding Revenue Bonds
Series A (AMBAC Insured) 5.50 2014 7,275,000 7,356,698
Statewide Community Development Authority
Insurance Certificate of Participation
Childrens Hospital of Los Angeles Revenue Bonds
(MBIA Insured) 4.75 2021 5,250,000 4,658,955
Ukiah Unified School District Building Mendocino County
Certificate of Participation Series 1993 6.00 2010 3,790,000 3,860,077
Upland Certificate of Participation
San Antonio Community Hospital 5.00 2018 2,745,000 2,476,539
West Covina Redevelopment Agency Community Facilities
District Special Tax Refunding Bonds Series 1996 6.00 2017 5,000,000 5,174,500
--------------
Total 99,007,893
- -------------------------------------------------------------------------------------------------------------------------------
Colorado (1.5%)
Arapahoe County Public Highway Authority Capital
Improvement Trust Fund Highway Revenue Bonds 7.00 2026 5,685,000 6,300,742
Castle Rock Ranch Improvement Public Facility Revenue Bonds
Series 1996 6.375 2011 5,750,000 6,210,460
Colorado Health Facility Authority
Hospital Improvement Refunding Revenue Bonds
Parkview Episcopal Medical Center Series 1995 6.00 2016 4,000,000 3,940,440
--------------
Total 16,451,642
- -----------------------------------------------------------------------------------------------------------------------------
Connecticut (0.8%)
State General Obligation Bonds Series 1992A 6.40 2006 8,000,000 8,802,880
- -----------------------------------------------------------------------------------------------------------------------------
Delaware (0.2%)
State University Revenue Bonds Series 1989 6.00 2014 2,000,000 2,029,780
- -----------------------------------------------------------------------------------------------------------------------------
District of Columbia (2.0%)
District of Columbia Redevelopment Limited Agency
Special Tax Revenue Bonds 5.625 2010 2,000,000 1,959,300
General Obligation Bonds Series 1994B Zero Coupon
(MBIA Insured) 6.64 2013-14 50,360,000(d) 19,357,468
--------------
Total 21,316,768
- -----------------------------------------------------------------------------------------------------------------------------
Florida (3.1%)
Duvall County Housing Authority Single Family Mortgage
Refunding Revenue Bonds Series 1991 (FGIC Insured) 7.35 2024 3,430,000 3,671,060
Jacksonville Excise Taxes Refunding Revenue Bonds
Series 1992 (AMBAC Insured) 6.50 2008 5,000,000 5,547,050
<PAGE>
St. John's River Water Management District Land Acquisition
Revenue Bonds Series 1989 (AMBAC Insured) 6.00 2009 7,000,000 7,330,050
State Board of Education Administration Capital Outlay
Public Education Bonds Series 1991C 6.50 2008-09 11,225,000 12,489,721
Village Center Community Development District
Recreational Revenue Bonds Antic Notes 6.50 2000 4,945,000 4,953,506
--------------
Total 33,991,387
- -----------------------------------------------------------------------------------------------------------------------------
Georgia (2.6%)
Municipal Electric Authority Refunding Revenue Bonds
Series 1989T 6.50 2025 5,000,000 5,241,550
Municipal Electric Authority Special Obligation Bonds
Project #1 4th Crossover Series X (Secondary MBIA
Insured) 6.50 2020 19,550,000 22,537,827
--------------
Total 27,779,377
- -----------------------------------------------------------------------------------------------------------------------------
Hawaii (0.6%)
City & County of Honolulu General Obligation Bonds
Series 1992A 6.30 2006 5,880,000 6,428,251
- -----------------------------------------------------------------------------------------------------------------------------
Idaho (0.3%)
Health Facilities Authority Revenue Bonds
Bannock Regional Medical Center Series 1995 6.125 2025 2,250,000 2,218,568
Health Facilities Authority Revenue Bonds
Bannock Regional Medical Center Series 1995 6.375 2017 1,450,000 1,472,837
--------------
Total 3,691,405
- -------------------------------------------------------------------------------------------------------------------------------
Illinois (7.7%)
Alton Madison County Hospital Facility
Refunding Revenue Bonds St. Anthony's Health Center
Series 1996 6.00 2010-14 4,740,000 4,637,876
Cook & Will Counties TWP High School District #206
Capital Appreciation Bonds
Series 1994C Zero Coupon (AMBAC Insured) 6.55 2010 2,605,000(d) 1,220,052
Cook County School District #170 Chicago Heights
Capital Appreciation Bonds
Series 1994C Zero Coupon (AMBAC Insured) 6.50 2009-10 4,310,000(d) 2,081,514
Cook County Unlimited Tax General Obligation Bonds
Series 1989 6.50 2009 5,800,000 6,161,398
Educational Facilities Revenue Bonds
Columbian College 6.125 2018 3,015,000 2,966,699
Educational Facilities Revenue Bonds
Columbian College 6.875 2017 2,760,000 2,886,794
Health Facilities Authority Refunding Revenue Bonds
Edwards Hospital Series 1993A 6.00 2019 3,055,000 3,076,141
Health Facilities Authority Refunding Revenue Bonds
Masonic Medical Center Series 1993 5.50 2019 5,000,000 4,762,450
Health Facilities Authority
Sarah Bush Lincoln Health Center
Hospital Refunding Revenue Bonds Series 1996B 5.50 2016 5,490,000 5,172,953
Metropolitan Pier & Exposition Authority
Dedicated State Tax Capital Appreciation Revenue Bonds
McCormick Place Expansion
Series A Zero Coupon (FGIC Insured) 6.55 2021 5,000,000(d) 1,251,950
Metropolitan Pier & Exposition Authority McCormick Place
Expansion Bonds Series A Zero Coupon (FGIC Insured) 6.64 2010 11,000,000(d) 5,282,090
Metropolitan Pier & Exposition Authority McCormick Place
Expansion Bonds Series A Zero Coupon (FGIC Insured) 6.80 2016 9,000,000(d) 3,017,610
<PAGE>
Public Building Commission of Chicago Building Revenue Bonds
Board of Education of Chicago Series 1990A
Escrowed to Maturity (MBIA Insured) 6.50 2018 23,500,000(h) 25,207,745
Public Building Commission of Chicago Building Revenue Bonds
State Development Finance Authority
Power Refunding Bonds Series 1991A 7.375 2021 10,000,000 11,197,900
State Development Finance Authority Regency Park
Retirement Housing Revenue Bonds Series 1991B
Zero Coupon Escrowed to Maturity 6.50 2025 10,000,000(d) 1,537,000
State Development Finance Authority Regency Park
Retirement Housing Revenue Bonds Zero Coupon 7.75 2020 13,745,000(d) 2,978,267
--------------
Total 83,438,439
- -----------------------------------------------------------------------------------------------------------------------------
Indiana (2.8%)
Health Facilities Financial Authority
Hospital Revenue Bonds Series 1996 6.00 2010 3,260,000(i) 3,244,613
Municipal Power Agency Power Supply System Refunding
Revenue Bonds Series 1989A (AMBAC Insured) 6.50 2016 8,800,000 9,397,960
New Albany Hospital Facilities Revenue Bonds
Series 1996B (MBIA Insured) 5.625 2027 3,090,000 3,047,914
Seymour Economic Development Revenue Bonds
Union Camp Series 1992 6.25 2012 2,870,000 3,090,703
Transportation Finance Authority Highway Revenue Bonds
Series 1990A 7.25 2015 10,000,000 12,094,900
--------------
Total 30,876,090
- -----------------------------------------------------------------------------------------------------------------------------
Iowa (0.4%)
State Finance Authority Single Family Mortgage-Backed
Securities Program Bonds Series 1991A 7.25 2016 3,945,000 4,187,065
- -----------------------------------------------------------------------------------------------------------------------------
Kentucky (0.7%)
Muhlenberg County Hospital Refunding Revenue Bonds
Series 1996 6.75 2010 4,165,000 4,193,947
Owensboro Electric Light & Power Refunding Revenue Bonds
Series B Zero Coupon (AMBAC Insured) 6.68 2015 9,125,000(d) 3,348,236
--------------
Total 7,542,183
- -----------------------------------------------------------------------------------------------------------------------------
Louisiana (2.3%)
Industrial Development Board of Bastrop Percent Pollution Control
Refunding Revenue Bonds International Paper Company
Series 1992A 6.90 2007 6,875,000 7,490,794
New Orleans Capital Appreciation Refunding Revenue Bonds
Zero Coupon (AMBAC Insured) 6.62 2012 6,250,000(d) 2,613,938
New Orleans General Obligation Refunding Bonds
Series 1991 (AMBAC Insured) 6.00 2004 1,165,000 1,165,151
New Orleans Home Mortgage Authority Special Obligation
Refunding Bonds Series 1992 Escrowed to Maturity 6.25 2011 9,000,000 9,917,640
Public Facilities Authority Multi-family Housing
Windsor Housing Foundation Revenue Bonds Series 1996A 6.125 2015 3,385,000 3,405,039
--------------
Total 24,592,562
- -----------------------------------------------------------------------------------------------------------------------------
Maryland (2.5%)
Health & Educational Facility Authority Revenue Bonds
Frederick Memorial Hospital Series 1993 (FGIC Insured) 5.00 2028 10,000,000 9,282,400
State Community Development Administration
Department of Housing & Community Development
Single Family Program Bonds Series 1991-1 7.30 2017 10,500,000 11,109,840
<PAGE>
State Health & Higher Educational Facility Authority
Revenue Bonds Anne Arndel Medical Center
(AMBAC Insured) 5.00 2023 7,000,000 6,532,120
--------------
Total 26,924,360
- -----------------------------------------------------------------------------------------------------------------------------
Massachusetts (1.5%)
Health & Educational Facilities Authority Revenue Bonds
Valley Regional Health System Series C
(Connie Lee Insured) 5.75 2018 3,500,000 3,510,010
Health & Educational Facilities Authority Revenue Bonds
Melrose - Wakefield Hospital Series 1992B 6.375 2016 1,430,000 1,478,920
State Municipal Wholesale Electric Power Supply System
Pre-Refunded Revenue Bonds Series 1992B 6.75 2017 10,000,000 11,309,500
--------------
Total 16,298,430
- -----------------------------------------------------------------------------------------------------------------------------
Michigan (2.9%)
Battle Creek Calhoun County Downtown Development
Authority Bonds Series 1994 7.65 2022 3,750,000 4,227,000
Detroit Downtown Development Authority
Junior Lien Tax Increment Bonds 6.50 2025 6,000,000 6,186,840
Detroit Water Supply System Refunding Revenue Bonds
Series 1992 (FGIC Insured) 6.25 2007 2,000,000 2,162,040
South Redford School District Unlimited General
Obligation Bonds Series 1996 (FGIC Insured) 5.50 2022 4,740,000 4,694,923
State Hospital Finance Authority Refunding Revenue Bonds
Presbyterian Villages Obligated Group Series 1995 6.40 2015 1,000,000 999,710
State Hospital Finance Authority Refunding Revenue Bonds
Presbyterian Villages Obligated Group Series 1995 6.50 2025 1,000,000 999,670
State Hospital Finance Authority Refunding Revenue Bonds
Central Michigan Community Hospital 6.25 2016 2,225,000 2,247,005
State Hospital Finance Authority Refunding Revenue Bonds
Sinai Hospital of Greater Detroit Series 1995 6.625 2016 2,000,000 2,026,480
State Strategic Fund Percent Limited Obligation
Refunding Revenue Bonds Ford Motor Company
Series 1991A 7.10 2006 5,000,000 5,754,500
Ypsilanti School District Unlimited General
Obligation Refunding Bonds Series 1996 (FGIC Insured) 5.375 2026 2,000,000 1,949,440
--------------
Total 31,247,608
- -----------------------------------------------------------------------------------------------------------------------------
Minnesota (2.9%)
Minneapolis & St. Paul Housing & Redevelopment Authority
Health Care System Series 1990A 7.40 2005 4,500,000 4,994,415
Rochester Health Care Facility Revenue Bonds
Mayo Foundation Series A 4.95 2019 15,000,000 13,553,400
State Housing Finance Agency Single Family
Mortgage Bonds Series 1990C (FHA Insured) 7.70 2014 2,250,000 2,381,895
State Housing Finance Agency Single Family
Mortgage Revenue Bonds Series 1988E 7.65 2014 7,365,000 7,741,204
Washington County Housing Redevelopment Authority
Woodbury Multi-Family Housing Refunding Revenue Bonds
Series 1996 6.95 2023 2,510,000(i) 2,520,115
--------------
Total 31,191,029
- -----------------------------------------------------------------------------------------------------------------------------
Missouri (1.0%)
Lee's Summit Industrial Development Authority Bonds
Pfizer Series 1984 10.50 2009 1,450,000 1,491,673
St. Louis Region Convention & Sports Complex Authority
Series 1991C 7.90 2021 8,500,000 9,417,830
--------------
<PAGE>
Total 10,909,503
- -----------------------------------------------------------------------------------------------------------------------------
New Jersey (1.6%)
Turnpike Authority Revenue Bonds Series 1991C 6.50 2005 16,000,000 17,024,000
- ---------------------------------------------------------------------------------------------------------------------------
New York (15.0%)
Dormitory Authority New York City Court Facility Lease
Revenue Bonds Series 1993A 5.25 2021 20,000,000 18,351,600
Dormitory Authority New York City University System
Consolidated 2nd General Revenue Bonds Series A 5.75 2018 5,500,000 5,595,370
Dormitory Authority New York State Department of Health
Refunding Revenue Bonds 5.50 2020 3,060,000 2,901,278
Dormitory Authority New York State University
Education Facility Revenue Bonds Series 1994B 5.75 2024 13,770,000 13,472,155
New York City General Obligation Bonds Series B 6.75 2017 11,150,000 11,719,096
New York City General Obligation Bonds Series 1995B 7.00 2016 8,850,000 9,691,547
New York City General Obligation Bonds Series 1996F 5.75 2019 8,955,000 8,649,724
New York City General Obligation Bonds Series 1996I 5.875 2018 3,000,000 2,944,320
New York City General Obligation Bonds Series 1996F 5.75 2015 3,000,000 2,927,130
New York City General Obligation Bonds Series 1996G 5.75 2017 3,500,000 3,398,080
New York City Unlimited General Obligation Bonds
Series 1996F 5.90 2009 315,000 317,189
New York City Unlimited General Obligation Bonds
Series 1996G 5.75 2010 7,425,000 7,336,642
New York Dormitory-State University Series 1993C 5.40 2023 10,000,000 9,385,000
State Medical Care Facility Finance Agency
Mental Health Services Facility Improvement
Refunding Revenue Bonds Series 1993F 5.375 2014 7,510,000 7,109,942
State Mortgage Agency Homeowner
Mortgage Revenue Bonds Series TT 7.50 2015 15,945,000(h) 16,978,395
State Urban Development Corporation Correctional
Capital Facilities Refunding Revenue Bonds
Series 1993A 5.25 2021 5,000,000 4,590,600
State Urban Development Corporation Correctional
Facilities Revenue Bonds Series 6 5.375 2025 5,500,000 5,199,370
State Urban Development Correctional Capital Facility
Revenue Bonds Series 4 5.375 2023 33,815,000 31,337,375
Troy Municipal Assistance Corporation
General Reserve Revenue Bonds
Series 1996A (MBIA Insured) 5.00 2016 1,245,000 1,177,459
----------------
Total 163,082,272
- -----------------------------------------------------------------------------------------------------------------------------
North Carolina (3.6%)
Eastern Municipal Power Agency System
Refunding Revenue Bonds Series 1989A 6.50 2024 20,000,000 20,141,600
Eastern Municipal Power Agency System Revenue Bonds
Series D 5.60 2016 6,500,000 6,178,120
Eastern Municipal Power Agency System Revenue Bonds
Series G 5.75 2016 12,750,000 12,295,335
--------------
Total 38,615,055
- -----------------------------------------------------------------------------------------------------------------------------
North Dakota (0.4%)
Ward County Health Care Facilities Refunding Revenue Bonds
Series 1996B 6.25 2021 4,365,000 4,372,246
- -----------------------------------------------------------------------------------------------------------------------------
Ohio (0.8%)
Columbus Sewerage System Refunding Revenue Bonds
Series 1992 6.30 2005 3,500,000 3,821,300
<PAGE>
State Air Quality Development Authority Edison
Pollution Control Refunding Revenue Bonds Series A 5.95 2029 5,000,000 4,878,500
Water & Air Quality Development Authority
Collateralized Pollution Control Refunding Revenue Bonds
Cleveland Electric Series 1995 7.70 2025 300,000 320,799
--------------
Total 9,020,599
- -----------------------------------------------------------------------------------------------------------------------------
Oklahoma (0.2%)
Valley View Hospital Authority
Refunding Revenue Bonds Series 1996 6.00 2014 2,695,000 2,614,716
- -----------------------------------------------------------------------------------------------------------------------------
Pennsylvania (3.2%)
Allegheny County Industrial Development Authority
Environmental Improvement Refunding Revenue Bonds
Series 1996 6.00 2014 3,500,000(i) 3,542,735
Delaware County Industrial Development Authority
Pollution Control Refunding Revenue Bonds Philadelphia
Electric Company 7.375 2021 23,540,000 25,208,751
State Housing Finance Agency Single Family Mortgage
Revenue Bonds Series 1987L 7.125 2014 6,165,000 6,379,912
--------------
Total 35,131,398
- -----------------------------------------------------------------------------------------------------------------------------
Rhode Island (0.1%)
Providence Special Tax Increment Obligation Bonds
Series D 6.65 2016 1,500,000 1,576,365
- -----------------------------------------------------------------------------------------------------------------------------
South Carolina (0.4%)
Horry County Hospital Refunding Revenue Bonds
Conway Hospital Series 1992 6.75 2012 4,000,000 4,133,720
- -----------------------------------------------------------------------------------------------------------------------------
Texas (12.2%)
Austin Utility System Capital Appreciation
Refunding Revenue Bonds Zero Coupon (AMBAC Insured) 6.51 2010 5,055,000(d) 2,395,918
Austin Utility System Capital Appreciation
Refunding Revenue Bonds Zero Coupon (MBIA Insured) 6.80 2010 16,000,000(d) 7,583,520
Austin Utility System Combined Utility
Refunding Revenue Bonds Series 1992 (AMBAC Insured) 6.25 2006 10,500,000 11,382,210
Coastal Water Authority Water Conveyance System
Refunding Revenue Bonds Series 1991 (AMBAC Insured) 6.25 2017 5,000,000 5,377,350
Cypress-Fairbanks Independent School District Harris County
Unlimited Tax Schoolhouse Bonds
Series 1990 (FGIC Insured) 6.50 2008 1,500,000 1,617,750
Harris County Health Facilities Development Hermann Hospital
Revenue Bonds (MBIA Insured) 6.375 2024 8,820,000 9,456,010
Houston Water & Sewer System Junior Lien
Refunding Revenue Bonds
Series C Zero Coupon (AMBAC Insured) 6.60 2008 8,000,000(d) 4,299,280
Municipal Power Agency Bonds (BIG Insured) 6.25 2010 7,000,000 7,274,050
Municipal Power Agency Capital Appreciation
Refunding Revenue Bonds
Zero Coupon (AMBAC Insured) 7.02 2009 18,000,000(d) 9,190,440
San Antonio Electric & Gas Systems Refunding Revenue Bonds
Series 1989 6.00 2014 6,000,000 6,135,600
San Antonio Electric & Gas Systems Refunding Revenue Bonds
Series 1989-89A 6.50 2012 26,250,000 27,457,763
San Antonio Water Refunding Revenue Bonds (FGIC Insured) 6.40 2007 25,000,000 27,211,250
State Turnpike Authority Revenue Bonds 6.00 2020 10,000,000 10,400,200
State Department of Housing and Community Affairs
Multi-Family Housing Revenue Bonds Senior Series 1996A 6.30 2016 1,000,000(i) 1,011,740
<PAGE>
State Public Property Financial Corporation
Lease Revenue Bonds Series 1996 6.20 2016 2,340,000(i) 2,333,659
--------------
Total 133,126,740
- -----------------------------------------------------------------------------------------------------------------------------
Virginia (0.8%)
Arlington County Industrial Development Authority
Hospital Facility Refunding Revenue Bonds
Arlington Hospital (Secondary MBIA Insured) 5.00 2021 5,500,000 5,109,005
Augusta County Industrial Development Authority Hospital
Refunding Revenue Bonds Augusta Hospital
Series 1993 (AMBAC Insured) 5.125 2021 3,600,000 3,427,632
--------------
Total 8,536,637
- -----------------------------------------------------------------------------------------------------------------------------
Washington (4.2%)
Auburn School District #408 King County Unlimited Tax
General Obligation Bonds Series 1992A 6.375 2006 8,000,000 8,917,760
Issaquah School District #411 King County Unlimited Tax
General Obligation Refunding Bonds 1992 6.375 2008 16,675,000 18,693,842
King County Housing Authority Pooled Housing
Refunding Revenue Bonds Series 1995A 6.80 2026 2,500,000 2,623,875
Public Power Supply System Nuclear Project #1
Revenue Bonds Series 1989A 6.00 2017 12,130,000 12,169,423
Public Power Supply System Nuclear Project #3
Capital Appreciation Refunding Revenue Bonds
Series B Zero Coupon (MBIA Insured) 6.61 2013 10,360,000(d) 4,097,794
--------------
Total 46,502,694
- -----------------------------------------------------------------------------------------------------------------------------
West Virginia (0.9%)
School Building Authority Capital Improvement
Revenue Bonds Series 1990B (MBIA Insured) 6.00 2020 9,730,000 9,832,360
- -----------------------------------------------------------------------------------------------------------------------------
Wyoming (0.3%)
Community Development Authority Single Family Mortgage Bonds
Federally Insured or Guaranteed Mortgage Loan 7.40 2031 3,510,000 3,722,425
- -----------------------------------------------------------------------------------------------------------------------------
Total municipal bonds
(Cost: $907,205,230) $1,014,265,931
</TABLE>
<TABLE>
- -------------------------------------------------------------------------------
Short-term securities (6.7%)
- --------------------------------------------------------------------------------
Issuer (c,f,g)
<CAPTION>
Effective Amount Value(a)
yield payable at
maturity
- -----------------------------------------------------------------------------------------------------------------------------
Municipal notes
Abilene Health Facilities Development Corporation
Hospital Revenue S.A.V.R.
Hendrick Medical Center Series B
<S> <C> <C> <C>
12-24-96 3.65% $ 5,000,000 $ 5,000,000
Bucks County IDA
Grand View Hospital Series B
S.A.V.R. (AMBAC Insured)
12-26-96 3.70 5,000,000 5,000,000
Burke County Georgia Pollution Control Revenue Bonds
Georgia Power & Light Series 1994
07-01-24 4.20 5,400,000 5,400,000
<PAGE>
Chester County Health & Education Facilities Authority
Series B (AMBAC Insured)
01-02-97 3.70 3,000,000 3,000,000
Development Authority of Monroe County
Second Series
07-01-25 4.25 700,000 700,000
Farmington Pollution Control Revenue Bonds
Series B
09-01-24 4.00 2,300,000 2,300,000
Joliet Regional Port District
Marine Term Revenue Bonds
10-01-24 3.80 4,800,000 4,800,000
Lincoln County Pollution Control Revenue Bonds
Exxon Series 1984B
11-01-14 4.10 5,100,000 5,100,000
Massachusetts Health & Education Facilities Authority
Revenue Capital Asset Program Series J3
S.A.V.R. (AMBAC Insured)
12-12-96 3.57 6,800,000 6,800,000
Monroe County Pollution Control Revenue Bonds
Second Series V.R.
09-01-24 4.25 900,000 900,000
New York City General Obligation Bonds
Fiscal 1995 Series B
08-15-23 4.10 2,000,000 2,000,000
New York City Municipal Water Finance Authority
Water & Sewer System Revenue Bonds
06-15-22 4.10 300,000 300,000
Sabine River Authority
Pollution Control Revenue Bonds Series A
03-01-26 4.15 9,100,000 9,100,000
Washington Health Care Facilities Authority
Revenue Series E V.R.
10-01-05 4.00 4,800,000 4,800,000
Washington Health Care Facilities Authority
V.R.D.B. Series 1985B
10-01-05 4.00 3,000,000 3,000,000
Washington University Series A
Health & Education Facilities Authority
09-01-30 4.20 8,000,000 8,000,000
Washington University Series 96B
Health & Education Facilities Authority
09-01-30 4.20 6,600,000 6,600,000
</TABLE>
- --------------------------------------------------------------------------------
Total short-term securities
(Cost: $72,800,000) $72,800,000
- --------------------------------------------------------------------------------
Total investments in securities
(Cost: $980,005,230)(j) $1,087,065,931
- --------------------------------------------------------------------------------
<PAGE>
Notes to investments in securities
- --------------------------------------------------------------------------------
(a) Securities are valued by procedures described in Note 1 to the
financial statements.
(b) Investments in bonds, by rating category as a percentage of total
bonds, are as follows:
(Unaudited)
-----------------------------------------
Rating 11-30-96 11-30-95
- --------------------------------------------------------------------------------
AAA 36% 44%
AA 15 18
A 13 17
BBB 36 21
BB and below - -
Non-rated - -
- --------------------------------------------------------------------------------
Total 100% 100%
- --------------------------------------------------------------------------------
(c) The following abbreviations are used in portfolio descriptions to
identify the insurer of the issue:
AMBAC -- American Municipal Bond Association Corporation
BIG -- Bond Investors Guarantee
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guarantee Insurance Corporation
FHA -- Federal Housing Authority
MBIA -- Municipal Bond Investors Assurance
(d) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition. (e) Inverse floaters represent
securities that pay interest at a rate that increases (decreases) in the same
magnitude as,
or in a multiple of, a decline (increase) in market short-term rates.
Interest rate disclosed is the rate in effect on
Nov. 30, 1996. Inverse floaters in the aggregate represent 5.1% of the
Fund's net assets as of Nov. 30, 1996.
(f) Interest rate varies to reflect current market conditions; rates shown
are the effective rates on Nov. 30, 1996.
(g) The following abbreviation is used in portfolio description:
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
S.A.V.R. -- Semi Annual Variable Rate
(h) Partially pledged as initial deposit on the following open interest rate
futures contracts (see Note 6 to the financial statements):
Type of security Notional amount
Sales contracts
U.S. Treasury Bonds Dec. 1996 $80,000,000
(i) At Nov. 30, 1996, the cost of securities purchased on a when-issued
basis was $12,623,067.
(j) At Nov. 30, 1996, the cost of securities for federal income tax
purposes was $979,131,533 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $107,951,519
Unrealized depreciation (17,121)
- --------------------------------------------------------------------------------
Net unrealized appreciation $107,934,398
- --------------------------------------------------------------------------------
<PAGE>
PAGE 12
IDS mutual funds
Global/International funds
Funds in this group seek capital growth and/or income by investing
primarily in foreign securities. Foreign investments may be
subject to currency fluctuations and political and economic risks
of the countries in which the investments are made. They are high
risk mutual funds with a potential for high reward.
IDS Emerging Markets Fund
Invests in a Portfolio comprised primarily of stocks of companies
in developing countries throughout the world that are believed to
offer growth potential. Seeks to provide long-term growth of
capital.
(icon of) world with countries
IDS Global Growth Fund
Invests in a Portfolio comprised primarily of stocks of companies
throughout the world that are positioned to meet market needs in a
changing world economy. These companies offer above-average
potential for long-term growth.
(icon of) world
IDS International Fund
Invests primarily in common stocks of foreign companies that offer
potential for superior growth. The Fund may invest up to 20% of
its assets in the U.S. market.
(icon of) three flags
IDS Global Balanced Fund
Invests in stocks and bonds in, for the most part, major markets
throughout the world, including the U.S. Seeks to provide a
balance of growth of capital and current income.
(icon of) scale holding two worlds
IDS Global Bond Fund
Invests in a Portfolio comprised primarily of debt securities of
U.S. and foreign issuers to seek high total return through income
and growth of capital.
(icon of) globe
Growth funds
Funds in this group seek capital growth, primarily from common
stocks. They are high risk mutual funds with a potential for high
reward.
<PAGE>
PAGE 13
IDS Precious Metals Fund
Invests primarily in the securities of foreign or domestic
companies that explore for, mine and process or distribute gold and
other precious metals. A highly aggressive and speculative fund
that seeks long-term growth of capital.
(icon of) cart of precious gems
IDS Discovery Fund
Invests in small- and medium-size, growth-oriented companies
emphasizing technological innovation and productivity enhancement.
Buys and holds larger growth-oriented stocks.
(icon of) ship
IDS Small Company Index Fund
Invests in all or a representative group of the equity securities
comprising the S&P SmallCap 600 Index, as it strives to provide
long-term capital appreciation.
(icon of) office building
IDS Strategy Aggressive Fund
Invests primarily in common stocks of companies that are selected
for their potential for above-average growth. Above-average means
that their growth potential is better, in the opinion of the
portfolio's investment manager, than the Standard & Poor's
Corporation (S&P) 500 Stock Index.
(icon of) chess piece
IDS Research Opportunities Fund
Invests in a Portfolio comprised primarily of equity securities of
companies included in the S&P 500 Index that are believed to have
strong growth potential. The Portfolio is managed using a research
methodology by the Research Department of AEFC. Goal is long-term
appreciation.
(icon of) magnifying glass
IDS Growth Fund
Invests in a Portfolio comprised primarily of companies that have
above-average potential for long-term growth as a result of new
management, marketing opportunities or technological superiority.
(icon of) trees
<PAGE>
PAGE 14
IDS New Dimensions Fund
Invests in a Portfolio comprised primarily of companies with
significant growth potential due to superiority in technology,
marketing or management. The Fund frequently changes its industry
mix.
(icon of) dimension
IDS Progressive Fund
Invests primarily in undervalued common stocks. The Fund holds
stocks for the long term with the goal of capital growth.
(icon of) shooting star
Growth & income funds
These funds focus on securities of medium to large, well-
established companies that offer long-term growth of capital and
reasonable income from dividends and interest.
IDS Equity Select Fund
Invests primarily in a combination of moderate growth stocks,
higher-yielding equities and bonds. Seeks growth of capital and
income.
(icon of) three pine trees
IDS Blue Chip Advantage Fund
Invests in selected stocks from a major market index. Securities
purchased are those recommended by our research analysts as the
best from each industry represented on the index. Offers potential
for long-term growth as well as dividend income.
(icon of) ribbon
IDS Managed Allocation Fund
Invests in a Portfolio comprised primarily of U.S. equity
securities, U.S. and foreign debt securities, foreign equity
securities and money market instruments. The Fund provides
diversification among these major investment categories and has a
target mix that represents the way the Fund's investments will be
allocated over the long term. Seeks maximum total return.
(icon of) gyroscope
IDS Stock Fund
Invests in a Portfolio comprised primarily of common stock of
companies representing many sectors of the economy. Seeks current
income and growth of capital.
(icon of) building with columns
<PAGE>
PAGE 15
IDS Equity Value Fund
Invests primarily in undervalued common stocks that offer potential
for growth of capital and income.
(icon of) three growing flowers
IDS Utilities Income Fund
Invests primarily in the stocks of public utility companies to seek
high current income and growth of income and capital with reduced
volatility.
(icon of) light bulb
IDS Diversified Equity Income Fund
Invests in a Portfolio comprised primarily of high-yielding common
stocks to seek high current income and, secondarily, to benefit
from the growth potential offered by stock investments.
(icon of) two puzzle pieces
IDS Mutual
Invests in a Portfolio which seeks to balance between common stocks
and senior securities (preferred stocks and bonds). Seeks a
balance of growth of capital and current income.
(icon of) scale of justice
Income funds
The funds in this group invest their assets primarily in corporate
bonds or government securities to seek interest income. Secondary
objective is capital growth. Risk varies by bond quality.
IDS Extra Income Fund
Invests in a Portfolio comprised mainly of long-term, high-yielding
corporate fixed-income securities in the lower rated, higher risk
bond categories to seek high current income. Secondary objective
is capital growth.
(icon of) coins
IDS Bond Fund
Invests mainly in corporate bonds, at least 50% in the higher
rated, lower risk bond categories, or the equivalent, and in
government bonds.
(icon of) greek column
<PAGE>
PAGE 16
IDS Selective Fund
Invests in a Portfolio comprised primarily of high-quality
corporate bonds and other highly rated debt instruments including
government securities and short-term investments. Seeks current
income and preservation of capital.
(icon of) skyline
IDS Federal Income Fund
Invests in a Portfolio comprised primarily of securities issued or
guaranteed as to the timely payment of principal and interest by
the U.S. government, its agencies and instrumentalities. Seeks a
high level of current income and safety of principal consistent
with its type of investments.
(icon of) shield with eagle head enclosed
Tax-exempt income funds
These funds provide tax-free income by investing in municipal
bonds. The income is generally free from federal income tax, but a
portion of the income may be subject to state and local taxes.
Risk varies by bond quality.
IDS Tax-Exempt Bond Fund
Invests mainly in bonds and notes of state or local government
units, with at least 75% in the four highest rated, lowest risk
bond categories.
(icon of) shield with Greek column enclosed
IDS Insured Tax-Exempt Fund
Invests primarily in municipal securities that are insured as to
the timely payment of principal and interest. The insurance
feature minimizes credit risk of the Fund but does not guarantee
the market value of the Fund's shares.
(icon of) shield with star enclosed
IDS State Tax-Exempt Funds
(CA, MA, MI, MN, NY, OH)
Invests primarily in high- and medium-grade municipal securities to
provide income to residents of each respective state that is exempt
from federal, state and local income taxes. (New York is the only
state that is exempt at the local level.)
(icon of) shield with U.S. enclosed
<PAGE>
PAGE 17
IDS High Yield Tax-Exempt Fund
Invests in a Portfolio comprised primarily of medium- and lower-
quality municipal bonds and notes. Lower-quality securities
generally involve greater risk of principal and income.
(icon of) shield with basket of apples enclosed
IDS Intermediate Tax-Exempt Fund
Invests in mainly investment-grade bonds and other debt securities
with intermediate-term maturities issued by state and local
government units. Goal is to seek a high level of current income
exempt from federal taxes.
(icon of) shield with a tree enclosed
Money market funds
These money market funds have three main goals: conservation of
capital, constant liquidity and the highest possible current income
consistent with these objectives. An investment in these funds is
neither insured nor guaranteed by the U.S. government, and there
can be no assurance that these funds will be able to maintain a
stable net asset value of $1.00 per share. Very limited risk.
IDS Cash Management Fund
Invests in such money market securities as high quality commercial
paper, bankers' acceptances, certificates of deposit (CDs) and
other bank securities.
(icon of) piggy bank
IDS Tax-Free Money Fund
Invests primarily in short-term bonds and notes issued by state and
local governments to seek high current income exempt from federal
income taxes.
(icon of) shield with piggy bank enclosed
For more complete information about any of these funds, including
charges and expenses, you can obtain a prospectus by contacting
your financial advisor or writing to American Express Shareholder
Service, P.O. Box 534, Minneapolis, MN 55440-0534. Read it
carefully before you invest or send money.
<PAGE>
PAGE 18
Federal income tax information
IDS Tax-Exempt Bond Fund
___________________________________________________________________
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 were reported to
you on your year-end statement, in January.
IDS Tax-Exempt Bond Fund
Fiscal year ended Nov. 30, 1996
Class A
Exempt-interest dividends -- taxable status
explained below.
Payable date Per share
Dec. 27, 1995 $0.01647
Jan. 25, 1996 0.01648
Feb. 26, 1996 0.01883
March 27, 1996 0.01652
April 26, 1996 0.01716
May 28, 1996 0.01778
June 26, 1996 0.01659
July 26, 1996 0.01644
Aug. 26, 1996 0.01700
Sept. 25, 1996 0.01739
Oct. 28, 1996 0.01781
Nov. 26, 1996 0.01605
Total $0.20452
Taxable dividend -- income distribution
Payable date Per share
Dec. 27, 1995 $0.00030
Total distributions $0.20482
Class B
Exempt-interest dividends -- taxable status explained below.
Payable date Per share
Dec. 27, 1995 $0.01396
Jan. 25, 1996 0.01402
Feb. 26, 1996 0.01613
March 27, 1996 0.01403
April 26, 1996 0.01473
May 28, 1996 0.01519
June 26, 1996 0.01426
July 26, 1996 0.01402
Aug. 26, 1996 0.01448
Sept. 25, 1996 0.01497
Oct. 28, 1996 0.01511
Nov. 26, 1996 0.01367
Total $0.17457<PAGE>
PAGE 19
Taxable dividend -- income distribution.
Payable date Per share
Dec. 27, 1995 $0.00030
Total distributions $0.17487
Class Y
Exempt-interest dividends -- taxable status explained below.
Payable date Per share
Dec. 27, 1995 $0.01705
Jan. 25, 1996 0.01704
Feb. 26, 1996 0.01945
March 27, 1996 0.01706
April 26, 1996 0.01773
May 28, 1996 0.01836
June 26, 1996 0.01711
July 26, 1996 0.01698
Aug. 26, 1996 0.01758
Sept. 25, 1996 0.01793
Oct. 28, 1996 0.01841
Nov. 26, 1996 0.01658
Total $0.21128
Taxable dividend -- income distribution.
Payable date Per share
Dec. 27, 1995 $0.00030
Total distributions $0.21158
Source of distributions
100% of tax-exempt interest distributions during the fiscal year
ended Nov. 30. 1996 were derived exclusively from interest on
tax-exempt securities.
Federal taxation
Exempt-interest dividends are exempt from federal income taxes and
should not be included in shareholders' gross income.
Other taxation
Exempt-interest dividends may be subject to state and local taxes.
Each shareholder should consult a tax adviser about reporting this
income for state and local tax purposes.
<PAGE>
PAGE 20
Source of income by state
Percentages of income from municipal securities earned by the Fund
from various states during the year ended Nov. 30, 1996 are listed
below.
Alabama 0.468%
Alaska 0.771
Arizona 2.989
California 9.696
Colorado 1.189
Connecticut 0.809
Delaware 0.192
Florida 3.866
Georgia 2.693
Hawaii 1.244
Idaho 0.349
Illinois 8.842
Indiana 2.368
Iowa 0.450
Kansas 0.024
Kentucky 0.381
Louisiana 2.708
Maryland 2.517
Massachusetts 1.927
Michigan 2.307
Minnesota 3.156
Mississippi 0.294
Missouri 1.337
Montana 0.007
New Hampshire 0.267
New Jersey 1.584
New Mexico 0.052
New York 15.252
North Carolina 3.648
North Dakota 0.020
Ohio 1.010
Oklahoma 0.209
Pennsylvania 3.479
Rhode Island 0.108
South Carolina 0.468
Tennessee 0.099
Texas 12.186
Utah 0.044
Virginia 0.809
Washington 6.466
Washington, DC 2.242
West Virginia 0.919
Wyoming 0.554
<PAGE>
PAGE 21
Quick telephone reference
American Express Telephone Transaction Service
Redemptions and exchanges, dividend payments or reinvestments and
automatic payment arrangements
National/Minnesota: 800-437-3133
Mpls./St. Paul area: 671-3800
American Express Shareholder Service
Fund performance, objectives and account inquiries
612-671-3733
TTY Service
For the hearing impaired
800-846-4852
American Express Infoline
Automated account information (TouchToneR phones only), including
current fund prices and performance, account values and recent
account transactions
National/Minnesota: 800-272-4445
Mpls./St. Paul area: 671-1630
AMERICAN
EXPRESS
Financial
Advisors
IDS Tax-Exempt Bond Fund
IDS Tower 10
Minneapolis, MN 55440-0010
<PAGE>
PAGE 22
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) Headings. 2) The headings in the
annual report are
placed in a blue strip
at the top of the page.
3) There are pictures, icons 3) Each picture, icon and
and graphs throughout the graph is described in
annual report. parentheses.
4) Footnotes for charts and 4) The footnotes for each
graphs are described at chart or graph are typed
the left margin. below the description of
the chart or graph.
