IDS TAX EXEMPT BOND FUND INC, 485BPOS, 1998-01-28

IDS TAX EXEMPT BOND FUND INC
485BPOS, 1998-01-28

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Post-Effective Amendment No. 43 (File No. 2-57328)

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 33 (File No. 811-2686)

IDS TAX-EXEMPT BOND FUND, INC.
IDS Tax-Exempt Bond Fund
IDS Intermediate Tax-Exempt Fund

IDS Tower 10, Minneapolis, Minnesota 55440-0010

Leslie L. Ogg - 901 Marquette Ave., Suite 2810,
Minneapolis, MN 55402-3268
(612) 330-9283

Approximate Date of Proposed Public Offering:

It is proposed that this filing will become effective (check appropriate
box) immediately upon filing pursuant to paragraph (b)
X on Jan. 29, 1998 pursuant to paragraph (b) 60 days after filing
pursuant to paragraph (a)(i) on (date) pursuant to paragraph (a)(i)
75 days after filing pursuant to paragraph (a)(ii) on (date) pursuant
to paragraph (a)(ii) of rule 485

If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
<TABLE>
<CAPTION>
Cross reference sheet showing the location in the prospectus and Statement of Additional Information of
the information called for by items enumerated in Parts A and B of Form N-1A.

Negative answers omitted are so indicated.
<S> <C>
PART A
Item No. Section in Prospectus
1 Cover page of prospectus

2 (a) Sales charge and Fund expenses
(b) The Fund in brief
(c) The Fund in brief

3 (a) Financial highlights
(b) NA
(c) Performance
(d) Financial highlights

4 (a) The Fund in brief; Investment policies and risks; How the Fund and Portfolio are organized
(b) Investment policies and risks
(c) Investment policies and risks

5 (a) Board members and officers
(b)(i) Investment manager; About American Express Financial Corporation - General information
(b)(ii) Investment manager
(b)(iii) Investment manager
(c) Portfolio manager
(d) Administrator and transfer agent
(e) Administrator and transfer agent
(f) Distributor
(g) Investment manager; About American Express Financial Corporation - General information

5A(a) *
(b) *

6 (a) Shares; Voting rights
(b) NA
(c) NA
(d) Voting rights
(e) Cover page; Special shareholder services
(f) Dividend and capital gain distributions; Reinvestments
(g) Taxes
(h) Alternative purchase arrangements; Special considerations regarding master/feeder structure

7 (a) Distributor
(b) Valuing Fund shares
(c) How to purchase, exchange or redeem shares
(d) How to purchase shares
(e) NA
(f) Distributor
(g) Alternative purchase arrangements; Reductions and waivers of the sales charge

8 (a) How to redeem shares
(b) NA
(c) How to purchase shares: Three ways to invest
(d) How to purchase, exchange or redeem shares: Redemption policies - "Important..."

9 None
<PAGE>
PART B

Item No. Section in Statement of Additional Information
10 Cover page of SAI

11 Table of Contents

12 NA

13 (a) Additional Investment Policies; all appendices except Dollar-Cost Averaging
(b) Additional Investment Policies
(c) Additional Investment Policies
(d) Security Transactions

14 (a) Board members and officers**; Board Members and Officers
(b) Board Members and Officers
(c) Board Members and Officers

15 (a) NA
(b) Principal Holders of Securities, if applicable
(c) Board Members and Officers

16 (a)(i) How the Fund and Portfolio are organized; About American Express Financial Corporation**
(a)(ii) Agreements: Investment Management Services Agreement, Plan and Agreement of Distribution
(a)(iii) Agreements: Investment Management Services Agreement
(b) Agreements: Investment Management Services Agreement
(c) NA
(d) Agreements: Administrative Services Agreement, Shareholder Service Agreement
(e) NA
(f) Agreements: Distribution Agreement
(g) NA
(h) Custodian Agreement; Independent Auditors
(i) Agreements: Transfer Agency Agreement; Custodian Agreement
17 (a) Security Transactions
(b) Brokerage Commissions Paid to Brokers Affiliated with American Express Financial Corporation
(c) Security Transactions
(d) Security Transactions
(e) Security Transactions

18 (a) Shares; Voting rights**
(b) NA

19(a) Investing in the Fund
(b) Valuing Fund Shares; Investing in the Fund
(c) Redeeming Shares

20 Taxes

21 (a) Agreements: Distribution Agreement
(b) NA
(c) NA

22 (a) Performance Information (for money market funds only)
(b) Performance Information (for all funds except money market funds)
23 Financial Statements

* Designates information is located in annual report.
** Designates location in prospectus.
</TABLE>
<PAGE>
IDS Tax-Exempt Bond Fund

Prospectus
January 29, 1998

The goal of IDS Tax-Exempt Bond Fund, a part 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 prospectus contains facts that can help you decide if the Fund is the right
investment for you. Read it before you invest and keep it for future reference.

Additional facts about the Fund are in a Statement of Additional Information
(SAI), filed with the Securities and Exchange Commission (SEC) and available for
reference, along with other related materials, on the SEC Internet web site
(http://www.sec.gov). The SAI is incorporated by reference. For a free copy,
contact American Express Shareholder Service.

Like all mutual fund shares, these securities have not been approved or
disapproved by the Securities and Exchange Commission or any state securities
commission, nor has the Securities and Exchange Commission or any state
securities commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.

Please note that the Fund:

o is not a bank deposit
o is not federally insured
o is not endorsed by any bank or government agency
o is not guaranteed to achieve its goal

American Express Shareholder Service
P.O. Box 534
Minneapolis, MN
55440-0534
800-862-7919
TTY: 800-846-4852
Web site address: http://www.americanexpress.com/advisors
<PAGE>
Table of contents

The Fund in brief
Goal
Investment policies and risks
Manager and distributor
Portfolio manager
Alternative purchase arrangements

Sales charge and Fund expenses

Performance
Financial highlights
Total returns
Yield

Investment policies and risks Facts about investments and their risks
Alternative investment option Valuing Fund shares

How to purchase, exchange or redeem shares
Alternative purchase arrangements
How to purchase shares
How to exchange shares
How to redeem shares
Reductions and waivers of the sales charge

Special shareholder services
Services
Quick telephone reference

Distributions and taxes
Dividend and capital gain distributions
Reinvestments
Taxes
How to determine the correct TIN
<PAGE>
How the Fund is organized
Shares
Voting rights
Shareholder meetings
Board members and officers
Investment manager
Administrator and transfer agent
Distributor

About American Express Financial Corporation
General information

Appendices

1998 federal tax-exempt and taxable equivalent yield calculations
Descriptions of derivative instruments
<PAGE>
The Fund in brief

Goal

IDS Tax-Exempt Bond Fund (the Fund) seeks to provide shareholders with as much
current income exempt from federal income taxes as possible with only modest
risk to the shareholder's investments. Because any investment involves risk,
achieving this goal cannot be guaranteed. Only shareholders can change the goal.

Investment policies and risks

The Fund is a diversified mutual fund that invests primarily in investment-grade
bonds and other debt securities issued by or on behalf of state or local
governmental units whose interest is exempt from federal income tax. The Fund
also may invest in rated or unrated debt securities considered to be comparable
to investment-grade securities, derivative instruments and money market
instruments. Some of the Fund's investments may be considered speculative and
involve additional investment risks. For further information, refer to the later
section in the prospectus titled "Investment policies and risks."

Manager and distributor

The Fund is managed by American Express Financial Corporation (AEFC), a provider
of financial services since 1894. AEFC currently manages more than $70 billion
in assets for the IDS MUTUAL FUND GROUP. Shares of the Fund are sold through
American Express Financial Advisors Inc. (AEFA), a wholly-owned subsidiary of
AEFC.

Portfolio manager

Terry Seierstad joined AEFC in 1982 and serves as senior portfolio manager. He
has managed this Fund since 1993. He also manages the investments for IDS
Property Casualty Company. From 1988 to 1994, he served as portfolio manager of
certificate investments and also managed IDS Life Special Income Fund from 1990
to 1992.

Alternative purchase arrangements

The Fund offers its shares in three classes. Class A shares are subject to a
sales charge at the time of purchase. Class B shares are subject to a contingent
deferred sales charge (CDSC) on redemptions made within six years of purchase
and an annual distribution (12b-1) fee. Class Y shares are sold without a sales
charge to qualifying institutional investors.
<PAGE>
Sales charge and Fund expenses

Shareholder transaction expenses are incurred directly by an investor on the
purchase or redemption of Fund shares. Fund operating expenses are paid out of
Fund assets for each class of shares. Operating expenses are reflected in the
Fund's daily share price and dividends, and are not charged directly to
shareholder accounts.

Shareholder transaction expenses
Class A Class B Class Y
Maximum sales charge on purchases*
(as a percentage of offering price) 5% 0% 0%
Maximum deferred sales charge
imposed on redemptions (as a
percentage of original purchase price) 0% 5% 0%

Annual Fund operating expenses (as a percentage of average daily net assets):

Class A Class B Class Y
Management fee 0.45 0.45 0.45
12b-1 fee 0.00 0.75 0.00
Other expenses** 0.28 0.29 0.21
Total 0.73 1.49 0.66

*This charge may be reduced depending on your total investments in IDS funds.
See "Reductions of the sales charge." **Other expenses include an administrative
services fee, a shareholder services fee, a transfer agency fee and other
nonadvisory expenses. Class Y expenses have been restated to reflect the 0.10%
shareholder services fee effective May 9, 1997.

Example: Suppose for each year for the next 10 years, Fund expenses are as above
and annual return is 5%. If you sold your shares at the end of the following
years, for each $1,000 invested, you would pay total expenses of:

1 year 3 years 5 years 10 years
Class A $57 $72 $ 89 $136
Class B $65 $87 $101 $158**
Class B* $15 $47 $ 81 $158**
Class Y $ 7 $21 $ 37 $ 83

*Assuming Class B shares are not redeemed at the end of the period.
**Based on conversion of Class B shares to Class A shares after eight years.
<PAGE>
This example does not represent actual expenses, past or future. Actual expenses
may be higher or lower than those shown. Because Class B pays annual
distribution (12b-1) fees, long-term shareholders of Class B may indirectly pay
an equivalent of more than a 6.25% sales charge, the maximum permitted by the
National Association of Securities Dealers.

Performance

Financial highlights
<TABLE>
<CAPTION>

Fiscal period ended Nov. 30,
Per share income and capital changesa

Class A
1997 1996 1995 1994 1993 1992 1991b 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Net asset value, $4.01 $4.06 $3.54 $4.19 $3.98 $3.93 $3.88 $3.98 $3.96 $3.93 $4.25
beginning of
period
Income from investment operations:
Net investment .21 .20 .21 .23 .22 .22 .22 .26 .28 .28 .29
income
(loss)

Net gains (losses) .10 (.05) .52 (.56) .23 .11 .05 (.01) .17 .03 (.32)
(both realized
and unrealized)

Total from .31 .15 .73 (.33) .45 .33 .27 .25 .45 .31 (.03)
investment
operations
Less distributions:
Dividends from net (.21) (.20) (.21) (.23) (.22) (.22) (.22) (.26) (.28) (.28) (.29)
investment income

Distributions -- -- -- (.09) (.02) (.06) -- (.09) (.15) -- --
from
realized gains

Total (.21) (.20) (.21) (.32) (.24) (.28) (.22) (.35) (.43) (.28) (.29)
distributions

Net asset value, $4.11 $4.01 $4.06 $3.54 $4.19 $3.98 $3.93 $3.88 $3.98 $3.96 $3.93
end of period
Ratios/supplemental data
Class A
1997 1996 1995 1994 1993 1992 1991b 1990 1989 1988 1987

Net assets, end of $998 $1,067 $1,16 $1,054 $1,291 $1,273 $1,188 $1,09 $1,010 $927 $885
period (in
millions)

Ratio of expenses .73% .73% .71% .61% .63% .64% .60%d .61% .61% .60% .61%
to
average daily net
assetsc

Ratio of net 5.19% 5.15% 5.52% 5.82% 5.54% 5.68% 6.11%d 6.61% 6.90% 7.16% 7.32%
income
(loss) to average
daily
net assets

Portfolio 19% 62% 54% 66% 43% 63% 69% 112% 96% 54% 37%
turnover rate
(excluding
short-term
securities)

Total returne 7.8% 4.0% 21.1% (8.3%) 11.7% 8.7% 8.3%d 6.1% 12.1% 9.6% (2.6%)
</TABLE>
a For a share outstanding throughout the period. Rounded to the nearest cent.

b The Fund's fiscal year-end was changed from Dec. 31 to Nov. 30, effective
1991.

c Effective fiscal year 1996, expense ratio is based on total expenses of the
Fund before reduction of earnings credits on cash balances.

d Adjusted to an annual basis.

e Total return does not reflect payment of a sales charge.
<TABLE>
<CAPTION>
Performance
Financial highlights

Fiscal period ended Nov. 30,
Per share income and capital changesa

Class b Class y

1997 1996 1995b 1997 1996 1995b
<S> <C> <C> <C> <C> <C> <C>
Net asset value, $4.01 $4.06 $3.88 $4.01 $4.06 $3.88
beginning of
period
Income from investment operations:
Net investment .18 .17 .14 .21 .21 .16
income
(loss)

Net gains .10 (.05) .18 .10 (.05) .18
(losses) (both
realized and
unrealized)

Total from .28 .12 .32 .31 .16 .34
investment
operations
Less distributions:

Dividends from net (.18) (.17) (.14) (.21) (.21) (.16)
investment income

Net asset value, $4.11 $4.01 $4.06 $4.11 $4.01 $4.06
end of period

Ratios/supplemental data
Class B Class Y

1997 1996 1995b 1997 1996 1995b
Net assets, end of $25 $20 $14 $-- $-- $--
period (in
millions)

Ratio of expenses 1.49% 1.49% 1.52%d .60% .55% .58%d
to
average daily net
assetsc

Ratio of net 4.43% 4.40% 4.55%d 5.34% 5.33% 5.52%d
income (loss)
to average daily
net assets

Portfolio 19% 62% 54% 19% 62% 54%
turnover rate
(excluding
short-term
securities)

Total returne 6.9% 3.2% 8.6% 7.9% 4.2% 9.2%
</TABLE>
a For a share outstanding throughout the period. Rounded to the nearest cent.

b Inception date was March 20, 1995.

c Effective fiscal year 1996, expense ratio is based on total expenses of the
Fund before reduction of earnings credits on cash balances.

d Adjusted to an annual basis.

e Total return does not reflect payment of a sales charge.

The information in these tables has been audited by KPMG Peat Marwick LLP,
independent auditors. The independent auditors' report and additional
information about the performance of the Fund are contained in the Fund's annual
report which, if not included with this prospectus, may be obtained without
charge.

Total returns

Total return is the sum of all of your returns for a given period, assuming you
reinvest all distributions. It is calculated by taking the total value of shares
you own at the end of the period (including shares acquired by reinvestment),
less the price of shares you purchased at the beginning of the period.

Average annual total return is the annually compounded rate of return over a
given time period (usually two or more years). It is the total return for the
period converted to an equivalent annual figure.

Average annual total returns as of Nov. 30, 1997

Purchase 1 year Since 5 years 10 years
made ago inception ago ago
- --------------------- ------------ --------------- ---------------- ----------
(fund name):
Class A +2.39% --% +5.71% +7.31%
Class B +2.94% 5.67% --% --%
Class Y +7.87% 7.96%* --% --%

Lehman Brothers
Municipal Bond Index
+7.18% +7.40%** +6.87% +8.21%

*Inception date was March 20, 1995.
**Measurement period started April 1, 1995.
<PAGE>

Cumulative total returns as of Nov. 30, 1997

Purchase 1 year Since 5 years 10 years
made ago inception ago ago
- --------------------- -------------- ----------------- ------------- ----------
(fund name):
Class A +2.39% --% +32.02% +102.58%
Class B +2.94% 16.08%* -- --
Class Y +7.87% 22.97%* -- --%

Lehman Brothers
Municipal Bond Index
+7.18% +21.07%** +39.43% +120.18%

*Inception date was March 20, 1995.
**Measurement period started April 1, 1995.

These examples show total returns from hypothetical investments in Class A,
Class B and Class Y shares of the Fund. These returns are compared to those of a
popular index for the same periods. The performance of Class B and Class Y will
vary from the performance of Class A based on differences in sales charges and
fees. Past performance for Class Y for the periods prior to March 20, 1995 may
be calculated based on the performance of Class A, adjusted to reflect
differences in sales charges although not for other differences in expenses.

For purposes of calculation, information about the Fund assumes:
o a sales charge of 5% for Class A shares
o redemption at the end of the period and deduction of the applicable
contingent deferred sales charge for Class B shares
o no sales charge for Class Y shares
o no adjustments for taxes an investor may have paid on the reinvested
income and capital gains
o a period of widely fluctuating securities prices.

Returns shown should not be considered a representation of the Fund's future
performance.

Lehman Brothers Municipal Bond Index is an unmanaged index made up of a
representative list of general obligation, revenue, insured and pre-refunded
bonds. The index is frequently used as a general measure of tax-exempt bond
market performance. However, the securities used to create the index may not be
representative of the bonds held in the Fund. The index reflects reinvestment of
all distributions and changes in market prices, but excludes brokerage
commissions or other fees.
<PAGE>
Yield

Yield is the net investment income earned per share for a specified time period,
divided by the offering price at the end of the period. The Fund's SEC
standardized yield for the 30-day period ended Nov. 28, 1997, was 4.18% for
Class A, 3.64% for Class B and 4.49% for Class Y. The Fund calculates this
30-day SEC standardized yield by dividing:

o net investment income per share deemed earned during a 30-day period by

o the public offering price per share on the last day of the period, and

o converting the result to a yearly equivalent figure

The Fund also may calculate a tax equivalent yield by dividing the tax-exempt
portion of its yield by one minus a stated income tax rate. A tax equivalent
yield demonstrates the taxable yield necessary to produce an after-tax yield
equivalent to that of a fund that invests in exempt obligations.

These yield calculations do not include any contingent deferred sales charge,
ranging from 5% to 0% on Class B shares, which would reduce the yields quoted.

The Fund's yield varies from day to day, mainly because share values and
offering prices (which are calculated daily) vary in response to changes in
interest rates. Net investment income normally changes much less in the short
run. Thus, when interest rates rise and share values fall, yield tends to rise.
When interest rates fall, yield tends to follow.

Past yields should not be considered an indicator of future yields.

Investment policies and risks

Under normal market conditions, the Fund will invest at least 80% of its net
assets in bonds and other debt securities issued by or on behalf of state or
local governmental units whose interest, in the opinion of counsel for the
issuer, is exempt from federal income tax. This policy cannot be changed without
approval of a majority of the outstanding voting securities. This Fund does not
intend to purchase bonds or other debt securities the interest from which is
subject to the alternative minimum tax. Other investments may include derivative
instruments and money market instruments.

This fund is designed for investors whose income tax levels enable them to
benefit from tax-exempt income. In general, this fund is not an appropriate
investment for tax-deferred retirement plans, such as Individual Retirement
Accounts.

The various types of investments the investment manager uses to achieve
investment performance are described in more detail in the next section and in
the SAI.
<PAGE>
Facts about investments and their risks

For the fiscal year ended Nov. 30, 1997, the Fund held less than 5% of its
average daily net assets in bond rated below investment grade.

Derivative instruments: The investment manager may use derivative instruments in
addition to securities to achieve investment performance. Derivative instruments
include futures, options and forward contracts. Such instruments may be used to
maintain cash reserves while remaining fully invested, to offset anticipated
declines in values of investments, to facilitate trading, to reduce transaction
costs or to pursue higher investment returns. Derivative instruments are
characterized by requiring little or no initial payment and a daily change in
price based on or derived from a security, a currency, a group of securities or
currencies, or an index. A number of strategies or combination of instruments
can be used to achieve the desired investment performance characteristics. A
small change in the value of the underlying security, currency or index will
cause a sizable gain or loss in the price of the derivative instrument.
Derivative instruments allow the investment manager to change the investment
performance characteristics very quickly and at lower costs. Risks include
losses of premiums, rapid changes in prices, defaults by other parties and
inability to close such instruments. The Fund will use derivative instruments
only to achieve the same investment performance characteristics it could achieve
by directly holding those securities and currencies permitted under the
investment policies. The Fund will designate cash or appropriate liquid assets
to cover its portfolio obligations. The use of derivative instruments may
produce taxable income. No more than 5% of the Fund's net assets can be used at
any one time for good faith deposits on futures and premiums for options on
futures that do not offset existing investment positions. This does not,
however, limit the portion of the Fund's assets at risk to 5%. The Fund is not
limited as to the percentage of its assets that may be invested in permissible
investments, including derivatives, except as otherwise explicitly provided in
this prospectus or the SAI. For descriptions of these and other types of
derivative instruments, see the Appendix to this prospectus and the SAI.
<PAGE>
Securities and other instruments that are illiquid: A security or other
instrument is illiquid if it cannot be sold quickly in the normal course of
business. Some investments cannot be resold to the U.S. public because of their
terms or government regulations. Securities and instruments, however, can be
sold in private sales, and many may be sold to other institutions and qualified
buyers or on foreign markets. The investment manager will follow guidelines
established by the board and consider relevant factors such as the nature of the
security and the number of likely buyers when determining whether a security is
illiquid. No more than 10% of the Fund's net assets will be held in securities
and other instruments that are illiquid.

Money market instruments: Short-term tax-exempt debt securities rated in the top
two grades or the equivalent are used to meet daily cash needs and at various
times to hold assets until better investment opportunities arise. Under
extraordinary conditions where, in the opinion of the investment manager,
appropriate short-term tax-exempt securities are not available, the Fund is
authorized to make certain taxable investments as described in the SAI.

The investment policies described above may be changed by the board.

Lending portfolio securities: The Fund may lend its securities to earn income so
long as borrowers provide collateral equal to the market value of the loans. The
risks are that borrowers will not provide collateral when required or return
securities when due. Unless a majority of the outstanding voting securities
approve otherwise, loans may not exceed 30% of the Fund's net assets.

Alternative investment option

In the future, the board of the Fund may determine for operating efficiencies to
use a master/feeder structure. Under that structure, the Fund's assets would be
invested in an investment company with the same goal as the Fund, rather than
invested directly in a portfolio of securities.

Valuing Fund shares

The public offering price is the net asset value (NAV) adjusted for the sales
charge for Class A. It is the NAV for Class B and Class Y.

The NAV is the value of a single Fund share. The NAV usually changes daily, and
is calculated at the close of business, normally 3 p.m. Central time, each
business day (any day the New York Stock Exchange is open). NAV generally
declines as interest rates increase and rises as interest rates decline.

To establish the net assets, all securities are valued as of the close of each
business day. In valuing assets:

o Securities and assets with available market values are valued on that basis
<PAGE>
o Securities maturing in 60 days or less are valued at amortized cost

o Assets without readily available market values are valued according to
methods selected in good faith by the board

How to purchase, exchange or redeem shares

Alternative purchase arrangements

The Fund offers three different classes of shares - Class A, Class B and Class
Y. The primary differences among the classes are in the sales charge structures
and in their ongoing expenses. These differences are summarized in the table
below. You may choose the class that best suits your circumstances and
objectives.
<TABLE>
<CAPTION>
Sales charge and
distribution
(12b-1) fee Service fee Other information
<S> <C> <C> <C>
Class A Maximum initial sales 0.175% of average daily net Initial sales charge waived
charge of 5%; no 12b-1 fee assets or reduced for certain
purchases

Class B No initial sales charge; 0.175% of average daily net Shares convert to Class A
maximum CDSC of 5% assets in the ninth year of
declines to 0% after six ownership; CDSC waived in
years; 12b-1 fee of 0.75% certain circumstances
of average daily net
assets

Class Y None 0.10% of average daily net Available only to certain
assets qualifying institutional
investors
</TABLE>

Conversion of Class B shares to Class A shares - During the ninth calendar year
of owning your Class B shares, Class B shares will convert to Class A shares and
will no longer be subject to a distribution fee. Class B shares that convert to
Class A shares are not subject to a sales charge. Class B shares purchased
through reinvested dividends and distributions also will convert to Class A
shares in the same proportion as the other Class B shares. This means more of
your money will be put to work for you.

<PAGE>
Considerations in determining whether to purchase Class A or Class B shares -
You should consider the information below in determining whether to purchase
Class A or Class B shares. The distribution fee (included in "Ongoing expenses")
and sales charges are structured so that you will have approximately the same
total return at the end of eight years regardless of which class you chose.
<TABLE>
<CAPTION>
Sales charges on purchase or redemption
<S> <C>
If you purchase Class A shares If you purchase Class B shares

o You will not have all of your purchase price o All of your money is invested in shares of stock.
invested. Part of your purchase price will go to pay However, you will pay a sales charge if you redeem
the sales charge. You will not pay a sales charge your shares within six years of purchase.
when you redeem your shares.

o You will be able to take advantage of reductions o No reductions of the sales charge are available
in the sales charge. for large purchases.
</TABLE>
If your investments in IDS funds that are subject to a sales charge total
$250,000 or more, you are better off paying the reduced sales charge in Class A
than paying the higher fees in Class B. If you qualify for a waiver of the sales
charge, you should purchase Class A shares.
<TABLE>
<CAPTION>
Ongoing expenses
<S> <C>
If you purchase Class A shares If you purchase Class B shares

o Your shares will have a lower expense ratio than o The distribution and transfer agency fees for
Class B shares because Class A does not pay a Class B will cause your shares to have a higher
distribution fee and the transfer agency fee for expense ratio and to pay lower dividends than Class
Class A is lower than the fee for Class B. As a A shares. In the ninth year of ownership, Class B
result, Class A shares will pay higher dividends shares will convert to Class A shares and you will
than Class B shares. no longer be subject to higher fees.
</TABLE>
You should consider how long you plan to hold your shares and whether the
accumulated higher fees and CDSC on Class B shares prior to conversion would be
less than the initial sales charge on Class A shares. Also consider to what
extent the difference would be offset by the lower expenses on Class A shares.
To help you in this analysis, the example in the "Sales charge and Fund
expenses" section of the prospectus illustrates the charges applicable to each
class of shares.
<PAGE>

Class Y shares - Class Y shares are offered to certain institutional investors.
Class Y shares are sold without a front-end sales charge or a CDSC and are not
subject to a distribution fee. The following investors are eligible to purchase
Class Y shares:

o Qualified employee benefit plans* if the plan:
- uses a daily transfer recordkeeping service offering participants
daily access to IDS funds and has
- at least $10 million in plan assets or
- 500 or more participants; or
- does not use daily transfer recordkeeping and has
- at least $3 million invested in funds of the IDS MUTUAL FUND GROUP or
- 500 or more participants.

o Trust companies or similar institutions, and charitable organizations that
meet the definition in Section 501(c)(3) of the Internal Revenue Code.*
These must have at least $10 million invested in funds of the IDS MUTUAL
FUND GROUP.

o Nonqualified deferred compensation plans* whose participants are included
in a qualified employee benefit plan described above.

* Eligibility must be determined in advance by AEFA. To do so, contact your
financial advisor.

How to purchase shares

If you are investing in this Fund for the first time, you will need to set up an
account. Your financial advisor will help you fill out and submit an
application. Once your account is set up, you can choose among several
convenient ways to invest.

Important: When opening an account, you must provide your correct Taxpayer
Identification Number (Social Security or Employer Identification number). See
"Distributions and taxes."

When you purchase shares for a new or existing account, the price you pay per
share is determined at the close of business on the day your investment is
received and accepted at the Minneapolis headquarters.

Purchase policies:

o Investments must be received and accepted in the Minneapolis
headquarters on a business day before 3 p.m. Central time to be
included in your account that day and to receive that day's share
price. Otherwise, your purchase will be processed the next business day
and you will pay the next day's share price.

o The minimums allowed for investment may change from time to time.
<PAGE>
o Wire orders can be accepted only on days when your bank, AEFC, the Fund
and Norwest Bank Minneapolis are open for business.

o Wire purchases are completed when wired payment is received and the
Fund accepts the purchase.

o AEFC and the Fund are not responsible for any delays that occur in
wiring funds, including delays in processing by the bank.

o You must pay any fee the bank charges for wiring.

o The Fund reserves the right to reject any application for any reason.

o If your application does not specify which class of shares you are
purchasing, it will be assumed that you are investing in Class A
shares.
<TABLE>
<CAPTION>
Three ways to invest
<S> <C> <C>
1
By regular account Send your check and application (or your name Minimum amounts
and account number if you have an established Initial investment: $2,000
account) to: Additional
investments: $ 100
American Express Financial Advisors Inc. Account balances: $ 300*
P.O. Box 74
Minneapolis, MN 55440-0074

Your financial advisor will help you with this
process.

2
By scheduled investment Contact your financial advisor to set up one Minimum amounts
plan of the following scheduled plans: Initial investment: $ 100
Additional
o automatic payroll deduction investments: $ 100/
each payment
o bank authorization Account balances: none
(on active plans of
o direct deposit of Social Security check monthly payments)

o other plan approved by the Fund If account balance is below $2,000,
frequency of payments must be at
least monthly.

3
By wire If you have an established account, you may If this information is not
wire money to: included, the order may be
rejected and all money
Norwest Bank Minneapolis received by the Fund, less any
Routing No. 091000019 costs the Fund or AEFC incurs,
Minneapolis, MN will be returned promptly.
Attn: Domestic Wire Dept.
Minimum amounts
Give these instructions: Each wire investment:$1,000
Credit IDS Account #00-30-015 for personal
account # (your account number) for (your
name).
</TABLE>
<PAGE>
*If your account balance falls below $300, you will be asked in writing to bring
it up to $300 or establish a scheduled investment plan. If you do not do so
within 30 days, your shares can be redeemed and the proceeds mailed to you. If
you are in a "wrap-fee" program sponsored by AEFA and your wrap program balance
falls below the required program minimum or the program is terminated, your
shares will be redeemed and the proceeds mailed to you.

How to exchange shares

You can exchange your shares of the Fund at no charge for shares of the same
class of any other publicly offered fund in the IDS MUTUAL FUND GROUP available
in your state. Exchanges into IDS Tax-Free Money Fund must be made from Class A
shares. For complete information on any other fund, including fees and expenses,
read that fund's prospectus carefully.

If your exchange request arrives at the Minneapolis headquarters before the
close of business, your shares will be redeemed at the net asset value set for
that day. The proceeds will be used to purchase new fund shares the same day.
Otherwise, your exchange will take place the next business day at that day's net
asset value.

For tax purposes, an exchange represents a redemption and purchase and may
result in a gain or loss. However, you cannot use the sales charge imposed on
the purchase of Class A shares to create or increase a tax loss (or reduce a
taxable gain) by exchanging from the Fund within 91 days of your purchase. For
further explanation, see the SAI.

How to redeem shares

You can redeem your shares at any time. American Express Shareholder Service
will mail payment within seven days after receiving your request.

When you redeem shares, the amount you receive may be more or less than the
amount you invested. Your shares will be redeemed at net asset value, minus any
applicable sales charge, at the close of business on the day your request is
accepted at the Minneapolis headquarters. If your request arrives after the
close of business, the price per share will be the net asset value, minus any
applicable sales charge, at the close of business on the next business day.

A redemption is a taxable transaction. If the proceeds from your redemption are
more or less than the cost of your shares, you will have a gain or loss, which
can affect your tax liability.

<PAGE>
Two ways to request an exchange or redemption of shares

1
By letter Include in your letter:
o the name of the fund (s)
o the class of shares to be exchanged or
redeemed
o your account number(s) (for exchanges, both
funds must be registered in the same
ownership)
o your Taxpayer Identification Number (TIN)
o the dollar amount or number of
shares you want to exchange or redeem
o signature of all registered account owners
o for redemptions, indicate how you want your
money delivered to you
o any paper certificates of shares you hold

Regular mail:
American Express Shareholder Service
Attn: Redemptions
P.O. Box 534
Minneapolis, MN 55440-0534

Express mail:
American Express Shareholder Service
Attn: Redemptions
733 Marquette Ave.
Minneapolis, MN 55402

2
By phone
American Express Financial o The Fund and AEFC will honor any telephone
Advisors Telephone Transaction exchange or redemption request believed to be
Service: authentic and will use reasonable procedures
to confirm that they are. This includes asking
612-671-3800 identifying questions and 800-437-3133 or tape
recording calls. If reasonable procedures are
followed, the Fund or AEFC will not be liable
for any loss resulting from fraudulent
requests.
o Phone exchange and redemption privileges
automatically apply to all accounts except
custodial, corporate or qualified retirement
accounts unless you request these privileges
NOT apply by writing American Express
Shareholder Service. Each registered owner
must sign the request.
o AEFC answers phone requests promptly, but
you may experience delays when call volume is
high. If you are unable to get through, use
mail procedure as an alternative.
o Acting on your instructions, your financial
advisor may conduct telephone transactions on
your behalf.
o Phone privileges may be modified or
discontinued at any time.

Minimum amount
Redemption: $100

Maximum amount
Redemption: $50,000
<PAGE>
Exchange policies:

o You may make up to three exchanges within any 30-day period, with each limited
to $300,000. These limits do not apply to scheduled exchange programs and
certain employee benefit plans or other arrangements through which one
shareholder represents the interests of several. Exceptions may be allowed with
pre-approval of the Fund.

o Exchanges must be made into the same class of shares of the new fund.

o If your exchange creates a new account, it must satisfy the minimum investment
amount for new purchases.

o Once we receive your exchange request, you cannot cancel it.

o Shares of the new fund may not be used on the same day for another exchange.

o If your shares are pledged as collateral, the exchange will be delayed until
written approval is obtained from the secured party.

o AEFC and the Fund reserve the right to reject any exchange, limit the amount,
or modify or discontinue the exchange privilege, to prevent abuse or adverse
effects on the Fund and its shareholders. For example, if exchanges are too
numerous or too large, they may disrupt the Fund's investment strategies or
increase its costs.

Redemption policies:

o A "change of mind" option allows you to change your mind after requesting a
redemption and to use all or part of the proceeds to purchase new shares in the
same account from which you redeemed. If you reinvest in Class A, you will
purchase the new shares at net asset value rather than the offering price on the
date of a new purchase. If you reinvest in Class B, any CDSC you paid on the
amount you are reinvesting also will be reinvested. To take advantage of this
option, send a written request within 30 days of the date your redemption
request was received. Include your account number and mention this option. This
privilege may be limited or withdrawn at any time, and it may have tax
consequences.

o A telephone redemption request will not be allowed within 30 days of a
phoned-in address change.

Important: If you request a redemption of shares you recently purchased by a
check or money order that is not guaranteed, the Fund will wait for your check
to clear. It may take up to 10 days from the date of purchase before a check is
mailed to you. (A check may be mailed earlier if your bank provides evidence
satisfactory to the Fund and AEFC that your check has cleared.)
<PAGE>
Three ways to receive payment when you redeem shares

1 o Mailed to the address on record
By regular or o Payable to names listed on the account
express mail NOTE: You will be charged a fee if you
request express mail delivery.

2 o Minimum wire redemption: $1,000
By wire o Request that money be wired to your bank
o Bank account must be in the same ownership as
the IDS fund account NOTE: Pre-authorization
required. For instructions, contact your
financial advisor or American Express
Shareholder Service.

3 o Minimum payment: $50
By scheduled o Contact your financial advisor or American
payout plan Express Shareholder Service to set up regular
payments to you on a monthly, bimonthly,
quarterly, semiannual or annual basis
o Purchasing new shares while under a payout
plan may be disadvantageous because of the
sales charges

Reductions and waivers of the sales charge
Class A - initial sales charge alternative

On purchases of Class A shares, you pay a 5% sales charge on the first $50,000
of your total investment and less on investments after the first $50,000:

Total investment Sales charge as a
percentage of:*

Public Net
offering amount
price invested

Up to $50,000 5.0% 5.26%
Next $50,000 4.5 4.71
Next $400,000 3.8 3.95
Next $500,000 2.0 2.04
$1,000,000 or more 0.0 0.00

* To calculate the actual sales charge on an investment greater than $50,000 and
less than $1,000,000, amounts for each applicable increment must be totaled. See
the SAI.
<PAGE>
Reductions of the sales charge on Class A shares Your sales charge may be
reduced, depending on the totals of:

o the amount you are investing in this Fund now;

o the amount of your existing investment in this Fund, if any; and

o the amount you and your primary household group are investing or have in other
funds in the IDS MUTUAL FUND GROUP that carry a sales charge. (The primary
household group consists of accounts in any ownership for spouses or domestic
partners and their unmarried children under 21. Domestic partners are
individuals who maintain a shared primary residence and have joint property or
other insurable interests.)

Other policies that affect your sales charge:

o IDS Tax-Free Money Fund and Class A shares of IDS Cash Management Fund do not
carry sales charges. However, you may count investments in these funds if you
acquired shares in them by exchanging shares from IDS funds that carry sales
charges.

o Employee benefit plan purchases made through a payroll deduction plan or
through a plan sponsored by an employer, association of employers, employee
organization or other similar entity, may be added together to reduce sales
charges for all shares purchased through that plan.

o If you intend to invest $1 million over a period of 13 months, you can reduce
the sales charges in Class A by filing a letter of intent.

For more details, see the SAI.

Waivers of the sales charge for Class A shares Sales charges do not apply to:

o Current or retired board members, officers or employees of the Fund or AEFC or
its subsidiaries, their spouses and unmarried children under 21.

o Current or retired American Express financial advisors, their spouses and
unmarried children under 21.

o Investors who have a business relationship with a newly associated financial
advisor who joined AEFA from another investment firm provided that (1) the
purchase is made within six months of the advisor's appointment date with AEFA,
(2) the purchase is made with proceeds of a redemption of shares that were
sponsored by the financial advisor's previous broker-dealer, and (3) the
proceeds must be the result of a redemption of an equal or greater value where a
sales load was previously assessed.

<PAGE>
o Qualified employee benefit plans* using a daily transfer recordkeeping system
offering participants daily access to IDS funds.

(Participants in certain qualified plans for which the initial sales charge is
waived may be subject to a deferred sales charge of up to 4% on certain
redemptions. For more information, see the SAI.)

o Shareholders who have at least $1 million invested in funds of the IDS MUTUAL
FUND GROUP. If the investment is redeemed in the first year after purchase, a
CDSC of 1% will be charged on the redemption. The CDSC will be waived only in
the circumstances described for waivers for Class B shares.

o Purchases made within 30 days after a redemption of shares (up to the
amount redeemed): - of a product distributed by AEFA in a qualified plan
subject to a deferred sales charge or - a qualified plan where American
Express Trust Company has a recordkeeping, trustee, investment
management or investment servicing relationship.

Send the Fund a written request along with your payment, indicating the amount
of the redemption and the date on which it occurred.

o Purchases made with dividend or capital gain distributions from the same class
of another fund in the IDS MUTUAL FUND GROUP that has a sales charge.

o Purchases made through or under a "wrap fee" product sponsored by AEFA (total
amount of all investments must be $50,000); or a segregated separate account
offered by Nationwide Life Insurance Company or Nationwide Life and Annuity
Insurance Company.

o Purchases made with the proceeds from IDS Life Real Estate Variable Annuity
surrenders.

* Eligibility must be determined in advance by AEFA. To do so, contact your
financial advisor.
<PAGE>
Class B - contingent deferred sales charge alternative

Where a CDSC is imposed on a redemption, it is based on the amount of the
redemption and the number of calendar years, including the year of purchase,
between purchase and redemption. The following table shows the declining scale
of percentages that apply to redemptions during each year after a purchase:

If a redemption is The percentage rate
made during the for the CDSC is:

First year 5%
Second year 4%
Third year 4%
Fourth year 3%
Fifth year 2%
Sixth year 1%
Seventh year 0%

If the amount you are redeeming reduces the current net asset value of your
investment in Class B shares below the total dollar amount of all your purchase
payments during the last six years (including the year in which your redemption
is made), the CDSC is based on the lower of the redeemed purchase payments or
market value.

The following example illustrates how the CDSC is applied. Assume you had
invested $10,000 in Class B shares and that your investment had appreciated in
value to $12,000 after 15 months, including reinvested dividend and capital gain
distributions. You could redeem any amount up to $2,000 without paying a CDSC
($12,000 current value less $10,000 purchase amount). If you redeemed $2,500,
the CDSC would apply only to the $500 that represented part of your original
purchase price. The CDSC rate would be 4% because a redemption after 15 months
would take place during the second year after purchase.

Because the CDSC is imposed only on redemptions that reduce the total of your
purchase payments, you never have to pay a CDSC on any amount you redeem that
represents appreciation in the value of your shares, income earned by your
shares or capital gains. In addition, when determining the rate of any CDSC,
your redemption will be made from the oldest purchase payment you made. Of
course, once a purchase payment is considered to have been redeemed, the next
amount redeemed is the next oldest purchase payment. By redeeming the oldest
purchase payments first, lower CDSCs are imposed than would otherwise be the
case.
<PAGE>
Waivers of the contingent deferred sales charge The CDSC on Class B shares will
be waived on redemptions of shares:

o In the event of the shareholder's death,
o Purchased by any board member, officer or employee of a fund or AEFC or its
subsidiaries,
o Held in a trusteed employee benefit plan,
o Held in IRAs or certain qualified plans for which American Express Trust
Company acts as custodian, such as Keogh plans, tax-sheltered custodial
accounts or corporate pension plans, provided that the shareholder is:
- at least 59-1/2 years old, and
- taking a retirement distribution (if the redemption is part of a
transfer to an IRA or qualified plan in a product distributed by AEFA,
or a custodian-to-custodian transfer to a product not distributed by
AEFA, the CDSC will not be waived), or
- redeeming under an approved substantially equal periodic payment
arrangement.

Special shareholder services

Services

To help you track and evaluate the performance of your investments, AEFC
provides these services:

Quarterly statements listing all of your holdings and transactions during the
previous three months.

Yearly tax statements featuring average-cost-basis reporting of capital gains or
losses if you redeem your shares along with distribution information which
simplifies tax calculations.

A personalized mutual fund progress report detailing returns on your initial
investment and cash-flow activity in your account. It calculates a total return
to reflect your individual history in owning Fund shares. This report is
available from your financial advisor.

Quick telephone reference

American Express Financial Advisors 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
<PAGE>

TTY Service
For the hearing impaired
800-846-4852

American Express Financial Advisors Easy Access Line
Automated account information (TouchToneR phones only), including current Fund
prices and performance, account values and recent account transactions
800-862-7919

Distributions and taxes

As a shareholder you are entitled to your share of the Fund's net income and any
net gains realized on its investments. The Fund distributes dividends and
capital gain distributions to qualify as a regulated investment company and to
avoid paying corporate income and excise taxes. Dividend and capital gain
distributions will have tax consequences you should know about.

Dividend and capital gain distributions

The Fund's net investment income from dividends and interest is distributed to
you monthly as dividends. Capital gains are realized when a security is sold for
a higher price than was paid for it. Short-term capital gains are distributed at
the end of the calendar year and are included in net investment income.
Long-term capital gains are realized when a security is held for more than one
year.

The Fund will offset any net realized capital gains by any available capital
loss carryovers. Net realized long-term capital gains, if any, are distributed
at the end of the calendar year as capital gain distributions. These long-term
capital gains will be subject to differing tax rates depending on the holding
period of the underlying investments.

Before they are distributed, net long-term capital gains are included in the
value of each share. After they are distributed, the value of each share drops
by the per-share amount of the distribution. (If your distributions are
reinvested, the total value of your holdings will not change.)

Dividends for each class will be calculated at the same time, in the same manner
and will be the same amount prior to deduction of expenses. Expenses
attributable solely to a class of shares will be paid exclusively by that class.
<PAGE>
Reinvestments

Dividends and capital gain distributions are automatically reinvested in
additional shares in the same class of the Fund, unless:

o you request the Fund in writing or by phone to pay distributions to
you in cash, or

o you direct the Fund to invest your distributions in the same class of
another publicly available IDS fund for which you have previously
opened an account.

The reinvestment price is the net asset value at close of business on the day
the distribution is paid. (Your quarterly statement will confirm the amount
invested and the number of shares purchased.)

If you choose cash distributions, you will receive only those declared after
your request has been processed.

If the U.S. Postal Service cannot deliver the checks for the cash distributions,
we will reinvest the checks into your account at the then-current net asset
value and make future distributions in the form of additional shares. Prior to
reinvestment, no interest will accrue on amounts represented by uncashed
distribution or redemption checks.

Taxes

Dividends distributed from interest earned on tax-exempt securities
(exempt-interest dividends) are exempt from federal income taxes but may be
subject to state and local taxes. Dividends distributed from other income earned
and capital gain distributions are not exempt from federal income taxes.
Distributions are taxable in the year the Fund declares them regardless of
whether you take them in cash or reinvest them.

Interest on certain private activity bonds is a preference item for purposes of
the individual and corporate alternative minimum taxes. To the extent the Fund
earns such income, it will flow through to its shareholders and may be taxable
to those shareholders who are subject to the alternative minimum tax.

Because interest on municipal bonds and notes is tax-exempt for federal income
tax purposes, any interest on borrowed money used directly or indirectly to
purchase Fund shares is not deductible on your federal income tax return. You
should consult a tax advisor regarding its deductibility for state and local
income tax purposes.

Each January, you will receive a tax statement showing the kinds and total
amount of all distributions you received during the previous year. You must
report distributions on your tax returns, even if they are reinvested in
additional shares.
<PAGE>
Buying a dividend creates a tax liability. This means buying shares shortly
before a capital gain distribution. You pay the full pre-distribution price for
the shares, then receive a portion of your investment back as a distribution,
which is taxable.

Redemptions and exchanges subject you to a tax on any capital gain. If you sell
shares for more than their cost, the difference is a capital gain. Your gain may
be short term (for shares held for one year or less) or long term (for shares
held for more than one year). Long-term capital gains will be taxed at rates
that vary depending upon the holding period. Long-term capital gains are divided
into two holding periods: (1) shares held more than one year but not more than
18 months and (2) shares held more than 18 months.

Your Taxpayer Identification Number (TIN) is important. As with any financial
account you open, you must list your current and correct Taxpayer Identification
Number (TIN) -- either your Social Security or Employer Identification number.
The TIN must be certified under penalties of perjury on your application when
you open an account.

If you do not provide the TIN, or the TIN you report is incorrect, you could be
subject to backup withholding of 31% of taxable distributions and proceeds from
certain sales and exchanges. You also could be subject to further penalties,
such as:

o a $50 penalty for each failure to supply your correct TIN
o a civil penalty of $500 if you make a false statement that results in
no backup withholding
o criminal penalties for falsifying information

You also could be subject to backup withholding because you failed to report
interest or dividends on your tax return as required.
<PAGE>
<TABLE>
<CAPTION>
How to determine the correct TIN
<S> <C>
Use the Social Security or
For this type of account: Employer Identification number of:

Individual or joint account The individual or individuals listed on the account

Custodian account of a minor (Uniform The minor
Gifts/Transfers to Minors Act)

A living trust The grantor-trustee (the person who puts the money
into the trust)

An irrevocable trust, The legal entity (not the personal representative
pension trust or estate or trustee, unless no legal entity is designated in
the account title)

Sole proprietorship The owner

Partnership The partnership

Corporate The corporation

Association, club or tax-exempt organization The organization
</TABLE>
For details on TIN requirements, ask your financial advisor or local American
Express Financial Advisors office for federal Form W-9, "Request for Taxpayer
Identification Number and Certification."

Important: This information is a brief and selective summary of certain federal
tax rules that apply to this Fund. Tax matters are highly individual and
complex, and you should consult a qualified tax advisor about your personal
situation.

How the Fund is organized

IDS Tax-Exempt Bond Fund, Inc. currently is composed of two funds, each issuing
its own series of capital stock: IDS Intermediate Tax-Exempt Fund and IDS
Tax-Exempt Bond Fund. Each fund is owned by its shareholders. Each fund issues
shares in three classes - Class A, Class B and Class Y. Each class has different
sales arrangements and
<PAGE>
bears different expenses. Each class represents interests in the assets of a
fund. Par value is one cent per share. Both full and fractional shares can be
issued.
The shares of each fund making up IDS Tax-Exempt Bond Fund, Inc. represent an
interest in that fund's assets only (and profits or losses), and, in the event
of liquidation, each share of a fund would have the same rights to dividends and
assets as every other share of that fund.

The Fund no longer issues stock certificates.

Voting rights

As a shareholder, you have voting rights over the Fund's management and
fundamental policies. You are entitled to one vote for each share you own.
Shares of the Fund have cumulative voting rights. Each class has exclusive
voting rights with respect to the provisions of the Fund's distribution plan
that pertain to a particular class and other matters for which separate class
voting is appropriate under applicable law

Shareholder meetings

The Fund does not hold annual shareholder meetings. However, the board members
may call meetings at their discretion, or on demand by holders of 10% or more of
the outstanding shares, to elect or remove board members.

Board members and officers

Shareholders elect a board that oversees the operations of the Fund and chooses
its officers. Its officers are responsible for day-to-day business decisions
based on policies set by the board. The board has named an executive committee
that has authority to act on its behalf between meetings. Board members and
officers serve 47 IDS and IDS Life funds and 15 Master Trust portfolios, except
for William H.
Dudley, who does not serve the nine IDS Life funds.

Independent board members and officers

Chairman of the board

William R. Pearce*
Chairman of the board, Board Services Corporation (provides administrative
services to boards including the boards of the IDS and IDS Life funds and Master
Trust portfolios).

H. Brewster Atwater, Jr.
Former chairman and chief executive officer, General Mills, Inc.
<PAGE>
Lynne V. Cheney
Distinguished fellow, American Enterprise Institute for Public Policy Research.

Heinz F. Hutter
Former president and chief operating officer, Cargill, Inc.

Anne P. Jones
Attorney and telecommunications consultant.

Alan K. Simpson
Former United States senator for Wyoming.

Edson W. Spencer
Former chairman and chief executive officer, Honeywell, Inc.

Wheelock Whitney
Chairman, Whitney Management Company.

C. Angus Wurtele
Chairman of the board, The Valspar Corporation.

Officer

Vice president, general counsel and secretary

Leslie L. Ogg*
President, treasurer and corporate secretary of Board Services Corporation.

Board members and officers associated with AEFC

President

John R. Thomas*
Senior vice president, AEFC.

William H. Dudley*
Senior advisor to the chief executive officer, AEFC.

David R. Hubers*
President and chief executive officer, AEFC.
<PAGE>
Officers associated with AEFC

Vice president

Peter J. Anderson*
Senior vice president, AEFC.

Treasurer

Matthew N. Karstetter*
Vice president, AEFC.

Refer to the SAI for the board members' and officers' biographies.

* Interested person as defined by the Investment Company Act of 1940.

Investment manager

The Fund pays AEFC for managing its assets. Under its Investment Management
Services Agreement, AEFC is paid a fee for these services based on the average
daily net assets of the Fund, as follows:

Assets Annual rate
(billions)at each asset level

First $1.0 0.450%
Next 1.0 0.425
Next 1.0 0.400
Next 3.0 0.375
Over 6.0 0.350

For the fiscal year ended Nov. 30, 1997, the Fund paid AEFC a total investment
management fee of 0.45% of its average daily net assets. Under the Agreement,
the Fund also pays taxes, brokerage commissions and nonadvisory expenses.
<PAGE>
Administrator and transfer agent

Under an Administrative Services Agreement, the Fund pays AEFC for
administration and accounting services at an annual rate of 0.04% decreasing in
gradual percentages to 0.02% as assets increase.

Under a separate Transfer Agency Agreement, American Express Client Service
Corporation (AECSC) maintains shareholder accounts and records. The Fund pays
AECSC 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

Distributor

The Fund has an exclusive distribution agreement with American Express Financial
Advisors, a wholly-owned subsidiary of AEFC. Financial advisors representing
AEFA provide information to investors about individual investment programs, the
Fund and its operations, new account applications, and exchange and redemption
requests. The cost of these services is paid partially by the Fund's sales
charges.

Persons who buy Class A shares pay a sales charge at the time of purchase.
Persons who buy Class B shares are subject to a contingent deferred sales charge
on a redemption in the first six years and pay an asset-based sales charge (also
known as a 12b-1 fee) of 0.75% of the Fund's average daily net assets. Class Y
shares are sold without a sales charge and without an asset-based sales charge.

Financial advisors may receive different compensation for selling Class A, Class
B and Class Y shares. Portions of the sales charge also may be paid to
securities dealers who have sold the Fund's shares or to banks and other
financial institutions. The amounts of those payments range from 0.8% to 4% of
the Fund's offering price depending on the monthly sales volume.

Under a Shareholder Service Agreement, the Fund also 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 average daily net assets for Class A
and Class B shares and 0.10% for Class Y shares.

Total expenses paid by the Fund's Class A shares for the fiscal year ended Nov.
30, 1997, were 0.73% of its average daily net assets. Expenses for Class B and
Class Y were 1.49% and 0.60%, respectively.
<PAGE>
About American Express Financial Corporation

General information

The AEFC family of companies offers not only mutual funds but also insurance,
annuities, investment certificates and a broad range of financial management
services.

Besides managing investments for all funds in the IDS MUTUAL FUND GROUP, AEFC
also manages investments for itself and its subsidiaries, IDS Certificate
Company and IDS Life Insurance Company. Total assets under management on Nov.
30, 1997 were more than $170 billion.

AEFA serves individuals and businesses through its nationwide network of more
than 175 offices and more than 8,700 advisors.

Other AEFC subsidiaries provide investment management and related services for
pension, profit sharing, employee savings and endowment funds of businesses and
institutions.

AEFC is located at IDS Tower 10, Minneapolis, MN 55440-0010. It is a
wholly-owned subsidiary of American Express Company (American Express), a
financial services company with headquarters at American Express Tower, World
Financial Center, New York, NY 10285. The Fund may pay brokerage commissions to
broker-dealer affiliates of AEFC.
<PAGE>
Appendix A

1998 federal tax-exempt and taxable
equivalent yield calculation

These tables will help you determine your federal taxable yield equivalents for
given rates of tax-exempt income.

STEP 1: Calculating your marginal tax rate.

Using your Taxable Income and Adjusted Gross Income figures as guides, you can
locate your Marginal Tax Rate in the table below.

First locate your Taxable Income in a filing status and income range in the
left-hand column. Then, locate your Adjusted Gross Income at the top of the
chart. At the point where your Taxable Income line meets your Adjusted Gross
Income column the percentage indicated is an approximation of your federal
Marginal Tax Rate. For example: Let's assume you are married filing jointly,
your taxable income is $138,000 and your adjustable gross income is $175,000.

Under Taxable Income married filing jointly status, $138,000 is in the $102,300-
$155,950 range. Under Adjusted Gross Income, $175,000 is in the $124,500 to
$186,800 column. The Taxable Income line and Adjusted Gross Income column meet
at 31.93%. This is the rate you'll use in Step 2.

Adjusted gross income*

Taxable income** $0 $124,500 $186,800 Over
to to to
$124,500(1) $186,800(2) $309,300(3) $309,300(2)
Married Filing Jointly
$0 - $42,350 15.00%
42,350 - 102,300 28.00 28.84%
102,300 - 155,950 31.00 31.93 33.27%
155,950 - 278,450 36.00 37.08 38.64 37.08%
278,450 + 39.60 42.50*** 40.79

Adjusted gross income*

Taxable income** $0 $124,500 Over
to to
$124,500(1) $247,000(3) $247,000(2)
Single
$0 - $25,350 15.00%
25,350 - 61,400 28.00
61,400 - 128,100 31.00 32.60%
128,100 - 278,450 36.00 37.86 37.08%
278,450 + 39.60 40.79

*Gross income with certain adjustments before taking itemized deductions and
personal exemptions. **Amount subject to federal income tax after itemized
deductions or standard deduction and personal exemptions. ***This rate is
applicable only in the limited case where your adjusted gross income is less
than $309,300 and your taxable income exceeds $278,450. (1)No Phase-out --
Assumes a phase-out of itemized deductions or personal exemptions. (2)Itemized
Deductions Phase-out -- Assumes a phase-out of itemized deductions and no
current phase-out of personal exemptions. (3)Itemized Deductions and Personal
Exemption Phase-outs -- Assumes a single taxpayer has one personal exemption,
joint taxpayers have two personal exemptions, personal exemptions phase-out and
itemized deductions continue to phase-out.

If these assumptions do not apply to you, it will be necessary to construct your
own personalized tax equivalency table.

STEP 2: Determining your federal taxable yield equivalents.

Using 31.93%, you may determine that a tax-exempt yield of 4% is equivalent to
earning a taxable 5.88% yield.

For these Tax-Exempt Rates:
3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% Marginal Tax
Rates Equal the Taxable Rates shown below:
15.00% 3.53 4.12 4.71 5.29 5.88 6.47 7.06 7.65
28.00% 4.17 4.86 5.56 6.25 6.94 7.64 8.33 9.03
28.84% 4.22 4.92 5.62 6.32 7.03 7.73 8.43 9.13
31.00% 4.35 5.07 5.80 6.52 7.25 7.97 8.70 9.42
31.93% 4.41 5.14 5.88 6.61 7.35 8.08 8.81 9.55
32.60% 4.45 5.19 5.93 6.68 7.42 8.16 8.90 9.64
33.27% 4.50 5.25 5.99 6.74 7.49 8.24 8.99 9.74
36.00% 4.69 5.47 6.25 7.03 7.81 8.59 9.38 10.16
37.08% 4.77 5.56 6.36 7.15 7.95 8.74 9.54 10.33
37.86% 4.83 5.63 6.44 7.24 8.05 8.85 9.66 10.46
38.64% 4.89 5.70 6.52 7.33 8.15 8.96 9.78 10.59
39.60% 4.97 5.79 6.62 7.45 8.28 9.11 9.93 10.76
40.79% 5.07 5.91 6.76 7.60 8.44 9.29 10.13 10.98
42.50% 5.22 6.09 6.96 7.83 8.70 9.57 10.43 11.30

<PAGE>
Appendix B

Descriptions of derivative instruments

What follows are brief descriptions of derivative instruments the Fund may use.
At various times the Fund may use some or all of these instruments and is not
limited to these instruments. It may use other similar types of instruments if
they are consistent with the Fund's investment goal and policies. For more
information on these instruments, see the SAI.

Options and futures contracts - An option is an agreement to buy or sell an
instrument at a set price during a certain period of time. A futures contract is
an agreement to buy or sell an instrument for a set price on a future date. The
Fund may buy and sell options and futures contracts to manage its exposure to
changing interest rates, security prices and currency exchange rates. Options
and futures may be used to hedge the Fund's investments against price
fluctuations or to increase market exposure.

Asset-backed and mortgage-backed securities - Asset-backed securities include
interests in pools of assets such as motor vehicle installment sale contracts,
installment loan contracts, leases on various types of real and personal
property, receivables from revolving credit (credit card) agreements or other
categories of receivables. Mortgage-backed securities include collateralized
mortgage obligations and stripped mortgage-backed securities. Interest and
principal payments depend on payment of the underlying loans or mortgages. The
value of these securities may also be affected by changes in interest rates, the
market's perception of the issuers and the creditworthiness of the parties
involved. The non-mortgage related asset-backed securities do not have the
benefit of a security interest in the related collateral. Stripped
mortgage-backed securities include interest only (IO) and principal only (PO)
securities. Cash flows and yields on IOs and POs are extremely sensitive to the
rate of principal payments on the underlying mortgage loans or mortgage-backed
securities.

Indexed securities - The value of indexed securities is linked to currencies,
interest rates, commodities, indexes or other financial indicators. Most indexed
securities are short- to intermediate-term fixed income securities whose values
at maturity or interest rates rise or fall according to the change in one or
more specified underlying instruments. Indexed securities may be more volatile
than the underlying instrument itself.

Structured products - Structured products are over-the-counter financial
instruments created specifically to meet the needs of one or a small number of
investors. The instrument may consist of a warrant, an option or a forward
contract embedded in a note or any of a wide variety of debt, equity and/or
currency combinations. Risks of structured products include the inability to
close such instruments, rapid changes in the market and defaults by other
parties.
<PAGE>
IDS Intermediate Tax-Exempt Fund

Prospectus
January 29, 1998

The goal of IDS Intermediate Tax-Exempt Fund, a part of IDS Tax-Exempt Bond
Fund, Inc., is to seek a high level of current income exempt from federal taxes.
The Fund invests primarily in investment-grade bonds and other debt securities.

This prospectus contains facts that can help you decide if the Fund is the right
investment for you. Read it before you invest and keep it for future reference.

Please note that the Fund:

o is not a bank deposit
o is not federally insured
o is not endorsed by any bank or government agency
o is not guaranteed to achieve its goal

American Express Shareholder Service
P.O. Box 534
Minneapolis, MN
55440-0534
800-862-7919
TTY: 800-846-4852
Web site address: http://www.americanexpress.com/advisors
<PAGE>
Table of contents

The Fund in brief
Goal
Investment policies and risks
Manager and distributor
Portfolio manager
Alternative purchase arrangements

Sales charge and Fund expenses

Performance
Financial highlights
Total returns
Yield

Investment policies and risks Facts about investments and their risks
Alternative investment option Valuing Fund shares

How to purchase, exchange or redeem shares
Alternative purchase arrangements
How to purchase shares
How to exchange shares
How to redeem shares
Reductions and waivers of the sales charge

Special shareholder services
Services
Quick telephone reference

Distributions and taxes
Dividend and capital gain distributions
Reinvestments
Taxes
How to determine the correct TIN

How the Fund is organized
Shares
Voting rights
Shareholder meetings
Board members and officers
Investment manager
<PAGE>

Administrator and transfer agent
Distributor

About American Express Financial Corporation
General information

Appendices
Appendix A: Description of bond ratings
Appendix B: 1998 federal tax-exempt and taxable equivalent yield
calculations
Appendix C: Descriptions of derivative instruments

<PAGE>
The Fund in brief

Goal

IDS Intermediate Tax-Exempt Fund (the Fund) seeks to provide shareholders with a
high level of current income exempt from federal taxes. Because any investment
involves risk, achieving this goal cannot be guaranteed. Only shareholders can
change the goal.

Investment policies and risks

The Fund is a diversified mutual fund that invests primarily in investment-grade
bonds and other debt securities issued by or on behalf of state or local
governmental units whose interest is exempt from federal income tax. The Fund
may also invest in lower-rated debt securities, derivative instruments and money
market instruments. Some of the Fund's investments may be considered speculative
and involve additional investment risks. For further information, refer to the
later section in the prospectus titled "Investment policies and risks."

Manager and distributor

Portfolio manager

Terry Fettig joined AEFC in 1986 and serves as portfolio manager. He has managed
this Fund since November 1996. From 1986 to 1992 he was a fixed income
securities analyst and from 1992 to 1993 he was an associate portfolio manager.
He also serves as portfolio manager of IDS Cash Management Fund, IDS Tax-Free
Money Fund, IDS Life Moneyshare Fund and IDS Life Series Fund, Money Market
Portfolio.

Alternative purchase arrangements

Sales charge and Fund expenses

Shareholder transaction expenses are incurred directly by an investor on the
purchase or redemption of Fund shares. Fund operating expenses are paid out of
Fund assets for each
<PAGE>
class of shares. Operating expenses are reflected in the Fund's daily share
price and dividends, and are not charged directly to shareholder accounts.

Shareholder transaction expenses

Class A Class B Class Y
Maximum sales charge on purchases*
(as a percentage of offering price) 5% 0% 0%
Maximum deferred sales charge
imposed on redemptions (as a
percentage of original purchase price) 0% 5% 0%

Annual Fund operating expenses (as a percentage of average daily net assets):

Class A Class B Class Y
Management fee** 0.32% 0.32% 0.32%
12b-1 fee 0.00% 0.75% 0.00%
Other expenses*** 0.58% 0.59% 0.51%
Total**** 0.90% 1.66% 0.83%

*This charge may be reduced depending on your total investments in IDS funds.
See "Reductions of the sales charge."
**Absent fee waivers, the management fee would be 0.45% for each class.
***Other expenses include an administrative services fee, a shareholder
services fee, a transfer agency fee and other nonadvisory expenses. Class Y
expenses have been restated to reflect the 0.10% shareholder services fee
effective May 9, 1997. Absent fee waivers and expense reimbursements, other
expenses would be 1.04% for Class A, 0.97% for Class B and 1.25% for Class Y.
****AEFC and AEFA have agreed to waive certain fees and reimburse expenses,
with the exception of 12b-1 fees, to the extent that net total expenses
for Class A shares exceed 0.90% for a minimum period ending Nov.30, 1998.
Any waiver or reimbursement applies to each class on a pro rata basis.
Absent fee waivers and expense reimbursements, total expenses would have been
1.49% for Class A, 2.17% for Class B and 1.70% for Class Y.

1 year 3 years 5 years 10 years
Class A $ 59 $77 $ 97 $156
Class B $ 67 $92 $110 $177**
Class B* $ 17 $52 $ 90 $177**
Class Y $ 8 $26 $ 46 $103

<PAGE>

*Assuming Class B shares are not redeemed at the end of the period.
**Based on conversion of Class B shares to Class A shares after eight years.

This example does not represent actual expenses, past or future. Actual expenses
may be higher or lower than those shown. Because Class B pays annual
distribution (12b-1) fees, long-term shareholders of Class B may indirectly pay
an equivalent of more than a 6.25% sales charge, the maximum permitted by the
National Association of Securities Dealers.

Performance

Financial highlights
<TABLE>
<CAPTION>
IDS Intermediate Tax-Exempt Fund

Performance
Financial highlights

Fiscal period ended Nov. 30,
Per share income and capital changesa

Class A Class B Class Y
1997 1996b 1997 1996b 1997 1996b
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $5.04 $5.00 $5.04 $5.00 $5.04 $5.00

Income from investment operations:
Net investment income .18 -- .14 -- .18 --
Net gains (losses)
(both realized and .05 .04 .05 .04 .05 .04
unrealized)

Total from investment .23 .04 .19 .04 .23 .04
operations
Less distributions:
Dividends from net (.18) -- (.14) -- (.18) --
investment income

Net asset value, $5.09 $5.04 $5.09 $5.04 $5.09 $5.04
end of period

Ratios/supplemental data
Class A Class B Class Y
1997 1996b 1997 1996b 1997 1996b

Net assets, end of $17 $2 $6 -- $-- $--
period (in millions)

Ratio of expenses to .93%d 90%c,d 1.68%d 1.66%c,d .80% .73%c,d
average daily net assets e

Ratio of net income (loss) 3.60% 3.19%c 2.87% 2.04%c 3.84% 2.32%c
to average daily net assets

Portfolio turnover rate 24% -- 24% -- 24% --
(excluding short-term
securities)

Total returnf 4.4% 1.0% 3.7% .9% 4.6% 1.0%
</TABLE>
aFor a share outstanding throughout the period. Rounded to the nearest cent.

bInception date was Nov. 13, 1996.

cAdjusted to an annual basis.

d AEFC voluntarily limited total operating expenses, net of earnings credits,
for the Fund. Under this agreement, the Fund's total net expenses will not
exceed 0.90% for Class A, 1.66% for Class B and 0.83% for Class Y of the Fund's
average daily net assets. Had AEFC not done so the annual ratios of expenses
would have been 1.49% and 48.94% for Class A, 2.17% and 55.07% for Class B and
1.70% and 83.81% for Class Y for the periods ended Nov. 30, 1997 and 1996,
respectively.

eExpense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.

f Total return does not reflect payment of a sales charge.

Total returns

Average annual total returns as of Nov. 30, 1997

Purchase 1 Year Since
made inception
- -------------------------------- ------------------------ ----------------------
Intermediate Tax-Exempt:
Class A -0.78% +0.16%*
Class B -0.33% +0.59%*
Class Y +4.57% +5.33%*

Lehman Brothers Municipal +7.18% +7.18%**
3-Year Bond Index

*Inception date was Nov. 13, 1996.
**Measurement period started Dec. 1, 1996.
<PAGE>
Cumulative total returns as of Nov. 30, 1997

Purchase 1 Year Since
made inception
- ---------------------------------------------- ------------ ------------------
Intermediate Tax-Exempt:
Class A -0.78% +0.17%*
Class B 0.33% +0.62%*
Class Y +4.57% +5.59%*

Lehman Brothers Municipal +7.18% +7.18%**
3-Year Bond Index

*Inception date was Nov. 13, 1996.
**Measurement period started Dec. 1, 1996.

Lehman Brothers Municipal 3-Year Bond Index is made up of a representative list
of general obligation, revenue and prerefunded bonds that have an approximate
maturity of three years. The index is frequently used as a general performance
measure of tax-exempt bonds with shorter maturities. However, the securities
used to create the index may not be representative of the bonds held in
Intermediate Tax-Exempt Fund.

Yield

Yield is the net investment income earned per share for a specified time period,
divided by the offering price at the end of the period. The Fund's SEC
standardized yield for the 30-day period ended Nov. 28, 1997, was 3.23% for
Class A, 2.64% for Class B and 3.46% for Class Y. The Fund calculates this
30-day SEC standardized yield by dividing:

o net investment income per share deemed earned during a 30-day period by
<PAGE>
o the public offering price per share on the last day of the period, and

o converting the result to a yearly equivalent figure

These yield calculations do not include any contingent deferred sales charge,
ranging from 5% to 0% on Class B shares, which would reduce the yields quoted.

Past yields should not be considered an indicator of future yields.

Investment policies and risks

Under normal market conditions, the Fund will invest at least 80% of its net
assets in bonds and other debt securities issued by or on behalf of state or
local governmental units whose interest, in the opinion of counsel for the
issuer, is exempt from federal income tax. For purposes of the 80% policy, the
Fund will not include any investments subject to the alternative minimum tax.
This policy cannot be changed without approval of a majority of outstanding
voting securities. Other investments may include derivative instruments and
money market instruments.

A portion of the Fund's assets may be invested in bonds whose interest is
subject to the alternative minimum tax computation. As long as the staff of the
SEC maintains its current position that a fund calling itself a "tax-exempt"
fund may not invest more than 20% of its net assets in these bonds, the Fund
will limit its investments in these bonds to 20% of its net assets.

The Fund anticipates maintaining a portfolio of intermediate-term bonds with a
dollar-weighted average maturity of two to ten years. From time to time the
investment manager may adjust the average maturity of the portfolio's securities
within that range based upon its assessment of relative yields and risks of
securities of different maturities and its view of future interest rate changes.

The various types of investments the investment manager uses to achieve
investment performance are described in more detail in the next section and in
the SAI.

<PAGE>
Facts about investments and their risks

Bonds and other debt securities exempt from federal income taxes: The price of
bonds generally falls as interest rates increase, and rises as interest rates
decrease. The price of bonds also fluctuates if the credit rating is upgraded or
downgraded. At least 80% of the Fund's net assets will be invested in bonds and
other debt securities rated in the top four grades by Moody's Investors Service,
Inc. (Moody's), Standard & Poor's Corporation (S&P), Fitch Investors Services,
Inc. (Fitch) or be of a comparable rating given by other independent rating
agencies and in unrated bonds and other debt securities which, in the investment
manager's opinion, are of investment grade quality. The Fund may invest 20% of
its assets in bonds rated or considered below investment grade (less than
BBB/Baa) by independent rating agencies or the Fund's investment manager. The
Fund will not invest in bonds rated below BB/Ba or in unrated bonds of
equivalent quality.The price of bonds below investment grade may react more to
the ability of the issuing company to pay interest and principal when due than
to changes in interest rates. They have greater price fluctuations, are more
likely to experience a default and sometimes are referred to as junk bonds.
Reduced market liquidity for these bonds may occasionally make it more difficult
to value them. In valuing bonds, the Fund relies on both independent rating
agencies and on the investment manager's credit analysis. Securities that are
subsequently downgraded in quality may continue to be held by the Fund and will
be sold only when the investment manager believes it is advantageous to do so.
<TABLE>
<CAPTION>
Bond ratings and holdings for fiscal 1997

S&P rating (or Moody's Protection of principal and Percent of net assets in
Percent of net assets equivalent) interest unrated securities
assessed by AEFC
- ----------------------- ------------------------- ----------------------------- ----------------------------
<S> <C> <C> <C>
42.77 % AAA Highest quality 0.14 %
13.30 AA High quality --
9.03 A Upper medium grade --
15.31 BBB Medium grade 1.47
-- BB Moderately speculative 0.70
-- B Speculative --
-- CCC Highly speculative --
-- CC Poor quality --
-- C Lowest quality --
-- D In default --
4.95 Unrated Unrated securities 2.64
</TABLE>
(See the Appendix to this prospectus describing bond ratings for further
information.)

<PAGE>
Concentration: The Fund may invest more than 25% of its total assets in a
particular segment of the municipal securities market or in securities relating
to a particular state. Such markets may include electric revenue bonds, hospital
bonds, housing bonds, industrial bonds, airport bonds, or in securities the
interest on which is paid from revenues of a similar type of project. In such
circumstances, an economic, business, political or other change affecting one
bond (such as proposed legislation affecting the financing of a project,
shortages or price increases of needed materials, or declining markets or needs
of the projects) also may affect other bonds in the same segment or relating to
the same state. This could increase market risk. The Fund also may invest more
than 25% of its total assets in industrial revenue bonds, but it does not intend
to invest more than 25% of its total assets in industrial revenue bonds issued
for companies in the same industry or state. As the similarity in issuers
increases, the potential for fluctuation in the net asset value of the Fund's
shares also increases.

Securities and other instruments that are illiquid: A security or other
instrument is illiquid if it cannot be sold quickly in the normal course of
business. Some investments cannot be resold to the U.S. public because of their
terms or government regulations. Securities and instruments, however, can be
sold in private sales, and many may be sold
<PAGE>
to other institutions and qualified buyers or on foreign markets. The investment
manager will follow guidelines established by the board and consider relevant
factors such as the nature of the security and the number of likely buyers when
determining whether a security is illiquid. No more than 10% of the Fund's net
assets will be held in securities and other instruments that are illiquid.

The investment policies described above may be changed by the board.

Alternative investment option

Valuing Fund shares

The public offering price is the net asset value (NAV) adjusted for the sales
charge for Class A. It is the NAV for Class B and Class Y.

To establish the net assets, all securities are valued as of the close of each
business day. In valuing assets:

o Securities and assets with available market values are valued on that basis

o Securities maturing in 60 days or less are valued at amortized cost
<PAGE>

o Assets without readily available market values are valued according to
methods selected in good faith by the board

How to purchase, exchange or redeem shares

Alternative purchase arrangements

The Fund offers three different classes of shares - Class A, Class B and Class
Y. The primary differences among the classes are in the sales charge structures
and in their ongoing expenses. These differences are summarized in the table
below. You may choose the class that best suits your circumstances and
objectives.
<TABLE>
<CAPTION>
Sales charge and
distribution Other
(12b-1) fee Service fee information
- ------------------ ------------------------------ ---------------------------- ----------------------------
<S> <C> <C> <C>
Class A Maximum initial sales charge 0.175% of average daily Initial sales charge
of 5%; no 12b-1 fee net assets waived or reduced for
certain purchases

- ------------------ ------------------------------ ---------------------------- ----------------------------
Class B No initial sales charge; 0.175% of average daily Shares convert to Class A
maximum CDSC of 5% declines net assets in the ninth year of
to 0% after six years; 12b-1 ownership; CDSC waived in
fee of 0.75% of average certain circumstances
daily net assets

- ------------------ ------------------------------ ---------------------------- ----------------------------
Class Y None 0.10% of average daily net Available only to certain
assets qualifying institutional
investors
</TABLE>

Considerations in determining whether to purchase Class A or Class B shares -
You should consider the information below in determining whether to purchase
Class A or Class B shares. The distribution fee (included in "Ongoing expenses")
and sales charges are structured so that you will have approximately the same
total return at the end of eight years regardless of which class you chose.

<PAGE>
<TABLE>
<CAPTION>
Sales charges on purchase or redemption
<S> <C>
If you purchase Class A shares If you purchase Class B shares

</TABLE>
You should consider how long you plan to hold your shares and whether the
accumulated higher fees and CDSC on Class B shares prior to conversion would be
less than the initial sales charge on Class A shares. Also consider to what
extent the difference would be offset by the lower expenses on Class A shares.
To help you in this analysis, the example in the "Sales charge and Fund
expenses" section of the prospectus illustrates the charges applicable to each
class of shares.

o Qualified employee benefit plans* if the plan:

- uses a daily transfer recordkeeping service offering participants
daily access to IDS funds and has
<PAGE>
- at least $10 million in plan assets or

- 500 or more participants; or

- does not use daily transfer recordkeeping and has

- at least $3 million invested in funds of the IDS MUTUAL FUND GROUP or

- 500 or more participants.

o Nonqualified deferred compensation plans* whose participants are included
in a qualified employee benefit plan described above.

* Eligibility must be determined in advance by AEFA. To do so, contact your
financial advisor.

How to purchase shares

Important: When opening an account, you must provide your correct Taxpayer
Identification Number (Social Security or Employer Identification number). See
"Distributions and taxes."

Purchase policies:

o The minimums allowed for investment may change from time to time.

o Wire orders can be accepted only on days when your bank, AEFC, the Fund
and Norwest Bank Minneapolis are open for business.
<PAGE>
o Wire purchases are completed when wired payment is received and the
Fund accepts the purchase.

o AEFC and the Fund are not responsible for any delays that occur in
wiring funds, including delays in processing by the bank.

o You must pay any fee the bank charges for wiring.

o The Fund reserves the right to reject any application for any reason.

o If your application does not specify which class of shares you are
purchasing, it will be assumed that you are investing in Class A
shares.
<TABLE>
<CAPTION>
Three ways to invest

1
- --------------------------- ----------------------------------------------- --------------------------------
<S> <C> <C>
By regular account Send your check and application (or your name Minimum amounts
and account number if you have an established Initial investment: $2,000
account) to: Additional
investments: $ 100
American Express Financial Advisors Inc. Account balances: $ 300*
P.O. Box 74
Minneapolis, MN 55440-0074

Your financial advisor will help you with this
process.

2
- --------------------------- ----------------------------------------------- --------------------------------
By scheduled investment Contact your financial advisor to set up one Minimum amounts
plan of the following scheduled plans: Initial investment: $ 100
Additional
o automatic payroll deduction investments: $ 100/
each payment
o bank authorization Account balances: none
(on active plans of
o direct deposit of Social Security check monthly payments)

o other plan approved by the Fund If account balance is below $2,000,
frequency of payments must be at
least monthly.

3
- --------------------------- ----------------------------------------------- --------------------------------
By wire If you have an established account, you may If this information is not
wire money to: included, the order may be
rejected and all money
Norwest Bank Minneapolis received by the Fund, less any
Routing No. 091000019 costs the Fund or AEFC incurs,
Minneapolis, MN will be returned promptly.
Attn: Domestic Wire Dept.
Minimum amounts
Give these instructions: Each wire investment:$1,000
Credit IDS Account #00-30-015 for personal
account # (your account number) for (your
name).
</TABLE>

*If your account balance falls below $300, you will be asked in writing to bring
it up to $300 or establish a scheduled investment plan. If you do not do so
within 30 days, your shares can be redeemed and the proceeds mailed to you. If
you are in a "wrap-fee" program sponsored by AEFA and your wrap program balance
falls below the required program minimum or is terminated, your shares will be
redeemed and the proceeds mailed to you.

<PAGE>
How to exchange shares

How to redeem shares

You can redeem your shares at any time. American Express Shareholder Service
will mail payment within seven days after receiving your request.

A redemption is a taxable transaction. If the proceeds from your redemption are
more or less than the cost of your shares, you will have a gain or loss, which
can affect your tax liability.

<PAGE>
Two ways to request an exchange or redemption of shares

1
- ----------------- ------------------------------------------
By letter Include in your letter:

o the name of the fund (s)

o the class of shares to be exchanged or
redeemed

o your account number(s) (for exchanges, both
funds must be registered in the same
ownership)

o your Taxpayer Identification Number (TIN)

o the dollar amount or number of shares you
want to exchange or redeem

o signature of all registered account owners

o for redemptions, indicate how you want your
money delivered to you

o any paper certificates of shares you hold

Regular mail:
American Express Shareholder Service
Attn: Redemptions
P.O. Box 534
Minneapolis, MN 55440-0534

Express mail:
American Express Shareholder Service
Attn: Redemptions
733 Marquette Ave.
Minneapolis, MN 55402
2
- ---------------------------------- ---------------------------------------------

By phone
American Express Financial o The Fund and AEFC will honor any telephone
Advisors Telephone Transaction exchange or redemption request believed to
Service: be authentic and will use reasonable
procedures to confirm that they are. This
800-437-3133 includes asking identifying questions and
612-671-3800 or tape recording calls. If reasonable
procedures are followed, the Fund or AEFC
will not be liable for any loss resulting
from fraudulent requests.

o Phone exchange and redemption privileges
automatically apply to all accounts except
custodial, corporate or qualified retirement
accounts unless you request these privileges
NOT apply by writing American Express
Shareholder Service. Each registered owner
must sign the request.

o AEFC answers phone requests promptly, but
you may experience delays when call volume is
high. If you are unable to get through, use
mail procedure as an alternative.

o Acting on your instructions, your financial
advisor may conduct telephone transactions on
your behalf.

o Phone privileges may be modified or
discontinued at any time.

Minimum amount
Redemption: $100

Maximum amount
Redemption: $50,000
<PAGE>
Exchange policies:

o Exchanges must be made into the same class of shares of the new fund.

o If your exchange creates a new account, it must satisfy the minimum investment
amount for new purchases.

o Once we receive your exchange request, you cannot cancel it.

o Shares of the new fund may not be used on the same day for another exchange.

o If your shares are pledged as collateral, the exchange will be delayed until
written approval is obtained from the secured party.

Redemption policies:

o A telephone redemption request will not be allowed within 30 days of a
phoned-in address change.

Three ways to receive payment when you redeem shares

1
- ---------------------------- --------------------------------------------------
By regular or o Mailed to the address on record
express mail o Payable to names listed on the account
NOTE: You will be charged a fee if you request
express mail delivery.
<PAGE>
2
- ---------------------------- --------------------------------------------------
By wire o Minimum wire redemption: $1,000
o Request that money be wired to your bank
o Bank account must be in the same ownership as
the IDS fund account NOTE: Pre-authorization
required. For instructions, contact your
financial advisor or American Express
Shareholder Service.

3
- ---------------------------- --------------------------------------------------
By scheduled o Minimum payment: $50
payout plan o Contact your financial advisor or
American Express Shareholder Service to set up
regular payments to you on a monthly,
bimonthly, quarterly, semiannual or annual
basis
o Purchasing new shares while under a payout
plan may be disadvantageous because of the
sales charges

Reductions and waivers of the sales charge
Class A - initial sales charge alternative

On purchases of Class A shares, you pay a 5% sales charge on the first $50,000
of your total investment and less on investments after the first $50,000:

Total investment Sales charge as a
percentage of:*

Public Net
offering amount
price invested

Up to $50,000 5.0% 5.26%
Next $50,000 4.5 4.71
Next $400,000 3.8 3.95
Next $500,000 2.0 2.04
$1,000,000 or more 0.0 0.00

* To calculate the actual sales charge on an investment greater than $50,000 and
less than $1,000,000, amounts for each applicable increment must be totaled. See
the SAI.

Reductions of the sales charge on Class A shares Your sales charge may be
reduced, depending on the totals of:

o the amount you are investing in this Fund now;

o the amount of your existing investment in this Fund, if any; and
<PAGE>
o the amount you and your primary household group are investing or have in other
funds in the IDS MUTUAL FUND GROUP that carry a sales charge. (The primary
household group consists of accounts in any ownership for spouses or domestic
partners and their unmarried children under 21. Domestic partners are
individuals who maintain a shared primary residence and have joint property or
other insurable interests.)

Other policies that affect your sales charge:

o If you intend to invest $1 million over a period of 13 months, you can reduce
the sales charges in Class A by filing a letter of intent.

For more details, see the SAI.

Waivers of the sales charge for Class A shares

Sales charges do not apply to:

o Current or retired board members, officers or employees of the Fund or AEFC or
its subsidiaries, their spouses and unmarried children under 21.

o Current or retired American Express financial advisors, their spouses and
unmarried children under 21.

o Qualified employee benefit plans* using a daily transfer recordkeeping system
offering participants daily access to IDS funds.

(Participants in certain qualified plans for which the initial sales charge is
waived may be subject to a deferred sales charge of up to 4% on certain
redemptions. For more information, see the SAI.)
<PAGE>

o Purchases made within 30 days after a redemption of shares (up to the
amount redeemed):

- of a product distributed by AEFA in a qualified plan subject to a
deferred sales charge or

- a qualified plan where American Express Trust Company has a
recordkeeping, trustee, investment management or investment servicing
relationship.

Send the Fund a written request along with your payment, indicating the amount
of the redemption and the date on which it occurred.

o Purchases made with dividend or capital gain distributions from the same class
of another fund in the IDS MUTUAL FUND GROUP that has a sales charge.

o Purchases made with the proceeds from IDS Life Real Estate Variable Annuity
Surrenders.

* Eligibility must be determined in advance by AEFA. To do so, contact your
financial advisor.

Class B - contingent deferred sales charge alternative

First year 5%
Second year 4%
Third year 4%
Fourth year 3%
Fifth year 2%
Sixth year 1%
Seventh year 0%

Waivers of the contingent deferred sales charge The CDSC on Class B shares will
be waived on redemptions of shares:

o In the event of the shareholder's death,

o Purchased by any board member, officer or employee of a fund or AEFC or
its subsidiaries,

o Held in a trusteed employee benefit plan,
<PAGE>
o Held in IRAs or certain qualified plans for which American Express Trust
Company acts as custodian, such as Keogh plans, tax-sheltered custodial accounts
or corporate pension plans, provided that the shareholder is:

- at least 59-1/2 years old, and

- taking a retirement distribution (if the redemption is part of a
transfer to an IRA or qualified plan in a product distributed by AEFA,
or a custodian-to-custodian transfer to a product not distributed by
AEFA, the CDSC will not be waived), or

- redeeming under an approved substantially equal periodic payment
arrangement.

Special shareholder services

Services

To help you track and evaluate the performance of your investments, AEFC
provides these services:

Quarterly statements listing all of your holdings and transactions during the
previous three months.

Yearly tax statements featuring average-cost-basis reporting of capital gains or
losses if you redeem your shares along with distribution information which
simplifies tax calculations.

Quick telephone reference

TTY Service
For the hearing impaired
800-846-4852
<PAGE>

Distributions and taxes

Dividend and capital gain distributions The Fund's net investment income from
dividends and interest is distributed to you monthly as dividends. Capital gains
are realized when a security is sold for a higher price than was paid for it.
Short-term capital gains are distributed at the end of the calendar year and are
included in net investment income. Long-term capital gains are realized when a
security is held for more than one year. The Fund will offset any net realized
capital gains by any available capital loss carryovers. Net realized long-term
capital gains, if any, are distributed at the end of the calendar year as
capital gain distributions. These long-term capital gains will be subject to
differing tax rates depending on the holding period of the underlying
investments. Before they are distributed, net long-term capital gains are
included in the value of each share. After they are distributed, the value of
each share drops by the per-share amount of the distribution. (If your
distributions are reinvested, the total value of your holdings will not change.)

Reinvestments

Dividends and capital gain distributions are automatically reinvested in
additional shares in the same class of the Fund, unless:

o you request the Fund in writing or by phone to pay distributions to
you in cash, or

o you direct the Fund to invest your distributions in the same class of
another publicly available IDS fund for which you have previously
opened an account.

The reinvestment price is the net asset value at close of business on the day
the distribution is paid. (Your quarterly statement will confirm the amount
invested and the number of shares purchased.)
<PAGE>
If you choose cash distributions, you will receive only those declared after
your request has been processed.

Taxes

Buying a dividend creates a tax liability. This means buying shares shortly
before a capital gain distribution. You pay the full pre-distribution price for
the shares, then receive a portion of your investment back as a distribution,
which is taxable.

<PAGE>
Your Taxpayer Identification Number (TIN) is important. As with any financial
account you open, you must list your current and correct Taxpayer Identification
Number (TIN) -- either your Social Security or Employer Identification number.
The TIN must be certified under penalties of perjury on your application when
you open an account.

o a $50 penalty for each failure to supply your correct TIN

o a civil penalty of $500 if you make a false statement that results in
no backup withholding

o criminal penalties for falsifying information

You also could be subject to backup withholding because you failed to report
interest or dividends on your tax return as required.
<TABLE>
<CAPTION>
How to determine the correct TIN
<S> <C>
Use the Social Security or
For this type of account: Employer Identification number of:

Individual or joint account The individual or individuals listed on the account

Custodian account of a minor (Uniform The minor
Gifts/Transfers to Minors Act)

A living trust The grantor-trustee (the person who puts the money
into the trust)

An irrevocable trust, The legal entity (not the personal representative
pension trust or estate or trustee, unless no legal entity is designated in
the account title)

Sole proprietorship The owner
<PAGE>
Partnership The partnership

Corporate The corporation

How the Fund is organized

The shares of each fund making up IDS Tax-Exempt Bond Fund, Inc. represent an
interest in that fund's assets only (and profits or losses), and, in the event
of liquidation, each share of a fund would have the same rights to dividends and
assets as every other share of that fund.

Voting rights

Shareholder meetings

Independent board members and officers

Chairman of the board

William R. Pearce*
Chairman of the board, Board Services Corporation (provides administrative
services to boards including the boards of the IDS and IDS Life funds and Master
Trust portfolios).

H. Brewster Atwater, Jr.
Former chairman and chief executive officer, General Mills, Inc.

Lynne V. Cheney
Distinguished fellow, American Enterprise Institute for Public Policy Research.

Heinz F. Hutter
Former president and chief operating officer, Cargill, Inc.

Anne P. Jones
Attorney and telecommunications consultant.

Alan K. Simpson
Former United States senator for Wyoming.

Edson W. Spencer
Former chairman and chief executive officer, Honeywell, Inc.

Wheelock Whitney
Chairman, Whitney Management Company.

C. Angus Wurtele
Chairman of the board, The Valspar Corporation.

Officer

Vice president, general counsel and secretary
<PAGE>
Leslie L. Ogg*
President, treasurer and corporate secretary of Board Services Corporation.

Board members and officers associated with AEFC

President

John R. Thomas*
Senior vice president, AEFC.

William H. Dudley*
Senior advisor to the chief executive officer, AEFC.

David R. Hubers*
President and chief executive officer, AEFC.

Officers associated with AEFC

Vice president

Peter J. Anderson*
Senior vice president, AEFC.

Treasurer

Matthew N. Karstetter*
Vice president, AEFC.

Refer to the SAI for the board members' and officers' biographies.
* Interested persons as defined by the Investment Company Act of 1940.

Investment manager

The Fund pays AEFC for managing its assets. Under its Investment Management
Services Agreement, AEFC is paid a fee for these services based on the average
daily net assets of the Fund, as follows:

<PAGE>
Assets Annual rate
(billions)at each asset level

First $1.0 0.450%
Next 1.0 0.425
Next 1.0 0.400
Next 3.0 0.375
Over 6.0 0.350

For the fiscal year ended Nov. 30, 1997, the Fund paid, net waivers AEFC a total
investment management fee of 0.32% of its average daily net assets. Under the
Agreement, the Fund also pays taxes, brokerage commissions and nonadvisory
expenses.

Administrator and transfer agent

Under an Administrative Services Agreement, the Fund pays AEFC for
administration and accounting services at an annual rate of 0.04% decreasing in
gradual percentages to 0.02% as assets increase.

o Class A $15.50
o Class B $16.50
o Class Y $15.50

Distributor

Financial advisors may receive different compensation for selling Class A, Class
B and Class Y shares. Portions of the sales charge also may be paid to
securities dealers who
<PAGE>
have sold the Fund's shares or to banks and other financial institutions. The
amounts of those payments range from 0.8% to 4% of the Fund's offering price
depending on the monthly sales volume.

Total expenses paid by the Fund's Class A shares for the fiscal year ended Nov.
30, 1997, were 0.93% of its average daily net assets. Expenses for Class B and
Class Y were 1.68% and 0.80%, respectively.

About American Express Financial Corporation

General information

The AEFC family of companies offers not only mutual funds but also insurance,
annuities, investment certificates and a broad range of financial management
services. Besides managing investments for all funds in the IDS MUTUAL FUND
GROUP, AEFC also manages investments for itself and its subsidiaries, IDS
Certificate Company and IDS Life Insurance Company. Total assets under
management on Nov. 30, 1997 were more than $172 billion.

AEFA serves individuals and businesses through its nationwide network of more
than 175 offices and more than 8,600 advisors.

Other AEFC subsidiaries provide investment management and related services for
pension, profit sharing, employee savings and endowment funds of businesses and
institutions.

<PAGE>
Appendices

Appendix A

Description of bond ratings

Bond ratings concern the quality of the issuing state or local governmental
unit. They are not an opinion of the market value of the security. Such ratings
are opinions on whether the principal and interest will be repaid when due. A
security's rating may change, which could affect its price. Ratings by Moody's
Investors Service, Inc. are Aaa, Aa, A, Baa, Ba, B, Caa, Ca and C. Ratings by
Standard & Poor's Corporation are AAA, AA, A, BBB, BB, B, CCC, CC, C and D. The
following is a compilation of the two agencies' rating descriptions. For further
information, see the SAI.

Aaa/AAA - Judged to be of the best quality and carry the smallest degree of
investment risk. Interest and principal are secure.

Aa/AA - Judged to be high-grade although margins of protection for interest and
principal may not be quite as good as Aaa or AAA rated securities.

A - Considered upper-medium grade. Protection for interest and principal is
deemed adequate but may be susceptible to future impairment.

Baa/BBB - Considered medium-grade obligations. Protection for interest and
principal is adequate over the short-term; however, these obligations may have
certain speculative characteristics.

Ba/BB - Considered to have speculative elements. The protection of interest and
principal payments may be very moderate.

B - Lack characteristics of more desirable investments. There may be small
assurance over any long period of time of the payment of interest and principal.

Caa/CCC - Are of poor standing. Such issues may be in default or there may be
risk with respect to principal or interest.

Ca/CC - Represent obligations that are highly speculative. Such issues are often
in default or have other marked shortcomings.

C - Are obligations with a higher degree of speculation. These securities have
major risk exposures to default.

D - Are in payment default. The D rating is used when interest payments or
principal payments are not made on the due date.
<PAGE>
Non-rated securities will be considered for investment when they possess a risk
comparable to that of rated securities consistent with the Fund's objectives and
policies. When assessing the risk involved in each non-rated security, the Fund
will consider the financial condition of the issuer or the protection afforded
by the terms of the security.

Definitions of zero-coupon and pay-in-kind securities

A zero-coupon security is a security that is sold at a deep discount from its
face value and makes no periodic interest payments. The buyer of such a security
receives a rate of return by gradual appreciation of the security, which is
redeemed at face value on the maturity date.

A pay-in-kind security is a security in which the issuer has the option to make
interest payments in cash or in additional securities. The securities issued as
interest usually have the same terms, including maturity date, as the
pay-in-kind securities.
<PAGE>
Appendix B

1998 federal tax-exempt and taxable equivalent yield calculation

These tables will help you determine your federal taxable yield equivalents for
given rates of tax-exempt income.

STEP 1: Calculating your marginal tax rate.

Using your Taxable Income and Adjusted Gross Income figures as guides, you can
locate your Marginal Tax Rate in the table below.

Adjusted gross income*

If these assumptions do not apply to you, it will be necessary to construct your
own personalized tax equivalency table.

STEP 2: Determining your federal taxable yield equivalents.

Using 31.93%, you may determine that a tax-exempt yield of 4% is equivalent to
earning a taxable 5.88% yield.

Descriptions of derivative instruments

Inverse floaters - Inverse floaters are created by underwriters using the
interest payment on securities. A portion of the interest received is paid to
holders of instruments based on current interest rates for short-term
securities. The remainder, minus a servicing fee, is paid to holders of inverse
floaters. As interest rates go down, the holders of the inverse floaters receive
more income and an increase in the price for the inverse floaters. As interest
rates go up, the holders of the inverse floaters receive less income and a
decrease in the price for the inverse floaters.
<PAGE>
Structured products - Structured products are over-the-counter financial
instruments created specifically to meet the needs of one or a small number of
investors. The instrument may consist of a warrant, an option or a forward
contract embedded in a note or any of a wide variety of debt, equity and/or
currency combinations. Risks of structured products include the inability to
close such instruments, rapid changes in the market and defaults by other
parties.
<PAGE>
IDS TAX-EXEMPT BOND FUND, INC.

STATEMENT OF ADDITIONAL INFORMATION

FOR

IDS TAX-EXEMPT BOND FUND

Jan. 29, 1998

This Statement of Additional Information (SAI) is not a prospectus. It should be
read together with the prospectus and the financial statements contained in the
Annual Report which may be obtained from your American Express financial advisor
or by writing to American Express Shareholder Service, P.O. Box 534,
Minneapolis, MN 55440-0534.

This SAI is dated Jan. 29, 1998, and it is to be used with the prospectus dated
Jan. 29, 1998, and the Annual Report for the fiscal year ended Nov. 30, 1997.

<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Goal and Investment Policies.......................................................See Prospectus

Additional Investment Policies..............................................................p. 4

Security Transactions.......................................................................p. 7

Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation......................................................p. 9

Performance Information......................................................................p.10

Valuing Fund Shares..........................................................................p.13

Investing in the Fund........................................................................p.14

Redeeming Shares.............................................................................p.18

Pay-out Plans................................................................................p.19

Capital Loss Carryover.......................................................................p.20

Taxes........................................................................................p.20

Agreements...................................................................................p.22

Organizational Information...................................................................p.25

Board Members and Officers...................................................................p.25

Compensation for Fund Board Members..........................................................p.29

Independent Auditors.........................................................................p.30

Financial Statements............................................................See Annual Report

Prospectus...................................................................................p.30

Appendix A: Description of Bond Ratings and Short-Term
Securities and Additional Information on
Investment Policies........................................................p.31
<PAGE>
Appendix B: Options and Interest Rate Futures Contracts................................p.36

Appendix C: Dollar-Cost Averaging......................................................p.42
</TABLE>
<PAGE>
ADDITIONAL INVESTMENT POLICIES

These are investment policies in addition to those presented in the prospectus.
The policies below are fundamental policies of IDS Tax Exempt Bond Fund, Inc.
(the Fund) and may be changed only with shareholder approval. Unless holders of
a majority of the outstanding voting securities agree to make the change the
Fund will not:

`Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it purchases
securities directly from the issuer and later resells them.

`Borrow money or property, except as a temporary measure for extraordinary or
emergency purposes, in an amount not exceeding one-third of the market value of
its total assets (including borrowings) less liabilities (other than borrowings)
immediately after the borrowing. The Fund has not borrowed in the past and has
no present intention to borrow.

`Make cash loans if the total commitment amount exceeds 5% of the Fund's total
assets.

`Invest more than 5% of its total assets in securities of any one company,
government or political subdivision thereof, except the limitation will not
apply to investments in securities issued by the U.S. government, its agencies
or instrumentalities, and except that up to 25% of the Fund's total assets may
be invested without regard to this 5% limitation. For purposes of this policy,
the terms of a municipal security determine the issuer.

`Buy or sell real estate, unless acquired as a result of ownership of securities
or other instruments, except this shall not prevent the Fund from investing in
securities or other instruments backed by real estate or securities of companies
engaged in the real estate business or real estate investment trusts. For
purposes of this policy, real estate includes real estate limited partnerships.

`Buy or sell physical commodities unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund from
buying or selling options and futures contracts or from investing in securities
or other instruments backed by, or whose value is derived from, physical
commodities.

`Purchase securities of an issuer if the board members and officers of the Fund
and of American Express Financial Corporation (AEFC) hold more than a certain
percentage of the issuer's outstanding securities. If the holdings of all board
members and officers of the Fund and of AEFC who own more than 0.5% of an
issuer's securities are added together, and if in total they own more than 5%,
the Fund will not purchase securities of that issuer.
<PAGE>

`Lend Fund securities in excess of 30% of its net assets. In making loans, the
Fund receives the market price in cash, U.S. government securities, letters of
credit or such other collateral as may be permitted by regulatory agencies and
approved by the board. If the market price of the loaned securities goes up, the
Fund will get additional collateral. Such loans are callable at the discretion
of the Fund. The Fund has not loaned securities in the past and has no present
intention of making such loans. The risks are that the borrower may not provide
additional collateral when required or return the securities when due.

Unless changed by the board, the Fund will not:

`Buy on margin or sell short, except that the Fund may enter into interest rate
futures contracts.

`Pledge or mortgage its assets beyond 15% of total assets. If the Fund were ever
to do so, valuation of the pledged or mortgaged assets would be based on market
values. For purposes of this policy, collateral arrangements for margin deposits
on a futures contract are not deemed to be a pledge of assets.

`Invest more than 5% of its total assets in securities whose issuer or guarantor
of principal and interest has been in operation for less than three years.

`Invest in voting securities, securities of investment companies, or exploration
or development programs, such as oil, gas or mineral leases.

`Invest more than 5% of its net assets in warrants.

`Invest more than 10% of the Fund's net assets in securities and derivative
instruments that are illiquid. In determining the liquidity of municipal lease
obligations, the investment manager, under guidelines established by the board,
will consider the essential nature of the lease property, the likelihood that
the municipality will continue appropriating funding for the leased property,
and other relevant factors related to the general credit quality of the
municipality and the marketability of the municipal lease obligations.

In determining the liquidity of commercial paper issued in transactions not
involving a public offering under Section 4(2) of the Securities Act of 1933,
the investment manager, under guidelines established by the board, will evaluate
relevant factors such as the issuer and the size and nature of its commercial
paper programs, the willingness and ability of the issuer or dealer to
repurchase the paper, and the nature of the clearance and settlement procedures
for the paper.
<PAGE>
For daily operations, the Fund may invest its excess cash in short-term
tax-exempt securities. Under extraordinary conditions where, in the opinion of
the investment manager, appropriate short-term tax-exempt securities are not
available, the Fund is authorized to make certain taxable investments as
described in this SAI.

The Fund may purchase some debt securities on a when-issued basis, which means
that it may take as long as 45 days after the purchase before the securities are
delivered to the Fund. Payment and interest terms, however, are fixed at the
time the purchaser enters into the commitment. Under normal market conditions,
the Fund does not intend to commit more than 5% of its total assets to these
practices. The Fund does not pay for the securities or start earning interest on
them until the contractual settlement date.

When issued securities are subject to market fluctuations and may affect the
Fund's total assets the same as owned securities.

The Fund may invest up to 20% of its net assets in certain taxable investments
for temporary defensive purposes. It may purchase short-term U.S. and Canadian
government securities. It may invest in bank obligations including negotiable
certificates of deposit, non-negotiable fixed-time deposits, bankers'
acceptances and letters of credit. The issuing bank or savings and loan
generally must have capital, surplus and undivided profits (as of the date of
its most recently published annual financial statements) in excess of $100
million (or the equivalent in the instance of a foreign branch of a U.S. bank)
at the date of investment. The Fund may purchase short-term corporate notes and
obligations rated in the top two classifications by Moody's Investors Service,
Inc. (Moody's) or Standard & Poor's Corporation (S&P) or the equivalent. It also
may use repurchase agreements with broker-dealers registered under the
Securities Exchange Act of 1934 and with commercial banks. Repurchase agreements
involve investments in debt securities where the seller (broker-dealer or bank)
agrees to repurchase the securities from the Fund at cost plus an agreed-to
interest rate within a specified time. A risk of a repurchase agreement is that
if the seller seeks the protection of the bankruptcy laws, the Fund's ability to
liquidate the security involved could be impaired, and it might subsequently
incur a loss if the value of the security declines or if the other party to a
repurchase agreement defaults on its obligation.

Notwithstanding any of the Fund's other investment policies, the Fund may invest
its assets in an open-end management investment company having substantially the
same investment objectives, policies and restrictions as the Fund for the
purpose of having those assets managed as part of a combined pool.
<PAGE>
The government obligations in which the Fund may invest may either be direct
obligations of the Treasury or securities issued or guaranteed by government
agencies or instrumentalities, of the obligations issued or guaranteed by
agencies or instrumentalities, some are backed by the full faith and credit of
the U.S. government and others are backed only by the rights of the issuer to
borrow from the U.S. Treasury. There is no guarantee that the U.S. government
will provide financial support for such agencies or instrumentalities.

For a description of bond ratings and short-term securities and additional
information on investment policies, see Appendix A. For a discussion on options
and interest rate futures contracts, see Appendix B.

SECURITY TRANSACTIONS

Subject to policies set by the board, AEFC is authorized to determine,
consistent with the Fund's investment goal and policies, which securities will
be purchased, held or sold. In determining where the buy and sell orders are to
be placed, AEFC has been directed to use its best efforts to obtain the best
available price and most favorable execution except where otherwise authorized
by the board.

Normally, the Fund's securities are traded on a principal rather than an agency
basis. In other words, AEFC will trade directly with the issuer or with a dealer
who buys or sells for its own account, rather than acting on behalf of another
client. AEFC does not pay the dealer commissions. Instead, the dealer's profit,
if any, is the difference, or spread, between the dealer's purchase and sale
price for the security.

On occasion, it may be desirable to compensate a broker for research services or
for brokerage services by paying a commission that might not otherwise be
charged or a commission in excess of the amount another broker might charge. The
board has adopted a policy authorizing AEFC to do so to the extent authorized by
law, if AEFC determines, in good faith, that such commission is reasonable in
relation to the value of the brokerage or research services provided by a broker
or dealer, viewed either in the light of that transaction or AEFC's overall
responsibilities with respect to the Fund and other funds and trusts in the IDS
MUTUAL FUND GROUP for which it acts as investment advisor.

<PAGE>
Research provided by brokers supplements AEFC's own research activities. Such
services include economic data on, and analysis of, U.S. and foreign economies,
information on specific industries; information about specific companies,
including earnings estimates; purchase recommendations for stocks and bonds;
portfolio strategy services; political, economic, business and industry trend
assessments; historical statistical information; market data services providing
information on specific issues and prices; and technical analysis of various
aspects of the securities markets, including technical charts. Research services
may take the form of written reports, computer software or personal contact by
telephone or at seminars or other meetings. AEFC has obtained, and in the future
may obtain, computer hardware from brokers, including but not limited to
personal computers that will be used exclusively for investment decision-making
purposes, which include the research, portfolio management and trading functions
and other services to the extent permitted under an interpretation by the
Securities and Exchange Commission (SEC).

When paying a commission that might not otherwise be charged or a commission in
excess of the amount another broker might charge, AEFC must follow procedures
authorized by the board. To date, three procedures have been authorized. One
procedure permits AEFC to direct an order to buy or sell a security traded on a
national securities exchange to a specific broker for research services it has
provided. The second procedure permits AEFC, in order to obtain research, to
direct an order on an agency basis to buy or sell a security traded in the
over-the-counter market to a firm that does not make a market in that security.
The commission paid generally includes compensation for research services. The
third procedure permits AEFC, in order to obtain research and brokerage
services, to cause the Fund to pay a commission in excess of the amount another
broker might have charged. AEFC has advised the Fund it is necessary to do
business with a number of brokerage firms on a continuing basis to obtain such
services as the handling of large orders, the willingness of a broker to risk
its own money by taking a position in a security, and the specialized handling
of a particular group of securities that only certain brokers may be able to
offer. As a result of this arrangement, some portfolio transactions may not be
effected at the lowest commission, but AEFC believes it may obtain better
overall execution. AEFC has represented that under all three procedures the
amount of commission paid will be reasonable and competitive in relation to the
value of the brokerage services performed or research provided.

All other transactions shall be placed on the basis of obtaining the best
available price and the most favorable execution. In so doing, if in the
professional opinion of the person responsible for selecting the broker or
dealer, several firms can execute the transaction on the same basis,
consideration will be given by such person to those firms offering research
services. Such services may be used by AEFC in providing advice to all the funds
in the IDS MUTUAL FUND GROUP even though it is not possible to relate the
benefits to any particular fund or account.
<PAGE>
Each investment decision made for the Fund is made independently from any
decision made for another fund in the IDS MUTUAL FUND GROUP or other account
advised by AEFC or any of its subsidiaries. When the Fund buys or sells the same
security as another fund or account, AEFC carries out the purchase or sale in a
way the Fund agrees in advance is fair. Although sharing in large transactions
may adversely affect the price or volume purchased or sold by the Fund, the Fund
hopes to gain an overall advantage in execution. AEFC has assured the Fund it
will continue to seek ways to reduce brokerage costs.

On a periodic basis, AEFC makes a comprehensive review of the broker-dealers and
the overall reasonableness of their commissions. The review evaluates execution,
operational efficiency and research services.

The Fund paid total brokerage commissions of $0 for the fiscal year ended Nov.
30, 1997, $40,800 for the fiscal year 1996, and $0 for the fiscal year 1995.
Substantially all firms through whom transactions were executed provide research
services.

No transactions were directed to brokers because of research services they
provided to the Fund except for the affiliates as noted below.

As of the fiscal year ended Nov. 30, 1997, the Fund held no securities of its
regular brokers or dealers or of the parents of those brokers or dealers that
derived more than 15% of gross revenue from securities-related activities.

The portfolio turnover rate was 19% in the fiscal year ended Nov. 30, 1997, and
62% in fiscal year 1996.

BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH AMERICAN EXPRESS
FINANCIAL CORPORATION

Affiliates of American Express Company (American Express) (of which AEFC is a
wholly-owned subsidiary) may engage in brokerage and other securities
transactions on behalf of the Fund according to procedures adopted by that
Fund's board and to the extent consistent with applicable provisions of the
federal securities laws. AEFC will use an American Express affiliate only if (i)
AEFC determines that the Fund will receive prices and executions at least as
favorable as those offered by qualified independent brokers performing similar
brokerage and other services for the Fund and (ii) the affiliate charges the
Fund commission rates consistent with those the affiliate charges comparable
unaffiliated customers in similar transactions and if such use is consistent
with terms of the Investment Management Services Agreement.
<PAGE>
AEFC may direct brokerage to compensate an affiliate. AEFC will receive research
on South Africa from New Africa Advisors, a wholly-owned subsidiary of Sloan
Financial Group. AEFC owns 100% of IDS Capital Holdings Inc. which in turn owns
40% of Sloan Financial Group. New Africa Advisors will send research to AEFC and
in turn AEFC will direct trades to a particular broker. The broker will have an
agreement to pay New Africa Advisors. All transactions will be on a best
execution basis. Compensation received will be reasonable for the services
rendered.

No brokerage commissions were paid to brokers affiliated with AEFC for the three
most recent fiscal years.

PERFORMANCE INFORMATION

The Fund may quote various performance figures to illustrate past performance.
Average annual total return and current yield quotations used by the Fund are
based on standardized methods of computing performance as required by the SEC.
An explanation of the methods used by the Fund to compute performance follows
below.

Average annual total return

The Fund may calculate average annual total return for a class for certain
periods by finding the average annual compounded rates of return over the period
that would equate the initial amount invested to the ending redeemable value,
according to the following formula:

P(1+T)n = ERV

where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment,
made at the beginning of a period, at the end of the period
(or fractional portion thereof)
<PAGE>
Aggregate total return

The Fund may calculate aggregate total return for a class for certain periods
representing the cumulative change in the value of an investment in the Fund
over a specified period of time according to the following formula:

ERV - P
P

where: P = a hypothetical initial payment of $1,000
ERV = ending redeemable value of a hypothetical $1,000 payment,
made at the beginning of a period, at the end of the period
(or fractional portion thereof)

Annualized yield

The Fund may calculate an annualized yield for a class by dividing the net
investment income per share deemed earned during a 30-day period by the public
offering price per share (including the maximum sales charge) on the last day of
the period and annualizing the results.

Yield is calculated according to the following formula:

Yield = 2[(a-b + 1)6 - 1]
cd

where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of
the period

The Fund's annualized yield was 4.18% for Class A, 3.64% for Class B, and 4.49%
for Class Y for the 30-day period ended Nov. 28, 1997.

<PAGE>
Distribution yield

Distribution yield is calculated according to the following formula:

D divided by POP F equals DY
30 30

where: D = sum of dividends for 30-day period
POP = sum of public offering price for 30-day period
F = annualizing factor
DY = distribution yield

The Fund's distribution yield was 4.83% for Class A, 4.33% for Class B, and
5.15% for Class Y for the 30-day period ended Nov. 28, 1997.

Tax-Equivalent Yield

Tax-equivalent yield is calculated by dividing that portion of the yield (as
calculated above) which is tax-exempt by one minus a stated income tax rate and
adding the result to that portion, if any, of the yield that is not tax-exempt.
The following table shows the fund's tax equivalent yield, based on federal but
not state tax rates, for the 30-day period ended Nov. 30, 1997.

Marginal
Income Tax Tax-Equivalent Yield
Bracket Distribution Annualized
------- ------------ ----------
Class A
15.0% 5.68% 4.92%
28.0% 6.71% 5.81%
31.0% 7.00% 6.06%
36.0% 7.55% 6.53%
39.6% 8.00% 6.92%
Class B
15.0% 5.09% 4.28%
28.0% 6.01% 5.06%
31.0% 6.28% 5.28%
36.0% 6.77% 5.69%
39.6% 7.17% 6.03%
Class Y
15.0% 6.06% 5.28%
28.0% 7.15% 6.24%
31.0% 7.46% 6.51%
36.0% 8.05% 7.02%
39.6% 8.53% 7.43%

<PAGE>

In its sales material and other communications, the Fund may quote, compare or
refer to rankings, yields or returns as published by independent statistical
services or publishers and publications such as The Bank Rate Monitor National
Index, Barron's, Business Week, Donoghue's Money Market Fund Report, Financial
Services Week, Financial Times, Financial World, Forbes, Fortune, Global
Investor, Institutional Investor, Investor's Daily, Kiplinger's Personal
Finance, Lipper Analytical Services, Money, Morningstar, Mutual Fund Forecaster,
Newsweek, The New York Times, Personal Investor, Stanger Report, Sylvia Porter's
Personal Finance, USA Today, U.S. News and World Report, The Wall Street Journal
and Wiesenberger Investment Companies Service.

VALUING FUND SHARES

The value of an individual share for each class is determined by using the net
asset value before shareholder transactions for the day. On Dec. 1, 1997, the
first business day following the end of the fiscal year, the computation looked
like this:
<TABLE>
<CAPTION>
Net assets Shares
before outstanding at Net asset value
shareholder the end of of one share
transactions previous day
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Class A $997,950,533 divided by 242,987,712 equals $4.107
Class B 24,576,365 5,982,562 4.108
Class Y 10,391 2,530 4.107
</TABLE>
In determining net assets before shareholder transactions, the Fund's securities
are valued as follows as of the close of business of the New York Stock Exchange
(the Exchange):

`Securities, traded on a securities exchange for which a last-quoted sales price
is readily available are valued at the last-quoted sales price on the exchange
where such security is primarily traded.

`Securities traded on a securities exchange for which a last-quoted sales price
is not readily available are valued at the mean of the closing bid and asked
prices, looking first to the bid and asked prices on the exchange where the
security is primarily traded and, if none exist, to the over-the-counter market.

`Securities included in the NASDAQ National Market System are valued at the
last-quoted sales price in this market.

`Securities included in the NASDAQ National Market System for which a
last-quoted sales price is not readily available, and other securities traded
over-the-counter but not included in the NASDAQ National Market System are
valued at the mean of the closing bid and asked prices.

`Futures and options traded on major exchanges are valued at the last-quoted
sales price on their primary exchange.
<PAGE>
`Foreign securities traded outside the United States are generally valued as of
the time their trading is complete, which is usually different from the close of
the Exchange. Foreign securities quoted in foreign currencies are translated
into U.S. dollars at the current rate of exchange. Occasionally, events
affecting the value of such securities may occur between such times and the
close of the Exchange that will not be reflected in the computation of the
Fund's net asset value. If events materially affecting the value of such
securities occur during such period, these securities will be valued at their
fair value according to procedures decided upon in good faith by the board.

`Short-term securities maturing more than 60 days from the valuation date are
valued at the readily available market price or approximate market value based
on current interest rates. Short-term securities maturing in 60 days or less
that originally had maturities of more than 60 days at acquisition date are
valued at amortized cost using the market value on the 61st day before maturity.
Short-term securities maturing in 60 days or less at acquisition date are valued
at amortized cost. Amortized cost is an approximation of market value determined
by systematically increasing the carrying value of a security if acquired at a
discount, or reducing the carrying value if acquired at a premium, so that the
carrying value is equal to maturity value on the maturity date.

`Securities without a readily available market price and other assets are valued
at fair value as determined in good faith by the board. The board is responsible
for selecting methods it believes provide fair value. When possible, bonds are
valued by a pricing service independent from the Fund. If a valuation of a bond
is not available from a pricing service, the bond will be valued by a dealer
knowledgeable about the bond if such a dealer is available.

The Exchange, AEFC and the Fund will be closed on the following holidays: New
Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.

INVESTING IN THE FUND

Sales Charge

Shares of the Fund are sold at the public offering price determined at the close
of business on the day an application is accepted. The public offering price is
the net asset value of one share adjusted for the sales charge for Class A. For
Class B and Class Y, there is no initial sales charge so the public offering
price is the same as the net asset value. For Class A, the public offering price
for an investment of less than $50,000, made Dec. 1, 1997, was determined by
dividing the net asset value of one share, $4.107, by 0.95 (1.00-0.05 for a
maximum 5% sales charge) for a public offering price of $4.32. The sales charge
is paid to American Express Financial Advisors Inc. (AEFA) by the person buying
the shares.

<PAGE>
Class A - Calculation of the Sales Charge

Sales charges are determined as follows:

Within each increment,
sales charge as a percentage of:
Public Net
Amount of Investment Offering Price Amount invested
- -------------------- -------------- ---------------
First $ 50,000 5.0% 5.26%
Next 50,000 4.5 4.71
Next 400,000 3.8 3.95
Next 500,000 2.0 2.04
$1,000,000 or more 0.0 0.00

Sales charges on an investment greater than $50,000 and less than $1,000,000 are
calculated for each increment separately and then totaled. The resulting total
sales charge, expressed as a percentage of the public offering price and of the
net amount invested, will vary depending on the proportion of the investment at
different sales charge levels.

For example, compare an investment of $60,000 with an investment of $85,000. The
$60,000 investment is composed of $50,000 that incurs a sales charge of $2,500
(5.0% x $50,000) and $10,000 that incurs a sales charge of $450 (4.5% x
$10,000). The total sales charge of $2,950 is 4.92% of the public offering price
and 5.17% of the net amount invested.

In the case of the $85,000 investment, the first $50,000 also incurs a sales
charge of $2,500 (5.0% x $50,000) and $35,000 incurs a sales charge of $1,575
(4.5% x $35,000). The total sales charge of $4,075 is 4.79% of the public
offering price and 5.04% of the net amount invested.

The following table shows the range of sales charges as a percentage of the
public offering price and of the net amount invested on total investments at
each applicable level.

On total investment, sales
charge as a percentage of:
Public Net
Offering Price Amount Invested
Amount of Investment ranges from:
- -------------------- ------------
First $ 50,000 5.00% 5.26%
Next 50,000 to 100,000 5.00-4.50 5.26-4.71
Next 100,000 to 500,000 4.50-3.80 4.71-3.95
Next 500,000 to 999,999 3.80-2.00 3.95-2.04
$1,000,000 or more 0.00 0.00

<PAGE>
Class A - Reducing the Sales Charge

Sales charges are based on the total amount of your investments in the Fund. The
amount of all prior investments plus any new purchase is referred to as your
"total amount invested." For example, suppose you have made an investment of
$20,000 and later decide to invest $40,000 more. Your total amount invested
would be $60,000. As a result, $10,000 of your $40,000 investment qualifies for
the lower 4.5% sales charge that applies to investments of more than $50,000 and
up to $100,000.

The total amount invested includes any shares held in the Fund in the name of a
member of your primary household group. (The primary household group consists of
accounts in any ownership for spouses or domestic partners and their unmarried
children under 21. Domestic partners are individuals who maintain a shared
primary residence and have joint property or other insurable interests.) For
instance, if your spouse already has invested $20,000 and you want to invest
$40,000, your total amount invested will be $60,000 and therefore you will pay
the lower charge of 4.5% on $10,000 of the $40,000.

Until a spouse remarries, the sales charge is waived for spouses and unmarried
children under 21 of deceased board members, officers or employees of the Fund
or AEFC or its subsidiaries and deceased advisors.

The total amount invested also includes any investment you or your immediate
family already have in the other publicly offered funds in the IDS MUTUAL FUND
GROUP where the investment is subject to a sales charge. For example, suppose
you already have an investment of $30,000 in another IDS Fund. If you invest
$40,000 more in this fund, your total amount invested in the funds will be
$70,000 and therefore $20,000 of your $40,000 investment will incur a 4.5% sales
charge.

Class A - Letter of Intent (LOI)

If you intend to invest $1 million over a period of 13 months, you can reduce
the sales charges in Class A by filing a LOI. The agreement can start at any
time and will remain in effect for 13 months. Your investment will be charged
normal sales charges until you have invested $1 million. At that time, your
account will be credited with the sales charges previously paid. Class A
investments made prior to signing an LOI may be used to reach the $1 million
total, excluding Cash Management Fund and Tax-Free Money Fund. However, we will
not adjust for sales charges on investments made prior to the signing of the
LOI. If you do not invest $1 million by the end of 13 months, there is no
penalty, you'll just miss out on the sales charge adjustment. A LOI is not an
option (absolute right) to buy shares.
<PAGE>
Here's an example. You file a LOI to invest $1 million and make an investment of
$100,000 at that time. You pay the normal 5% sales charge on the first $50,000
and 4.5% sales charge on the next $50,000 of this investment. Let's say you make
a second investment of $900,000 (bringing the total up to $1 million) one month
before the 13-month period is up. On the date that you bring your total to $1
million, AEFC makes an adjustment to your account. The adjustment is made by
crediting your account with additional shares, in an amount equivalent to the
sales charge previously paid.

Systematic Investment Programs

After you make your investment of $2,000 or more, you can arrange to make
additional payments of $100 or more on a regular basis. These minimums do not
apply to all systematic investment programs. You decide how often you want to
make payments - monthly, quarterly, or semiannually. You are not obligated to
make any payments. You can omit payments or discontinue the investment program
altogether. The Fund also can change the program or end it at any time. If there
is no obligation, why do it? Putting money aside is an important part of
financial planning. With a systematic investment program, you have a goal to
work for.

How does this work? Your regular investment amount will purchase more shares
when the net asset value per share decreases, and fewer shares when the net
asset value per share increases. Each purchase is a separate transaction. After
each purchase your new shares will be added to your account. Shares bought
through these programs are exactly the same as any other fund shares. They can
be bought and sold at any time. A systematic investment program is not an option
or an absolute right to buy shares.

The systematic investment program itself cannot ensure a profit, nor can it
protect against a loss in a declining market. If you decide to discontinue the
program and redeem your shares when their net asset value is less than what you
paid for them, you will incur a loss.

For a discussion on dollar-cost averaging, see Appendix C.

Automatic Directed Dividends

Dividends, including capital gain distributions, paid by another fund in the IDS
MUTUAL FUND GROUP subject to a sales charge, may be used to automatically
purchase shares in the same class of this Fund without paying a sales charge.
Dividends may be directed to existing accounts only. Dividends declared by a
fund are exchanged to this Fund the following day. Dividends can be exchanged
into the same class of another fund in the IDS MUTUAL FUND GROUP but cannot be
split to make purchases in two or more funds. Automatic directed dividends are
available between accounts of any ownership except:
<PAGE>
Between a non-custodial account and an IRA, or 401(k) plan account or other
qualified retirement account of which American Express Trust Company acts as
custodian;

Between two American Express Trust Company custodial accounts with different
owners (for example, you may not exchange dividends from your IRA to the IRA of
your spouse);

Between different kinds of custodial accounts with the same ownership (for
example, you may not exchange dividends from your IRA to your 401(k) plan
account, although you may exchange dividends from one IRA to another IRA).

Dividends may be directed from accounts established under the Uniform Gifts to
Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) only into other UGMA
or UTMA accounts with identical ownership.

The Fund's investment goal is described in its prospectus along with other
information, including fees and expense ratios. Before exchanging dividends into
another fund, you should read that fund's prospectus. You will receive a
confirmation that the automatic directed dividend service has been set up for
your account.

REDEEMING SHARES

You have a right to redeem your shares at any time. For an explanation of
redemption procedures, please see the prospectus.

During an emergency, the board can suspend the computation of net asset value,
stop accepting payments for purchase of shares or suspend the duty of the Fund
to redeem shares for more than seven days. Such emergency situations would occur
if:

`The Exchange closes for reasons other than the usual weekend and holiday
closings or trading on the Exchange is restricted, or

`Disposal of the Fund's securities is not reasonably practicable or it is not
reasonably practicable for the Fund to determine the fair value of its net
assets, or

`The SEC, under the provisions of the Investment Company Act of 1940, as amended
(the 1940 Act), declares a period of emergency to exist.

Should the Fund stop selling shares, the board may make a deduction from the
value of the assets held by the Fund to cover the cost of future liquidations of
the assets so as to distribute fairly these costs among all shareholders.

<PAGE>

The Fund has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates the Fund to redeem shares in cash, with respect to any one shareholder
during any 90-day period, up to the lesser of $250,000 or 1% of the net assets
of the Fund at the beginning of the period. Although redemptions in excess of
this limitation would normally be paid in cash, the Fund reserves the right to
make these payments in whole or in part in securities or other assets in case of
an emergency, or if the payment of a redemption in cash would be detrimental to
the existing shareholders of the Fund as determined by the board. In these
circumstances, the securities distributed would be valued as set forth in the
prospectus. Should the Fund distribute securities, a shareholder may incur
brokerage fees or other transaction costs in converting the securities to cash.

PAY-OUT PLANS

You can use any of several pay-out plans to redeem your investment in regular
installments. If you redeem Class B shares you may be subject to a contingent
deferred sales charge as discussed in the prospectus. While the plans differ on
how the pay-out is figured, they all are based on the redemption of your
investment. Net investment income dividends and any capital gain distributions
will automatically be reinvested, unless you elect to receive them in cash.

Applications for a systematic investment in a class of any fund subject to a
sales charge normally will not be accepted while a pay-out plan for any of those
funds is in effect. Occasional investments, however, may be accepted.

To start any of these plans, please write American Express Shareholder Service,
P.O. Box 534, Minneapolis, MN 55440-0534, or call American Express Financial
Advisors Telephone Transaction Service at 800-437-3133 (National/Minnesota) or
612-671-3800 (Mpls./St. Paul). Your authorization must be received in the
Minneapolis headquarters at least five days before the date you want your
payments to begin. The initial payment must be at least $50. Payments will be
made on a monthly, bimonthly, quarterly, semiannual or annual basis. Your choice
is effective until you change or cancel it.

The following pay-out plans are designed to take care of the needs of most
shareholders in a way AEFC can handle efficiently and at a reasonable cost. If
you need a more irregular schedule of payments, it may be necessary for you to
make a series of individual redemptions, in which case you'll have to send in a
separate redemption request for each pay-out. The Fund reserves the right to
change or stop any pay-out plan and to stop making such plans available.
<PAGE>
Plan #1: Pay-out for a fixed period of time

If you choose this plan, a varying number of shares will be redeemed at regular
intervals during the time period you choose. This plan is designed to end in
complete redemption of all shares in your account by the end of the fixed
period.

Plan #2: Redemption of a fixed number of shares

If you choose this plan, a fixed number of shares will be redeemed for each
payment and that amount will be sent to you. The length of time these payments
continue is based on the number of shares in the account.

Plan #3: Redemption of a fixed dollar amount

If you decide on a fixed dollar amount, whatever number of shares is necessary
to make the payment will be redeemed in regular installments until the account
is closed.

Plan #4: Redemption of a percentage of net asset value

Payments are made based on a fixed percentage of the net asset value of the
shares in your account computed on the day of each payment. Percentages range
from 0.25% to 0.75%. For example, if you are on this plan and arrange to take
0.5% each month, you will get $50 if the value of your account is $10,000 on the
payment date.

CAPITAL LOSS CARRYOVER

For federal income tax purposes, the Fund had total capital loss carryover of
$12,085,373 at Nov. 30, 1997, that if not offset by subsequent capital gains
will expire in 2002.

It is unlikely that the board will authorize a distribution of any net realized
capital gains until the available capital loss carryover has been offset or has
expired except as required by Internal Revenue Service rules.

TAXES

If you buy shares in one of the funds and then exchange into another fund, it is
considered a redemption and subsequent purchase of shares. Under tax laws, if
this exchange is done within 91 days, any sales charge waived on Class A shares
on a subsequent purchase of shares applies to the new shares acquired in the
exchange. Therefore, you cannot create a tax loss or reduce a tax gain
attributable to the sales charge when exchanging shares within 91 days.

<PAGE>

All distributions of net investment income during the year will have the same
percentage designated as tax-exempt. This annual percentage is expected to be
substantially the same as the percentage of tax-exempt income actually earned
during any particular distribution period. For the fiscal year ended Nov. 30,
1997, 99.86% of the income distribution was designated as exempt from federal
income taxes.

Capital gain distributions, if any, received by corporate shareholders, should
be treated as long-term capital gains regardless of how long they owned their
shares. Capital gain distributions, if any, received by individuals should be
treated as long-term if held for more than one year; however, recent tax laws
have divided long-term capital gains into two holding periods: 1) shares held
more than one year but not more than 18 months and 2) shares held more than 18
months. Short-term capital gains earned by the Fund are paid to shareholders as
part of their ordinary income dividend and are taxable.

If you are a "substantial user" (or related person) of facilities financed by
industrial development bonds, you should consult your tax advisor before
investing. The income from such bonds may not be tax-exempt for you.

Interest on private activity bonds, generally issued after August 1986, is a
preference item for purposes of the individual and corporate alternative minimum
taxes. "Private-activity" (non-governmental purpose) municipal bonds include
industrial revenue bonds, student-loan bonds, and multi- and single-family
housing bonds. An exception is made for private-activity bonds issued for
qualified -501(c)(3)-organizations, including non-profit colleges, universities
and hospitals. These bonds will continue to be tax-exempt and will not be
subject to the alternative minimum tax for individuals.

State law determines whether interest income on a particular municipal bond is
tax-exempt for state tax purposes. It also determines the tax treatment of those
bonds when earned by a mutual fund and paid to the Fund's shareholders. The Fund
will tell you the percentage of interest income from municipal bonds it received
during the year on a state-by-state basis. Your tax advisor should help you
report this income for state tax purposes.
<PAGE>
Under federal tax law and an election made by the Fund under federal tax rules,
by the end of a calendar year the fund must declare and pay dividends
representing 98% of ordinary income through Dec. 31 and 98% of net capital gains
(both long-term and short-term) for the 12-month period ending Nov. 30 of that
calendar year. The Fund is subject to an excise tax equal to 4% of the excess,
if any, of the amount required to be distributed over the amount actually
distributed. The Fund intends to comply with federal tax law and avoid any
excise tax.

This is a brief summary that relates to federal income taxation only.
Shareholders should consult their tax advisor for more complete information as
to the application of federal, state and local income tax laws to Fund
distributions.

AGREEMENTS

Investment Management Services Agreement

The Fund has an Investment Management Services Agreement with AEFC. For its
services, AEFC is paid a fee based on the following schedule:

Assets Annual rate at
(billions) each asset level
- --------- ----------------
First $1.0 0.450%
Next 1.0 0.425
Next 1.0 0.400
Next 3.0 0.375
Over 6.0 0.350

On Nov. 30, 1997, the daily rate applied to the Fund's net assets was equal to
0.45% on an annual basis. The fee is calculated for each calendar day on the
basis of net assets as of the close of business two business days prior to the
day for which the calculation is made.

The management fee is paid monthly. Under the agreement, the total amount paid
was $4,632,571 for the fiscal year ended Nov. 30, 1997, $4,982,303 for fiscal
year 1996, and $5,295,694 for fiscal year 1995.

Under the agreement, the Fund also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees; audit and certain legal
fees; fidelity bond premiums; registration fees for shares; office expenses;
consultants' fees; compensation of board members, officers and employees;
corporate filing fees; organizational expenses; expenses incurred in connection
with lending securities of the Fund; and expenses properly payable by the Fund,
approved by the board. Under the agreement, the Fund paid nonadvisory expenses
of $92,050 for the fiscal year ended Nov. 30, 1997, $293,009 for fiscal year
1996, and $354,237 for fiscal year 1995.

<PAGE>
Administrative Services Agreement

The Fund has an Administrative Services Agreement with AEFC. Under this
agreement, the Fund pays AEFC for providing administration and accounting
services. The fee is calculated as follows:

Assets Annual rate
(billions) each asset level
- --------- ----------------
First $1.0 0.040%
Next 1.0 0.035
Next 1.0 0.030
Next 3.0 0.025
Over 6.0 0.020

On Nov. 30, 1997, the daily rate applied to the Fund's net assets was equal to
0.04% on an annual basis. The fee is calculated for each calendar day on the
basis of net assets as of the close of business two business days prior to the
day for which the calculation is made. Under the agreement, the Fund paid fees
of $427,708 for the fiscal year ended Nov. 30, 1997.

Transfer Agency Agreement

The Fund has a Transfer Agency Agreement with American Express Client Service
Corporation (AECSC). This agreement governs AECSC's responsibility for
administering and/or performing transfer agent functions, for acting as service
agent in connection with dividend and distribution functions and for performing
shareholder account administration agent functions in connection with the
issuance, exchange and redemption or repurchase of the Fund's shares. Under the
agreement, AECSC will earn a fee from the Fund determined by multiplying the
number of shareholder accounts at the end of the day by a rate determined for
each class per year and dividing by the number of days in the year. The rate for
Class A and Class Y is $15.50 per year and for Class B is $16.50 per year. The
fees paid to AECSC may be changed from time to time upon agreement of the
parties without shareholder approval. Under the agreement, the Fund paid fees of
$457,477 for the fiscal year ended Nov. 30, 1997.

Distribution Agreement

Under a Distribution Agreement, sales charges deducted for distributing Fund
shares are paid to AEFA daily. These charges amounted to $909,275 for the fiscal
year ended Nov. 30, 1997. After paying commissions to personal financial
advisors, and other expenses, the amount retained was $174,267. The amounts were
$1,170,530 and $239,437 for fiscal year 1996, and $1,579,003 and $244,852 for
fiscal year 1995.

<PAGE>
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 average
daily net assets for Class A and Class B and 0.10% for Class Y.

Plan and Agreement of Distribution

The Plan must be approved annually by the board, including a majority of the
disinterested board members, if it is to continue for more than a year. At least
quarterly, the board must review written reports concerning the amounts expended
under the Plan and the purposes for which such expenditures were made. The Plan
and any agreement related to it may be terminated at any time by vote of a
majority of board members who are not interested persons of the Fund and have no
direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan, or by vote of a majority of the outstanding
voting securities of the Fund's Class B shares or by AEFA. The Plan (or any
agreement related to it) will terminate in the event of its assignment, as that
term is defined in the 1940 Act. The Plan may not be amended to increase the
amount to be spent for distribution without shareholder approval, and all
material amendments to the Plan must be approved by a majority of the board
members, including a majority of the board members who are not interested
persons of the Fund and who do not have a financial interest in the operation of
the Plan or any agreement related to it. The selection and nomination of
disinterested board members is the responsibility of the other disinterested
board members. No board member who is not an interested person, has any direct
or indirect financial interest in the operation of the Plan or any related
agreement. For the fiscal year ended Nov. 30, 1997, under the agreement, the
Fund paid fees of $161,253.

<PAGE>

Custodian Agreement

The Fund's securities and cash are held by First Bank National Association, 180
E. Fifth St., St. Paul, MN 55101-1631, through a custodian agreement. The
custodian is permitted to deposit some or all of its securities in central
depository systems as allowed by federal law. For its services, the Fund pays
the custodian a maintenance charge and a charge per transaction in addition to
reimbursing the custodian's out-of-pocket expenses.

Total fees and expenses

The Fund paid total fees and nonadvisory expenses, net of earnings credits, of
$7,541,098 for the fiscal year ended Nov. 30, 1997.

ORGANIZATIONAL INFORMATION

The Fund is a diversified, open-end management investment company, as defined in
the 1940 Act. Originally incorporated on Sept. 30, 1976 in Nevada, the Fund
changed its state of incorporation on June 13, 1986 by merging into a Minnesota
corporation incorporated on April 7, 1986. The Fund headquarters are at 901 S.
Marquette Ave., Suite 2810, Minneapolis, MN 55402-3268.

BOARD MEMBERS AND OFFICERS

The following is a list of the Fund's board members. They serve 15 Master Trust
portfolios and 47 IDS and IDS Life funds (except for William H. Dudley, who does
not serve on the nine IDS Life fund boards.) All shares have cumulative voting
rights with respect to the election of board members.

H. Brewster Atwater, Jr.
Born in 1931
4900 IDS Tower
Minneapolis, MN

Former chairman and chief executive officer, General Mills, Inc. Director, Merck
& Co., Inc. and Darden Restaurants, Inc.
<PAGE>
Lynne V. Cheney'
Born in 1941
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W.
Washington, D.C.

Distinguished Fellow AEI. Former Chair of National Endowment of the Humanities.
Director, The Reader's Digest Association Inc., Lockheed-Martin, Union Pacific
Resources and FPL Group, Inc. (holding company for Florida Power and Light).

William H. Dudley**
Born in 1932
2900 IDS Tower
Minneapolis, MN

Senior advisor to the chief executive officer of AEFC.

David R. Hubers+**
Born in 1943
2900 IDS Tower
Minneapolis, MN

President and chief executive officer of AEFC since August 1993, and director of
AEFC. Previously, senior vice president, finance and chief financial officer of
AEFC.

Heinz F. Hutter+'
Born in 1929
P.O. Box 2187
Minneapolis, MN

Former president and chief operating officer, Cargill, Incorporated (commodity
merchants and processors).

Anne P. Jones
Born in 1935
5716 Bent Branch Rd.
Bethesda, MD

Attorney and telecommunications consultant. Former partner, law firm of
Sutherland, Asbill & Brennan. Director, Motorola, Inc. and C-Cor Electronics,
Inc.

<PAGE>
William R. Pearce+*
Born in 1927
901 S. Marquette Ave.
Minneapolis, MN

Chairman of the board, Board Services Corporation (provides administrative
services to boards). Director, trustee and officer of registered investment
companies whose boards are served by the company. Former vice chairman of the
board, Cargill, Incorporated (commodity merchants and processors).

Alan K. Simpson'
Born in 1931
1201 Sunshine Ave.
Cody, WY

Former three-term United States Senator for Wyoming. Former Assistant Republican
Leader, U.S. Senate. Director, PacifiCorp (electric power).

Edson W. Spencer+

Born in 1926
4900 IDS Center
80 S. 8th St.
Minneapolis, MN

President, Spencer Associates Inc. (consulting). Former chairman of the board
and chief executive officer, Honeywell Inc. Director, Boise Cascade Corporation
(forest products). Member of International Advisory Council of NEC (Japan).

John R. Thomas**
Born in 1937
2900 IDS Tower
Minneapolis, MN

Senior vice president of AEFC.

Wheelock Whitney+
Born in 1926
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN

Chairman, Whitney Management Company (manages family assets).
<PAGE>
C. Angus Wurtele'
Born in 1934
Valspar Corporation
Suite 1700
Foshay Tower
Minneapolis, MN

Chairman of the board and retired chief executive officer, The Valspar
Corporation (paints). Director, Bemis Corporation (packaging), Donaldson Company
(air cleaners & mufflers) and General Mills, Inc.
(consumer foods).

+ Member of executive committee.
' Member of joint audit committee.
* Interested person by reason of being an officer and employee of the Fund.
**Interested person by reason of being an officer, board member, employee and/or
shareholder of AEFC or American Express.

The board also has appointed officers who are responsible for day-to-day
business decisions based on policies it has established.

In addition to Mr. Pearce, who is chairman of the board and Mr. Thomas, who is
president, the Fund's other officers are:

Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN

President, treasurer and corporate secretary of Board Services Corporation. Vice
president, general counsel and secretary for the Fund.

Officers who also are officers and/or employees of AEFC

Peter J. Anderson
Born in 1942
IDS Tower 10
Minneapolis, MN

Director and senior vice president-investments of AEFC. Vice
president-investments for the Fund.

<PAGE>

Matthew N. Karstetter
Born in 1961
IDS Tower 10
Minneapolis, MN

Vice president of Investment Accounting for AEFC since 1996. Prior to joining
AEFC, he served as vice president of State Street Bank's mutual fund service
operation from 1991 to 1996. Treasurer for the Fund.

COMPENSATION FOR FUND BOARD MEMBERS

Members of the Fund board who are not officers of the Fund or AEFC receive an
annual fee of $800 and the Chair of the Contracts Committee receives an
additional fee of $86. Board members receive a $50 per day attendance fee for
board meetings. The attendance fee for meetings of the Contracts and Investment
Review Committees is $50; for meetings of the Audit Committee and Personnel
Committee $25 and for traveling from out-of-state $8. Expenses for attending
meetings are reimbursed.

During the fiscal year ended Nov. 30, 1997, the independent members of the
board, for attending up to 30 meetings, received the following compensation:
<TABLE>
<CAPTION>
Compensation Table

Total cash
compensation from
Aggregate Pension or the IDS MUTUAL FUND
compensations Retirement benefits Estimated annual GROUP and Preferred
Board member from the Fund accrued as Fund benefit upon Master Trust Group
expenses retirement
- ---------------------- ------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
H. Brewster Atwater, Jr. $1,658 $0 $0 $100,900
Lynne V. Cheney 1,556 0 0 95,200
Robert F. Froehlke 1,683 0 0 102,700
(Retired 11/13/97)
Heinz F. Hutter 1,708 0 0 103,800
Anne P. Jones 1,713 0 0 104,500
Melvin R. Laird 1,481 0 0 90,500
(Retired 10/9/97)
Alan K. Simpson 1,356 0 0 83,000
(part of year)
Edson W. Spencer 2,144 0 0 129,800
Wheelock Whitney 1,808 0 0 109,900
C. Angus Wurtele 1,758 0 0 106,700
</TABLE>
On Nov. 30, 1997, the Fund's board members and officers as a group owned less
than 1% of the outstanding shares of any class.

<PAGE>
INDEPENDENT AUDITORS

The financial statements contained in the Annual Report to shareholders for the
fiscal year ended Nov. 30, 1997 were audited by independent auditors, KPMG Peat
Marwick LLP, 4200 Norwest Center, 90 S. Seventh St., Minneapolis, MN 55402-3900.
The independent auditors also provide other accounting and tax-related services
as requested by the Fund.

FINANCIAL STATEMENTS

The Independent Auditors' Report and the Financial Statements, including Notes
to the Financial Statements and the Schedule of Investments in Securities,
contained in the Annual Report to shareholders for the fiscal year ended Nov.
30, 1997, pursuant to Section 30(d) of the 1940 Act, are hereby incorporated in
this SAI by reference. No other portion of the Annual Report, however, is
incorporated by reference.

PROSPECTUS

The prospectus for IDS Tax-Exempt Bond Fund, dated Jan. 29, 1998, is hereby
incorporated in this SAI by reference.

<PAGE>
APPENDIX A

DESCRIPTION OF BOND RATINGS AND SHORT-TERM SECURITIES AND ADDITIONAL INFORMATION
ON INVESTMENT POLICIES

These ratings concern the quality of the issuing corporation. They are not an
opinion of the market value of the security. Such ratings are opinions on
whether the principal and interest will be repaid when due. A security's ratings
may change which could affect its price.

Ratings by Moody's Investors Service, Inc. are Aaa, Aa, A, Baa, Ba, B, Caa,
Ca, and C.

Bonds rated:

Aaa are judged to be of the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt edged." Interest payments
are protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.

Aa are judged to be of high quality by all standards. Together with the Aaa
group they comprise what are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may not be as large as
in Aaa securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term risk
appear somewhat larger than the Aaa securities.

A possess many favorable investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment some time in the future.

Baa are considered as medium-grade obligations (i.e., they are neither highly
protected nor poorly secured). Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.

Ba are judged to have speculative elements; their future cannot be considered as
well-assured. Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class.
<PAGE>
B generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.

Caa are of poor standing. Such issues may be in default or there may be present
elements of danger with respect to principal or interest.

Ca represent obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings.

C are the lowest rated class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.

Ratings by Standard & Poor's Corporation are AAA, AA, A, BBB, BB, B, CCC, CC, C
and D.

AAA has the highest rating assigned by S&P. Capacity to pay interest and repay
principal is extremely strong.

AA has a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree.

A has a strong capacity to pay interest and repay principal, although it is
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher-rated categories.

BBB is regarded as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than in higher-rated categories.

BB has less near-term vulnerability to default than other speculative issues.
However, it faces major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. The BB rating category is also used
for debt subordinated to senior debt that is assigned an actual or implied BBB-
rating.

B has a greater vulnerability to default but currently has the capacity to meet
interest payments and principal repayments. Adverse business, financial, or
economic conditions will likely impair capacity or willingness to pay interest
and repay principal. The B rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BB or BB- rating.
<PAGE>
CCC has a currently identifiable vulnerability to default, and is dependent upon
favorable business, financial, and economic conditions to meet timely payment of
interest and repayment of principal. In the event of adverse business,
financial, or economic conditions, it is not likely to have the capacity to pay
interest and repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or B-
rating.

CC typically is applied to debt subordinated to senior debt that is assigned an
actual or implied CCC rating.

C typically is applied to debt subordinated to senior debt that is assigned an
actual or implied CCC- rating. The C rating may be used to cover a situation
where a bankruptcy petition has been filed, but debt service payments are
continued.

D is in payment default. The D rating category is used when interest payments or
principal payments are not made on the due date, even if the applicable grace
period has not expired, unless S&P believes that such payments will be made
during such grace period. The D rating also will be used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.

Non-rated securities will be considered for investment when they possess a risk
comparable to that of rated securities consistent with the Fund's objectives and
policies. When assessing the risk involved in each nonrated security, the Fund
will consider the financial condition of the issuer or the protection afforded
by the terms of the security.

Definitions of Zero-Coupon and Pay-In-Kind Securities

Short-term Tax-exempt Securities

A portion of the Fund's assets are in cash and short-term securities for
day-to-day operating purposes. The investments will usually be in short-term
municipal bonds and notes. These include:

(1) Tax anticipation notes sold to finance working capital needs of
municipalities in anticipation of receiving taxes on a future date.
<PAGE>
(2) Bond anticipation notes sold on an interim basis in anticipation of a
municipality issuing a longer term bond in the future.

(3) Revenue anticipation notes issued in anticipation of revenues from sources
other than taxes, such as federal revenues available under the Federal Revenue
Sharing Program.

(4) Tax and revenue anticipation notes issued in anticipation of revenues from
taxes and other sources of revenue, except bond placements.

(5) Construction loan notes insured by the Federal Housing Administration which
remain outstanding until permanent financing by the Federal National Mortgage
Association (FNMA) or the Government National Mortgage Association (GNMA) at the
end of the project construction period.

(6) Tax-exempt commercial paper with a stated maturity of 365 days or less
issued by agencies of state and local governments to finance seasonal working
capital needs or as short-term financing in anticipation of longer-term
financing.

(7) Project notes issued by local housing authorities to finance urban renewal
and public housing projects. These notes are guaranteed by the full faith and
credit of the U.S. government.

(8) Variable rate demand notes, on which the yield is adjusted at periodic
intervals not exceeding 31 days and on which the principal may be repaid after
not more than seven days' notice, are considered short-term regardless of the
stated maturity.

Short-term Taxable Securities and Repurchase Agreements

Depending on market conditions, a portion of the Fund's investments may be
invested in short-term taxable securities. These include:

(1) Obligations of the U.S. government, its agencies and instrumentalities
resulting principally from lending programs of the U.S. government;

(2) U.S. Treasury bills with maturities up to one year. The difference between
the purchase price and the maturity value or resale price is the interest income
to the Fund;

(3) Certificates of deposit or receipts with fixed interest rates issued by
banks in exchange for deposit of funds;

(4) Bankers' acceptances arising from short-term credit arrangements designed to
enable businesses to obtain funds to finance commercial transactions;
<PAGE>
(5) Letters of credit which are short-term notes issued in bearer form with a
bank letter of credit obligating the bank to pay the bearer the amount of the
note;

(6) Commercial paper rated in the two highest grades by Standard & Poor's or
Moody's. Commercial paper is generally defined as unsecured short-term notes
issued in bearer form by large well-known corporations and finance companies.
These ratings reflect a review of management, economic evaluation of the
industry competition, liquidity, long-term debt and ten-year earnings trends:

Standard & Poor's rating A-1 indicates that the degree of safety regarding
timely payment is either overwhelming or very strong.

Standard & Poor's rating A-2 indicates that capacity for timely payment on
issues with this designation is strong.

Moody's rating Prime-1 (P-1) indicates a superior capacity for repayment of
short-term promissory obligations.

Moody's rating Prime-2 (P-2) indicates a strong capacity for repayment of
short-term promissory obligations.

(7) Repurchase agreements involving acquisition of securities by the Fund with a
concurrent agreement by the seller, usually a bank or securities dealer, to
reacquire the securities at cost plus interest within a specified time. From
this investment, the Fund receives a fixed rate of return that is insulated from
market rate changes while it holds the security.
<PAGE>
APPENDIX B

OPTIONS AND INTEREST RATE FUTURES CONTRACTS

The Fund may buy or write options traded on any U.S. or foreign exchange or in
the over-the-counter market. The Fund may enter into interest rate futures
contracts traded on any U.S. or foreign exchange. The Fund also may buy or write
put and call options on these futures. Options in the over-the-counter market
will be purchased only when the investment manager believes a liquid secondary
market exists for the options and only from dealers and institutions the
investment manager believes present a minimal credit risk. Some options are
exercisable only on a specific date. In that case, or if a liquid secondary
market does not exist, the Fund could be required to buy or sell securities at
disadvantageous prices, thereby incurring losses.

OPTIONS. An option is a contract. A person who buys a call option for a security
has the right to buy the security at a set price for the length of the contract.
A person who sells a call option is called a writer. The writer of a call option
agrees to sell the security at the set price when the buyer wants to exercise
the option, no matter what the market price of the security is at that time. A
person who buys a put option has the right to sell a security at a set price for
the length of the contract. A person who writes a put option agrees to buy the
security at the set price if the purchaser wants to exercise the option, no
matter what the market price of the security is at that time. An option is
covered if the writer owns the security (in the case of a call) or sets aside
the cash (in the case of a put) that would be required upon exercise.

The price paid by the buyer for an option is called a premium. In addition the
buyer generally pays a broker a commission. The writer receives a premium, less
a commission, at the time the option is written. The cash received is retained
by the writer whether or not the option is exercised. A writer of a call option
may have to sell the security for a below-market price if the market price rises
above the exercise price. A writer of a put option may have to pay an
above-market price for the security if its market price decreases below the
exercise price.

Options can be used to produce incremental earnings, protect gains and
facilitate buying and selling securities for investment purposes. The use of
options and futures contracts may benefit the Fund and its shareholders by
improving the Fund's liquidity and by helping to stabilize the value of its net
assets.

Buying options. Put and call options may be used as a trading technique to
facilitate buying and selling securities for investment reasons. Options are
used as a trading technique to take advantage of any disparity between the price
of the underlying security in the securities market and its price on the options
market. It is anticipated the trading technique will be utilized only to effect
a transaction when the price of the security plus the option price will be as
good or better than the price at which the security could be
<PAGE>
bought or sold directly. When the option is purchased, the Fund pays a premium
and a commission. It then pays a second commission on the purchase or sale of
the underlying security when the option is exercised. For record-keeping and tax
purposes, the price obtained on the purchase of the underlying security will be
the combination of the exercise price, the premium and both commissions. When
using options as a trading technique, commissions on the option will be set as
if only the underlying securities were traded.

Put and call options also may be held by the Fund for investment purposes.
Options permit the Fund to experience the change in the value of a security with
a relatively small initial cash investment. The risk the Fund assumes when it
buys an option is the loss of the premium. To be beneficial to the Fund, the
price of the underlying security must change within the time set by the option
contract. Furthermore, the change must be sufficient to cover the premium paid,
the commissions paid both in the acquisition of the option and in a closing
transaction or in the exercise of the option and subsequent sale (in the case of
a call) or purchase (in the case of a put) of the underlying security. Even then
the price change in the underlying security does not ensure a profit since
prices in the option market may not reflect such a change.

Writing covered options. The Fund will write covered options when it feels it is
appropriate and will follow these guidelines:

`Underlying securities will continue to be bought or sold solely on the basis of
investment considerations consistent with the Fund's goal.

`All options written by the Fund will be covered. For covered call options if a
decision is made to sell the security, the Fund will attempt to terminate the
option contract through a closing purchase transaction.

Net premiums on call options closed or premiums on expired call options are
treated as short-term capital gains.

If a covered call option is exercised, the security is sold by the Fund. The
Fund will recognize a capital gain or loss based upon the difference between the
proceeds and the security's basis.

Options on many securities are listed on options exchanges. If the Fund writes
listed options, it will follow the rules of the options exchange. Options are
valued at the close of the New York Stock Exchange. An option listed on a
national exchange, Chicago Board Options Exchange (CBOE) or NASDAQ will be
valued at the last-quoted sales price or, if such a price is not readily
available, at the mean of the last bid and asked prices.
<PAGE>
FUTURES CONTRACTS. A futures contract is an agreement between two parties to buy
and sell a security for a set price on a future date. They have been established
by boards of trade which have been designated contracts markets by the Commodity
Futures Trading Commission (CFTC). Futures contracts trade on these markets in a
manner similar to the way a stock trades on a stock exchange, and the boards of
trade, through their clearing corporations, guarantee performance of the
contracts. Currently, there are futures contracts based on such debt securities
as long-term U.S. Treasury bonds, Treasury notes, GNMA modified pass-through
mortgage-backed securities, three-month U.S. Treasury bills and bank
certificates of deposit. While futures contracts based on debt securities do
provide for the delivery and acceptance of securities, such deliveries and
acceptances are very seldom made. Generally, the futures contract is terminated
by entering into an offsetting transaction. An offsetting transaction for a
futures contract sale is effected by the Fund entering into a futures contract
purchase for the same aggregate amount of the specific type of financial
instrument and same delivery date. If the price in the sale exceeds the price in
the offsetting purchase, the Fund immediately is paid the difference and
realizes a gain. If the offsetting purchase price exceeds the sale price, the
Fund pays the difference and realizes a loss. Similarly, closing out a futures
contract purchase is effected by the Fund entering into a futures contract sale.
If the offsetting sale price exceeds the purchase price, the Fund realizes a
gain, and if the offsetting sale price is less than the purchase price, the Fund
realizes a loss. At the time a futures contract is made, a good-faith deposit
called initial margin is set up within a segregated account at the Fund's
custodian bank. The initial margin deposit is approximately 1.5% of a contract's
face value. Daily thereafter, the futures contract is valued and the payment of
variation margin is required so that each day the Fund would pay out cash in an
amount equal to any decline in the contract's value or receive cash equal to any
increase. At the time a futures contract is closed out, a nominal commission is
paid, which is generally lower than the commission on a comparable transaction
in the cash markets.

The purpose of a futures contract, in the case of a portfolio holding long-term
debt securities, is to gain the benefit of changes in interest rates without
actually buying or selling long-term debt securities. For example, if the Fund
owned long-term bonds and interest rates were expected to increase, it might
enter into futures contracts to sell securities which would have much the same
effect as selling some of the long-term bonds it owned.

Futures contracts are based on types of debt securities referred to above, which
have historically reacted to an increase or decline in interest rates in a
fashion similar to the debt securities the Fund owns. If interest rates did
increase, the value of the debt securities in the portfolio would decline, but
the value of the Fund's futures contracts would increase at approximately the
same rate, thereby keeping the net asset value of the Fund from declining as
much as it otherwise would have. If, on the other hand, the Fund held cash
reserves and interest rates were expected to decline, the Fund might enter into
interest rate futures contracts for the purchase of securities. If short-term
rates were higher than long-term rates, the ability to continue holding these
cash reserves would have a
<PAGE>
very beneficial impact on the Fund's earnings. Even if short-term rates were not
higher, the Fund would still benefit from the income earned by holding these
short-term investments. At the same time, by entering into futures contracts for
the purchase of securities, the Fund could take advantage of the anticipated
rise in the value of long-term bonds without actually buying them until the
market had stabilized. At that time, the futures contracts could be liquidated
and the Fund's cash reserves could then be used to buy long-term bonds on the
cash market. The Fund could accomplish similar results by selling bonds with
long maturities and investing in bonds with short maturities when interest rates
are expected to increase or by buying bonds with long maturities and selling
bonds with short maturities when interest rates are expected to decline. But by
using futures contracts as an investment tool, given the greater liquidity in
the futures market than in the cash market, it might be possible to accomplish
the same result more easily and more quickly. Successful use of futures
contracts depends on the investment manager's ability to predict the future
direction of interest rates. If the investment manager's prediction is
incorrect, the Fund would have been better off had it not entered into futures
contracts.

OPTIONS ON FUTURES CONTRACTS. Options on futures contracts give the holder a
right to buy or sell futures contracts in the future. Unlike a futures contract,
which requires the parties to the contract to buy and sell a security on a set
date, an option on a futures contract merely entitles its holder to decide on or
before a future date (within nine months of the date of issue) whether to enter
into such a contract. If the holder decides not to enter into the contract, all
that is lost is the amount (premium) paid for the option. Furthermore, because
the value of the option is fixed at the point of sale, there are no daily
payments of cash to reflect the change in the value of the underlying contract.
However, since an option gives the buyer the right to enter into a contract at a
set price for a fixed period of time, its value does change daily and that
change is reflected in the net asset value of the Fund.

RISKS. There are risks in engaging in each of the management tools described
above. The risk the Fund assumes when it buys an option is the loss of the
premium paid for the option. Purchasing options also limits the use of monies
that might otherwise be available for long-term investments.

The risk involved in writing options on futures contracts the Fund owns, or on
securities held in its portfolio, is that there could be an increase in the
market value of such contracts or securities.

If that occurred, the option would be exercised and the asset sold at a lower
price than the cash market price. To some extent, the risk of not realizing a
gain could be reduced by entering into a closing transaction. The Fund could
enter into a closing transaction by purchasing an option with the same terms as
the one it had previously sold. The cost to
<PAGE>
close the option and terminate the Fund's obligation, however, might be more or
less than the premium received when it originally wrote the option. Furthermore,
the Fund might not be able to close the option because of insufficient activity
in the options market.

A risk in employing futures contracts to protect against the price volatility of
portfolio securities is that the prices of securities subject to futures
contracts may not correlate perfectly with the behavior of the cash prices of
the Fund's securities. The correlation may be distorted because the futures
market is dominated by short-term traders seeking to profit from the difference
between a contract or security price and their cost of borrowed funds. Such
distortions are generally minor and would diminish as the contract approached
maturity.

Another risk is that the Fund's investment manager could be incorrect in
anticipating as to the direction or extent of various interest rate movements or
the time span within which the movements take place. For example, if the Fund
sold futures contracts for the sale of securities in anticipation of an increase
in interest rates, and interest rates declined instead, the Fund would lose
money on the sale.

TAX TREATMENT. As permitted under federal income tax laws, the Fund intends to
identify futures contracts as mixed straddles and not mark them to market, that
is, not treat them as having been sold at the end of the year at market value.
Such an election may result in the Fund being required to defer recognizing
losses incurred by entering into futures contracts and losses on underlying
securities identified as being hedged against.

Federal income tax treatment of gains or losses from transactions in options on
futures contracts and indexes will depend on whether such option is a section
1256 contract . If the option is a non-equity option, the Fund will either make
a 1256(d) election and treat the option as a mixed straddle or mark to market
the option at fiscal year end and treat the gain/loss as 40% short-term and 60%
long-term. Certain provisions of the Internal Revenue Code may also limit the
Fund's ability to engage in futures contracts and related options transactions.
For example, at the close of each quarter of the Fund's taxable year, at least
50% of the value of its assets must consist of cash, government securities and
other securities, subject to certain diversification requirements.

The IRS has ruled publicly that an exchange-traded call option is a security for
purposes of the 50%-of-assets test and that its issuer is the issuer of the
underlying security, not the writer of the option, for purposes of the
diversification requirements.

<PAGE>
Accounting for futures contracts will be according to generally accepted
accounting principles. Initial margin deposits will be recognized as assets due
from a broker (the Fund's agent in acquiring the futures position). During the
period the futures contract is open, changes in value of the contract will be
recognized as unrealized gains or losses by marking to market on a daily basis
to reflect the market value of the contract at the end of each day's trading.
Variation margin payments will be made or received depending upon whether gains
or losses are incurred. All contracts and options will be valued at the
last-quoted sales price on their primary exchange.
<PAGE>
APPENDIX C

DOLLAR-COST AVERAGING

A technique that works well for many investors is one that eliminates random buy
and sell decisions. One such system is dollar-cost averaging. Dollar-cost
averaging involves building a portfolio through the investment of fixed amounts
of money on a regular basis regardless of the price or market condition. This
may enable an investor to smooth out the effects of the volatility of the
financial markets. By using this strategy, more shares will be purchased when
the price is low and less when the price is high. As the accompanying chart
illustrates, dollar-cost averaging tends to keep the average price paid for the
shares lower than the average market price of shares purchased, although there
is no guarantee.

While this technique does not ensure a profit and does not protect against a
loss if the market declines, it is an effective way for many shareholders who
can continue investing on a regular basis through changing market conditions,
including times when the price of their shares falls or the market declines, to
accumulate shares in a fund to meet long-term goals.

Dollar-cost averaging

- ----------------------- --------------------------- ----------------------------
Regular Market Price Shares
Investment of a Share Acquired
- ----------------------- --------------------------- ----------------------------
$100 $6.00 16.7
100 4.00 25.0
100 4.00 25.0
100 6.00 16.7
100 5.00 20.0
---- ------ -----
$500 $25.00 103.4

Average market price of a share over 5 periods:
$5.00 ($25.00 divided by 5).
The average price you paid for each share:
$4.84 ($500 divided by 103.4).
<PAGE>
IDS TAX-EXEMPT BOND FUND, INC.

STATEMENT OF ADDITIONAL INFORMATION

FOR

IDS INTERMEDIATE TAX-EXEMPT FUND

Jan. 29, 1998

This SAI is dated Jan. 29, 1998, and it is to be used with the prospectus dated
Jan. 29, 1998, and the Annual Report for the fiscal year ended Nov. 30, 1997.

<PAGE>
TABLE OF CONTENTS

Goal and Investment Policies......................................See Prospectus

Additional Investment Policies..............................................p. 4

Security Transactions.......................................................p. 6

Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation......................................p. 8

Performance Information.....................................................p. 9

Valuing Fund Shares.........................................................p.12

Investing in the Fund.......................................................p.13

Redeeming Shares............................................................p.17

Pay-out Plans...............................................................p.18

Capital Loss Carryover......................................................p.19

Taxes.......................................................................p.19

Agreements..................................................................p.20

Organizational Information..................................................p.23

Board Members and Officers..................................................p.24

Compensation for Fund Board Members.........................................p.27

Principal Holders of Securities.............................................p.28

Independent Auditors........................................................p.28

Financial Statements...........................................See Annual Report

Prospectus..................................................................p.28

Appendices

Appendix A: Description of Short Term Securities and Additional
Information on Investment Policies........................p.29

<PAGE>
Appendix B: Options and Interest Rate Futures Contracts...............p.31

Appendix C: Dollar-Cost Averaging.....................................p.36
<PAGE>
ADDITIONAL INVESTMENT POLICIES

These are investment policies in addition to those presented in the prospectus.
The policies below are fundamental policies of IDS Intermediate Tax-Exempt Fund,
(the Fund) and may be changed only with shareholder approval. Unless holders of
a majority of the outstanding voting securities agree to make the change the
Fund will not:

`Make cash loans if the total commitment amount exceeds 5% of the Fund's total
assets.

Unless changed by the board, the Fund will not:

`Buy on margin or sell short, except that the Fund may enter into interest rate
futures contracts.
<PAGE>

`Invest more than 5% of its total assets in securities whose issuer or guarantor
of principal and interest has been in operation for less than three years.

`Invest in voting securities, securities of investment companies, or exploration
or development programs, such as oil, gas or mineral leases.

`Invest more than 5% of its net assets in warrants.

For daily operations, the Fund may invest its excess cash in short-term
tax-exempt securities. Under extraordinary conditions where, in the opinion of
the investment manager, appropriate short-term tax-exempt securities are not
available, the Fund is authorized to make certain taxable investments as
described in this SAI.

The Fund may purchase some debt securities on a when-issued basis, which means
that it may take as long as 45 days after the purchase before the securities are
delivered to the Fund. Payment and interest terms, however, are fixed at the
time the purchaser enters into the commitment. Under normal market conditions,
the Fund does not intend to commit more than 5% of its total assets to these
practices. The Fund does not pay for the
<PAGE>
securities or start earning interest on them until the contractual settlement
date. When-issued securities are subject to market fluctuations and may affect
the Fund's total assets the same as owned securities.

The Fund may invest up to 20% of its net assets in certain taxable investments
for temporary defensive purposes. It may purchase short-term U.S. and Canadian
government securities. It may invest in bank obligations including negotiable
certificates of deposit, non-negotiable fixed-time deposits, bankers'
acceptances and letters of credit. The issuing bank or savings and loan
generally must have capital, surplus and undivided profits (as of the date of
its most recently published annual financial statements) in excess of $100
million (or equivalent in the instance of a foreign branch of a U.S. bank) at
the date of investment. The Fund may purchase short-term corporate notes and
obligations rated in the top two classifications by Moody's Investors Service,
Inc. (Moody's) or Standard & Poor's Corporation (S&P) or the equivalent. It also
may use repurchase agreements with broker-dealers registered under the
Securities Exchange Act of 1934 and with commercial banks. Repurchase agreements
involve investments in debt securities where the seller (broker-dealer or bank)
agrees to repurchase the securities from the Fund at cost plus an agreed-to
interest rate within a specified time. A risk of a repurchase agreement is that
if the seller seeks the protection of the bankruptcy laws, the Fund's ability to
liquidate the security involved could be impaired, and it might subsequently
incur a loss if the value of the security declines or if the other party to a
repurchase agreement defaults on its obligation.

For a description of short-term securities and additional information on
investment policies, see Appendix A. For a discussion on options and interest
rate futures contracts, see Appendix B.

SECURITY TRANSACTIONS

AEFC has a strict Code of Ethics that prohibits its affiliated personnel from
engaging in personal investment activities that compete with or attempt to take
advantage of planned portfolio transactions for any fund in the IDS MUTUAL FUND
GROUP. AEFC carefully monitors compliance with its Code of Ethics.
<PAGE>
Normally, the Fund's securities are traded on a principal rather than an agency
basis. In other words, AEFC will trade directly with the issuer or with a dealer
who buys or sells for its own account, rather than acting on behalf of another
client. AEFC does not pay the dealer commissions. Instead, the dealer's profit,
if any, is the difference, or spread, between the dealer's purchase and sale
price for the security.

Research provided by brokers supplements AEFC's own research activities. Such
services include economic data on, and analysis of, U.S. and foreign economies;
information on specific industries; information about specific companies,
including earnings estimates; purchase recommendations for stocks and bonds;
portfolio strategy services; political, economic, business and industry trend
assessments; historical statistical information; market data services providing
information on specific issues and prices; and technical analysis of various
aspects of the securities markets, including technical charts. Research services
may take the form of written reports, computer software or personal contact by
telephone or at seminars or other meetings. AEFC has obtained, and in the future
may obtain, computer hardware from brokers, including but not limited to
personal computers that will be used exclusively for investment decision-making
purposes, which include the research, portfolio management and trading functions
and other services to the extent permitted under an interpretation by the SEC.

overall execution. AEFC has represented that under all three procedures the
amount of commission paid will be reasonable and competitive in relation to the
value of the brokerage services performed or research provided.

Each investment decision made for the Fund is made independently from any
decision made for another fund in the IDS MUTUAL FUND GROUP or other account
advised by AEFC or any of its subsidiaries. When the Fund buys or sells the same
security as another fund or account, AEFC carries out the purchase or sale in a
way the Fund agrees in advance is fair. Although sharing in large transactions
may adversely affect the price or volume purchased or sold by the Fund, the Fund
hopes to gain an overall advantage in execution. AEFC has assured the Fund it
will continue to seek ways to reduce brokerage costs.

The Fund paid total brokerage commissions of $0 for the fiscal year ended Nov.
30, 1997, and $0 for the fiscal period Nov. 30, 1996. Substantially all firms
through whom transactions were executed provide research services.

No transactions were directed to brokers because of research services they
provided to the Fund except for the affiliates as noted below.

The portfolio turnover rate was 24% in the fiscal year ended Nov. 30, 1997.
Higher turnover rates may result in higher brokerage expenses.

BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH AMERICAN EXPRESS
FINANCIAL CORPORATION

Affiliates of American Express Company (American Express) (of which AEFC is a
wholly-owned subsidiary) may engage in brokerage and other securities
transactions on
<PAGE>

behalf of the Fund according to procedures adopted by that Fund's board and to
the extent consistent with applicable provisions of the federal securities laws.
AEFC will use an American Express affiliate only if (i) AEFC determines that the
Fund will receive prices and executions at least as favorable as those offered
by qualified independent brokers performing similar brokerage and other services
for the Fund and (ii) the affiliate charges the Fund commission rates consistent
with those the affiliate charges comparable unaffiliated customers in similar
transactions and if such use is consistent with terms of the Investment
Management Services Agreement.

AEFC may direct brokerage to compensate an affiliate. AEFC will receive research
on South Africa from New Africa Advisors, a wholly-owned subsidiary of Sloan
Financial Group. AEFC owns 100% of IDS Capital Holdings Inc. which in turn owns
40% of Sloan Financial Group. New Africa Advisors will send research to AEFC and
in turn AEFC will direct trades to a particular broker. The broker will have an
agreement to pay New Africa Advisors. All transactions will be on a best
execution basis. Compensation received will be reasonable for the services
rendered.

No brokerage commissions were paid to brokers affiliated with AEFC for the two
most recent fiscal periods.

PERFORMANCE INFORMATION

Average annual total return

P(1+T)n = ERV

ERV - P
P

Annualized yield

Yield is calculated according to the following formula:

Yield = 2[(a-b + 1)6 - 1]
cd

The Fund's annualized yield was 3.23% for Class A, 2.64% for Class B, and 3.46%
for Class Y for the 30-day period ended Nov. 28, 1997.

<PAGE>
Distribution yield

Distribution yield is calculated according to the following formula:

D divided by POP F equals DY
30 30

where: D = sum of dividends for 30-day period
POP = sum of public offering price for 30-day period
F = annualizing factor
DY = distribution yield

The Fund's distribution yield was 3.41% for Class A, 2.84% for Class B, and
3.70% for Class Y for the 30-day period ended Nov. 28, 1997.

Tax-Equivalent Yield

Marginal
Income Tax Tax-Equivalent Yield
Bracket Distribution Annualized
Class A
15.0% 4.01% 3.80%
28.0% 4.74% 4.49%
31.0% 4.94% 4.68%
36.0% 5.33% 5.05%
39.6% 5.65% 5.35%

Class B
15.0% 3.34% 3.11%
28.0% 3.94% 3.67%
31.0% 4.12% 3.83%
36.0% 4.44% 4.13%
39.6% 5.65% 5.35%

Class Y
15.0% 4.35% 4.07%
28.0% 5.14% 4.81%
31.0% 5.36% 5.01%
36.0% 5.78% 5.41%
39.6% 6.13% 5.73%

In its sales material and other communications, the Fund may quote, compare or
refer to rankings, yields or returns as published by independent statistical
services or publishers and publications such as The Bank Rate Monitor National
Index, Barron's, Business
<PAGE>
Week, Donoghue's Money Market Fund Report, Financial Services Week, Financial
Times, Financial World, Forbes, Fortune, Global Investor, Institutional
Investor, Investor's Daily, Kiplinger's Personal Finance, Lipper Analytical
Services, Money, Morningstar, Mutual Fund Forecaster, Newsweek, The New York
Times, Personal Investor, Stanger Report, Sylvia Porter's Personal Finance, USA
Today, U.S. News and World Report, The Wall Street Journal and Wiesenberger
Investment Companies Service.

VALUING FUND SHARES

The value of an individual share for each class is determined by using the net
asset value before shareholder transactions for the day. On Dec. 1, 1997, the
first business day following the end of the fiscal year, the computation looked
like this:
<TABLE>
<CAPTION>
Net assets Shares
before outstanding at Net asset value
shareholder the end of of one share
transactions previous day
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Class A $17,032,314 divided by 3,348,204 equals $ 5.087
Class B 5,555,946 1,092,400 5.086
Class Y 1,053 207 5.087
</TABLE>
In determining net assets before shareholder transactions, the Fund's securities
are valued as follows as of the close of business of the New York Stock Exchange
(the Exchange):

`Securities traded on a securities exchange for which a last-quoted sales price
is readily available are valued at the last-quoted sales price on the exchange
where such security is primarily traded.

`Securities included in the NASDAQ National Market System are valued at the
last-quoted sales price in this market.

`Futures and options traded on major exchanges are valued at the last-quoted
sales price on their primary exchange.

`Foreign securities traded outside the United States are generally valued as of
the time their trading is complete, which is usually different from the close of
the Exchange. Foreign securities quoted in foreign currencies are translated
into U.S. dollars at the
<PAGE>

current rate of exchange. Occasionally, events affecting the value of such
securities may occur between such times and the close of the Exchange that will
not be reflected in the computation of the Fund's net asset value. If events
materially affecting the value of such securities occur during such period,
these securities will be valued at their fair value according to procedures
decided upon in good faith by the board.

The Exchange, AEFC and the Fund will be closed on the following holidays: New
Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.

INVESTING IN THE FUND

Sales Charge

Shares of the Fund are sold at the public offering price determined at the close
of business on the day an application is accepted. The public offering price is
the net asset value of one share adjusted for the sales charge for Class A. For
Class B and Class Y, there is no initial sales charge so the public offering
price is the same as the net asset value. For Class A, the public offering price
for an investment of less than $50,000, made Dec. 1, 1997, was determined by
dividing the net asset value of one share, $5.087, by 0.95 (1.00-0.05 for a
maximum 5% sales charge) for a public offering price of $5.35. The sales charge
is paid to American Express Financial Advisors Inc. (AEFA) by the person buying
the shares.
<PAGE>
Class A - Calculation of the Sales Charge

Sales charges are determined as follows:
Within each
increment, sales charge
as a percentage of:
Public Net
Amount of Investment Offering Price Amount invested
- -------------------- -------------- ---------------
First $ 50,000 5.0% 5.26%
Next 50,000 4.5 4.71
Next 400,000 3.8 3.95
Next 500,000 2.0 2.04
$1,000,000 or more 0.00 0.00

The following table shows the range of sales charges as a percentage of the
public offering price and of the net amount invested on total investments at
each applicable level.
On total investment,
sales charge as a
percentage of:
Public Net
Offering Price Amount Invested
Amount of Investment ranges from:
- -------------------- ------------
First $ 50,000 5.00% 5.26%
Next 50,000 to 100,000 5.00-4.50 5.26-4.71
Next 100,000 to 500,000 4.50-3.80 4.71-3.95
Next 500,000 to 999,999 3.80-2.00 3.95-2.04
$1,000,000 or more 0.00 0.00

<PAGE>
Class A - Reducing the Sales Charge

The total amount invested includes any shares held in the Fund in the name of a
member of your primary household group. The primary household group consists of
accounts in any ownership for spouses or domestic partners and their unmarried
children under 21. Domestic partners are individuals who maintain a shared
primary residence and have joint property or other insurable interests. For
instance, if our spouse already has invested $20,000 and you want to invest
$40,000, your total amount invested will be $60,000 and therefore you will pay
the lower charge of 4.5% on $10,000 of the $40,000.

Class A - Letter of Intent (LOI)

Here's an example. You file a LOI to invest $1 million and make an investment of
$100,000 at that time. You pay the normal 5% sales charge on the first $50,000
and 4.5% sales charge on the next $50,000 of this investment. Let's say you make
a second investment of $900,000 (bringing the total up to $1 million) one month
before the 13-
<PAGE>
month period is up. On the date that you bring your total to $1 million, AEFC
makes an adjustment to your account. The adjustment is made by crediting your
account with additional shares, in an amount equivalent to the sales charge
previously paid.

Systematic Investment Programs

For a discussion on dollar-cost averaging, see Appendix C.

Automatic Directed Dividends

Between a non-custodial account and an IRA, or 401(k) plan account or other
qualified retirement account of which American Express Trust Company acts as
custodian;

Between two American Express Trust Company custodial accounts with different
owners (for example, you may not exchange dividends from your IRA to the IRA of
your spouse);
<PAGE>
Between different kinds of custodial accounts with the same ownership (for
example, you may not exchange dividends from your IRA to your 401(k) plan
account, although you may exchange dividends from one IRA to another IRA).

REDEEMING SHARES

You have a right to redeem your shares at any time. For an explanation of
redemption procedures, please see the prospectus.

`The Exchange closes for reasons other than the usual weekend and holiday
closings or trading on the Exchange is restricted, or

`Disposal of the Fund's securities is not reasonably practicable or it is not
reasonably practicable for the Fund to determine the fair value of its net
assets, or

`The SEC, under the provisions of the Investment Company Act of 1940, as amended
(the 1940 Act), declares a period of emergency to exist.

Plan #1: Pay-out for a fixed period of time

Plan #2: Redemption of a fixed number of shares

Plan #3: Redemption of a fixed dollar amount

If you decide on a fixed dollar amount, whatever number of shares is necessary
to make the payment will be redeemed in regular installments until the account
is closed.
Plan #4: Redemption of a percentage of net asset value
<PAGE>
Payments are made based on a fixed percentage of the net asset value of the
shares in your account computed on the day of each payment. Percentages range
from 0.25% to 0.75%. For example, if you are on this plan and arrange to take
0.5% each month, you will get $50 if the value of your account is $10,000 on the
payment date.

CAPITAL LOSS CARRYOVER

For federal income tax purposes, the Fund had total capital loss carryovers of
$39,411 at Nov. 30, 1997, that if not offset by subsequent capital gains will
expire in 2005.

TAXES

All distributions of net investment income during the year will have the same
percentage designated as tax-exempt. This annual percentage is expected to be
substantially the same as the percentage of tax-exempt income actually earned
during any particular distribution period. For the fiscal year ended Nov. 30,
1997, 100% of the income distribution was designated as exempt from federal
income taxes.

Capital gain distributions, if any, received by corporate shareholders should be
treated as long-term capital gains regardless of how long they owned their
shares. Capital gain distributions, if any, received by individuals should be
treated as long-term if held for more than one year however, recent tax laws
have divided long-term capital gains into two holding periods: (1) shares held
more than one year but not more than 18 months and (2) shares held more than 18
months. Short-term capital gains earned by the Fund are paid to shareholders as
part of their ordinary income dividend and are taxable.

The Fund may purchase tax-exempt securities at a discount from the price at
which they were originally issued, especially during periods of rising interest
rates. For federal income tax purposes, some or all of this market discount will
be included in the Fund's ordinary income and will be taxable income when it is
distributed to you.
<PAGE>
If you are a "substantial user" (or related person) of facilities financed by
industrial development bonds, you should consult your tax advisor before
investing. The income from such bonds may not be tax-exempt for you.

Interest on private activity bonds generally issued after August 1986 is a
preference item for purposes of the individual and corporate alternative minimum
taxes. "Private-activity" (non-governmental purpose) municipal bonds include
industrial revenue bonds, student-loan bonds and multi- and single-family
housing bonds. An exception is made for private-activity bonds issued for
qualified--501(c)(3)--organizations, including non-profit colleges, universities
and hospitals. These bonds will continue to be tax-exempt and will not be
subject to the alternative minimum tax for individuals. To the extent a fund
earns income subject to the alternative minimum tax, it will flow through to
that fund's shareholders and may subject some shareholders, depending on their
tax status, to the alternative minimum tax. The Fund reports the percentage of
its income earned from these bonds to shareholders with their other tax
information.

Under federal tax law and an election made by the Fund under federal tax rules,
by the end of a calendar year the fund must declare and pay dividends
representing 98% of ordinary income through Dec. 31 and 98% of net capital gains
(both long-term and short-term) for the 12-month period ending Nov. 30 of that
calendar year. The Fund is subject to an excise tax equal to 4% of the excess,
if any, of the amount required to be distributed over the amount actually
distributed. The Fund intends to comply with federal tax law and avoid any
excise tax.

AGREEMENTS

Investment Management Services Agreement

The Fund has an Investment Management Services Agreement with AEFC. For its
services, AEFC is paid a fee based on the following schedule:
<PAGE>
Assets Annual rate at
(billions) each asset level

First $1.0 0.450%
Next 1.0 0.425
Next 1.0 0.400
Next 3.0 0.375
Over 6.0 0.350

On Nov. 30, 1997, the daily rate applied to the Fund's net assets was equal to
0.32% on an annual basis. Absent fee waivers, the management fee would be 0.45%.
The fee is calculated for each calendar day on the basis of net assets as of the
close of business two business days prior to the day for which the calculation
is made.

The management fee is paid monthly. Under the agreement, the net amount paid,
absent fee waivers was $102 for fiscal period ended Nov. 30 1996, and $55,472
for the fiscal year ended Nov. 30, 1997.

Under the current Agreement, the Fund also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees; audit and certain legal
fees; fidelity bond premiums; registration fees for shares; Fund office
expenses; consultants' fees; compensation of board members, officers and
employees; corporate filing fees; organizational expenses; expenses incurred in
connection with lending securities of the Fund; and expenses properly payable by
the Fund, approved by the board. Under the agreement, the Fund paid nonadvisory
expenses of $85 for fiscal period ended Nov. 30, 1996, and $47,587 for the
fiscal year ended Nov. 30, 1997.

Administrative Services Agreement

The Fund has an Administrative Services Agreement with AEFC. Under this
agreement, the Fund pays AEFC for providing administration and accounting
services. The fee is calculated as follows:

Assets Annual rate
(billions) each asset level
- --------- ----------------
First $1.0 0.040%
Next 1.0 0.035
Next 1.0 0.030
Next 3.0 0.025
Over 6.0 0.020
<PAGE>

Transfer Agency Agreement

Distribution Agreement

Under a Distribution Agreement, sales charges deducted for distributing Fund
shares are paid to AEFA daily. These charges amounted to $457,446 for the fiscal
year ended Nov. 30, 1997. After paying commissions to personal financial
advisors, and other expenses, the amount retained was $(24,309). The amounts
were $0 and $0 for fiscal period ended Nov. 30, 1996.

Shareholder Service Agreement

Plan and Agreement of Distribution

For Class B shares, to help AEFA defray the cost of distribution and servicing,
not covered by the sales charges received under the Distribution Agreement, the
Fund and AEFA entered into a Plan and Agreement of Distribution (Plan). These
costs cover almost all aspects of distributing the Fund's shares except
compensation to the sales force. A substantial portion of the costs are not
specifically identified to any one fund in the IDS MUTUAL FUND GROUP. Under the
Plan, AEFA is paid a fee at an annual rate of 0.75% of the Fund's average daily
net assets attributable to Class B shares.
<PAGE>
The Plan must be approved annually by the board, including a majority of the
disinterested board members, if it is to continue for more than a year. At least
quarterly, the board must review written reports concerning the amounts expended
under the Plan and the purposes for which such expenditures were made. The Plan
and any agreement related to it may be terminated at any time by vote of a
majority of board members who are not interested persons of the Fund and have no
direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan, or by vote of a majority of the outstanding
voting securities of the Fund's Class B shares or by AEFA. The Plan (or any
agreement related to it) will terminate in the event of its assignment, as that
term is defined in the 1940 Act. The Plan may not be amended to increase the
amount to be spent for distribution without shareholder approval, and all
material amendments to the Plan must be approved by a majority of the board
members, including a majority of the board members who are not interested
persons of the Fund and who do not have a financial interest in the operation of
the Plan or any agreement related to it. The selection and nomination of
disinterested board members is the responsibility of the other disinterested
board members. No board member who is not an interested person, has any direct
or indirect financial interest in the operation of the Plan or any related
agreement. For the fiscal year ended Nov. 30, 1997, under the agreement, the
Fund paid fees of $32,642.

Custodian Agreement

Total fees and expenses

The Fund paid total fees and nonadvisory expenses, net of earnings credits, of
$188,173 for the fiscal year ended Nov. 30, 1997.

ORGANIZATIONAL INFORMATION

IDS Tax-Exempt Bond Fund, Inc. of which IDS Intermediate Tax-Exempt Fund is a
part, is an open-end management investment company, as defined in the 1940 Act.
Originally incorporated on Sept. 30, 1976 in Nevada, the Fund changed its state
of incorporation on June 13, 1986 by merging into a Minnesota corporation
incorporated on April 7, 1986. The Fund headquarters are at 901 S. Marquette
Ave., Suite 2810, Minneapolis, MN 55402-3268.
<PAGE>
BOARD MEMBERS AND OFFICERS

The following is a list of the Fund's board members. They serve 15 Master Trust
portfolios and 47 IDS and IDS Life funds (except for William H. Dudley, who does
not serve on the nine IDS Life fund boards). All shares have cumulative voting
rights with respect to the election of board members.

H. Brewster Atwater, Jr.
Born in 1931
4900 IDS Tower
Minneapolis, MN

Former chairman and chief executive officer, General Mills, Inc. Director, Merck
& Co., Inc. and Darden Restaurants, Inc.

Lynne V. Cheney'
Born in 1941
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W.
Washington, D.C.

William H. Dudley**
Born in 1932
2900 IDS Tower
Minneapolis, MN

Senior advisor to the chief executive officer of AEFC.

David R. Hubers+**
Born in 1943
2900 IDS Tower
Minneapolis, MN

President and chief executive officer of AEFC since August 1993, and director of
AEFC. Previously, senior vice president, finance and chief financial officer of
AEFC.
<PAGE>
Heinz F. Hutter+'
Born in 1929
P.O. Box 2187
Minneapolis, MN

Former president and chief operating officer, Cargill, Incorporated (commodity
merchants and processors).

Anne P. Jones
Born in 1935
5716 Bent Branch Rd.
Bethesda, MD

Attorney and telecommunications consultant. Former partner, law firm of
Sutherland, Asbill & Brennan. Director, Motorola, Inc. and C-Cor Electronics,
Inc.

William R. Pearce+*
Born in 1927
901 S. Marquette Ave.
Minneapolis, MN

Alan K. Simpson'
Born in 1931
1201 Sunshine Ave.
Cody, WY

Former three-term United States Senator for Wyoming. Former Assistant Republican
Leader, U.S. Senate. Director, PacifiCorp (electric power).

Edson W. Spencer+
Born in 1926
4900 IDS Center
80 S. 8th St.
Minneapolis, MN

Senior vice president of AEFC.

Wheelock Whitney+
Born in 1926
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN

Chairman, Whitney Management Company (manages family assets).

C. Angus Wurtele'
Born in 1934
Valspar Corporation
Suite 1700
Foshay Tower
Minneapolis, MN

The board also has appointed officers who are responsible for day-to-day
business decisions based on policies it has established. In addition to Mr.
Pearce, who is chairman of the board and Mr. Thomas, who is president, the
Fund's other officers are:

Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN

President, treasurer and corporate secretary of Board Services Corporation. Vice
president, general counsel and secretary for the Fund.
Officers who also are officers and/or employees of AEFC

<PAGE>
Peter J. Anderson
Born in 1942
IDS Tower 10
Minneapolis, MN

Director and senior vice president-investments of AEFC. Vice
president-investments for the Fund.

Matthew N. Karstetter
Born in 1961
IDS Tower 10
Minneapolis, MN

Vice President of Investment Accounting for the Advisor since 1996. Prior to
joining the Advisor he serves as vice president of State Street Banks mutual
fund service operation from 1991-1996. Treasurer of the Fund.

COMPENSATION FOR FUND BOARD MEMBERS

Members of the Fund board who are not officers of the Fund or AEFC receive an
annual fee of $100 and the chair of the Contracts Committee receives an
additional fee of $86. Board members receive a $50 per day attendance fee for
board meetings. The attendance fee for meetings of the Contracts and Investments
Review Committees is $50; for meetings of the Audit Committee and Personnel
Committee $25 and for traveling from out-of-state $1. Expenses for attending
meetings are reimbursed.

The Fund pays no fees or expenses to board members until the assets of the Fund
reach $20 million.

During the fiscal year period ended Nov. 30, 1997, the independent members of
the board, for attending up to 30 meetings, received the following compensation:
<TABLE>
<CAPTION>
Compensation Table

Total cash
compensation from
Aggregate Pension or the IDS MUTUAL
compensations from Retirement Estimated annual FUND GROUP and
Board member the Fund benefits accrued benefit upon Preferred Master
as Fund expenses retirement Trust Group
- ---------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
H. Brewster Atwater, $509 $0 $0 $100,900
Jr.
Lynne V. Cheney 465 0 0 95,200
Robert F. Froehlke 634 0 0 102,700
Heinz F. Hutter 509 0 0 103,800
Anne P. Jones 516 0 0 104,500
Melvin R. Laird 431 0 0 90,500
Alan K. Simpson 339 0 0 83,000
(part of year)
Edson W. Spencer 784 0 0 129,800
Wheelock Whitney 634 0 0 109,900
C. Angus Wurtele 484 0 0 106,700
</TABLE>
<PAGE>
On Nov. 30, 1997, the Fund's board members and officers as a group owned less
than 1% of the outstanding shares of any class.

PRINCIPAL HOLDERS OF SECURITIES

As of Nov. 28, 1997, Peter R. Wechsler held 8.82 % of Fund shares. Additional
information on principal holders of securities may be obtained by writing to
American Express Shareholder Services, P.O. Box 534, Minneapolis, MN 55440-0534.

INDEPENDENT AUDITORS

FINANCIAL STATEMENTS

PROSPECTUS

The prospectus for IDS Intermediate Tax-Exempt Fund, dated Jan. 29, 1998, is
hereby incorporated in this SAI by reference.
<PAGE>
APPENDICES

APPENDIX A

DESCRIPTION OF SHORT-TERM SECURITIES AND ADDITIONAL INFORMATION ON
INVESTMENT POLICIES

Short-term Tax-exempt Securities

A portion of the Fund's assets are in cash and short-term securities for
day-to-day operating purposes. The investments will usually be in short-term
municipal bonds and notes. These include:

(1) Tax anticipation notes sold to finance working capital needs of
municipalities in anticipation of receiving taxes on a future date.

(2) Bond anticipation notes sold on an interim basis in anticipation of a
municipality issuing a longer term bond in the future.

(3) Revenue anticipation notes issued in anticipation of revenues from sources
other than taxes, such as federal revenues available under the Federal Revenue
Sharing Program.

(4) Tax and revenue anticipation notes issued in anticipation of revenues from
taxes and other sources of revenue, except bond placements.

(7) Project notes issued by local housing authorities to finance urban renewal
and public housing projects. These notes are guaranteed by the full faith and
credit of the U.S. government.

Depending on market conditions, a portion of the Fund's investments may be in
short-term taxable securities. These include:

(1) Obligations of the U.S. government, its agencies and instrumentalities
resulting principally from lending programs of the U.S. government;

(2) U.S. Treasury bills with maturities up to one year. The difference between
the purchase price and the maturity value or resale price is the interest income
to the Fund;

(3) Certificates of deposit or receipts with fixed interest rates issued by
banks in exchange for deposit of funds;

(4) Bankers' acceptances arising from short-term credit arrangements designed to
enable business to obtain funds to finance commercial transactions;

(5) Letters of credit which are short-term notes issued in bearer form with a
bank letter of credit obligating the bank to pay the bearer the amount of the
note;

Standard & Poor's rating A-1 indicates that the degree of safety regarding
timely payment is either overwhelming or very strong.

Standard & Poor's rating A-2 indicates that capacity for timely payment on
issues with this designation is strong.

Moody's rating Prime-1 (P-1) indicates a superior capacity for repayment of
short-term promissory obligations.

Moody's rating Prime-2 (P-2) indicates a strong capacity for repayment of
short-term promissory obligations.

OPTIONS AND INTEREST RATE FUTURES CONTRACTS

Buying options. Put and call options may be used as a trading technique to
facilitate buying and selling securities for investment reasons. Options are
used as a trading technique to take advantage of any disparity between the price
of the underlying security in the securities market and its price on the options
market. It is anticipated the trading technique will be utilized only to effect
a transaction when the price of the security plus the option price will be as
good or better than the price at which the security could be bought or sold
directly. When the option is purchased, the Fund pays a premium and a
<PAGE>
commission. It then pays a second commission on the purchase or sale of the
underlying security when the option is exercised. For record-keeping and tax
purposes, the price obtained on the purchase of the underlying security will be
the combination of the exercise price, the premium and both commissions. When
using options as a trading technique, commissions on the option will be set as
if only the underlying securities were traded.

Writing covered options. The Fund will write covered options when it feels it is
appropriate and will follow these guidelines:

`Underlying securities will continue to be bought or sold solely on the basis of
investment considerations consistent with the Fund's goal.

Net premiums on call options closed or premiums on expired call options are
treated as short-term capital gains.

If a covered call option is exercised, the security is sold by the Fund. The
Fund will recognize a capital gain or loss based upon the difference between the
proceeds and the security's basis.

FUTURES CONTRACTS. A futures contract is an agreement between two parties to buy
and sell a security for a set price on a future date. They have been established
by boards of trade which have been designated contracts markets by the Commodity
Futures Trading Commission (CFTC). Futures contracts trade on these markets in a
manner
<PAGE>
similar to the way a stock trades on a stock exchange, and the boards of trade,
through their clearing corporations, guarantee performance of the contracts.
Currently, there are futures contracts based on such debt securities as
long-term U.S. Treasury bonds, Treasury notes, GNMA modified pass-through
mortgage-backed securities, three-month U.S. Treasury bills and bank
certificates of deposit. While futures contracts based on debt securities do
provide for the delivery and acceptance of securities, such deliveries and
acceptances are very seldom made. Generally, the futures contract is terminated
by entering into an offsetting transaction. An offsetting transaction for a
futures contract sale is effected by the Fund entering into a futures contract
purchase for the same aggregate amount of the specific type of financial
instrument and same delivery date. If the price in the sale exceeds the price in
the offsetting purchase, the Fund immediately is paid the difference and
realizes a gain. If the offsetting purchase price exceeds the sale price, the
Fund pays the difference and realizes a loss. Similarly, closing out a futures
contract purchase is effected by the Fund entering into a futures contract sale.
If the offsetting sale price exceeds the purchase price, the Fund realizes a
gain, and if the offsetting sale price is less than the purchase price, the Fund
realizes a loss. At the time a futures contract is made, a good-faith deposit
called initial margin is set up within a segregated account at the Fund's
custodian bank. The initial margin deposit is approximately 1.5% of a contract's
face value. Daily thereafter, the futures contract is valued and the payment of
variation margin is required so that each day the Fund would pay out cash in an
amount equal to any decline in the contract's value or receive cash equal to any
increase. At the time a futures contract is closed out, a nominal commission is
paid, which is generally lower than the commission on a comparable transaction
in the cash markets.

Futures contracts are based on types of debt securities referred to above, which
have historically reacted to an increase or decline in interest rates in a
fashion similar to the debt securities the Fund owns. If interest rates did
increase, the value of the debt securities in the portfolio would decline, but
the value of the Fund's futures contracts would increase at approximately the
same rate, thereby keeping the net asset value of the Fund from declining as
much as it otherwise would have. If, on the other hand, the Fund held cash
reserves and interest rates were expected to decline, the Fund might enter into
interest rate futures contracts for the purchase of securities. If short-term
rates were higher than long-term rates, the ability to continue holding these
cash reserves would have a very beneficial impact on the Fund's earnings. Even
if short-term rates were not higher, the Fund would still benefit from the
income earned by holding these short-term investments. At the same time, by
entering into futures contracts for the purchase of securities, the Fund could
take advantage of the anticipated rise in the value of long-term bonds without
actually buying them until the market had stabilized. At that time, the
<PAGE>
futures contracts could be liquidated and the Fund's cash reserves could then be
used to buy long-term bonds on the cash market. The Fund could accomplish
similar results by selling bonds with long maturities and investing in bonds
with short maturities when interest rates are expected to increase or by buying
bonds with long maturities and selling bonds with short maturities when interest
rates are expected to decline. But by using futures contracts as an investment
tool, given the greater liquidity in the futures market than in the cash market,
it might be possible to accomplish the same result more easily and more quickly.
Successful use of futures contracts depends on the investment manager's ability
to predict the future direction of interest rates. If the investment manager's
prediction is incorrect, the Fund would have been better off had it not entered
into futures contracts.

If that occurred, the option would be exercised and the asset sold at a lower
price than the cash market price. To some extent, the risk of not realizing a
gain could be reduced by entering into a closing transaction. The Fund could
enter into a closing transaction by purchasing an option with the same terms as
the one it had previously sold. The cost to close the option and terminate the
Fund's obligation, however, might be more or less than the premium received when
it originally wrote the option. Furthermore, the Fund might not be able to close
the option because of insufficient activity in the options market.

A risk in employing futures contracts to protect against the price volatility of
portfolio securities is that the prices of securities subject to futures
contracts may not correlate perfectly with the behavior of the cash prices of
the Fund's securities. The correlation may be distorted because the futures
market is dominated by short-term traders seeking to
<PAGE>
profit from the difference between a contract or security price and their cost
of borrowed funds. Such distortions are generally minor and would diminish as
the contract approached maturity.

Accounting for futures contracts will be according to generally accepted
accounting principles. Initial margin deposits will be recognized as assets due
from a broker (the Fund's agent in acquiring the futures position). During the
period the futures contract is open, changes in value of the contract will be
recognized as unrealized gains or losses by marking to market on a daily basis
to reflect the market value of the contract at the end of each day's trading.
Variation margin payments will be made or received depending upon whether gains
or losses are incurred. All contracts and options will be valued at the
last-quoted sales price on their primary exchange.
<PAGE>
APPENDIX C

DOLLAR-COST AVERAGING

Dollar-cost averaging

- ---------------------------- --------------------------- -----------------------
Regular Market Price Shares
Investment of a Share Acquired
- ---------------------------- --------------------------- -----------------------
$100 $6.00 16.7
100 4.00 25.0
100 4.00 25.0
100 6.00 16.7
100 5.00 20.0
---- -------- ------
$500 $25.00 103.4

Average market price of a share over 5 periods:
$5.00 ($25.00 divided by 5).
The average price you paid for each share:
$4.84 ($500 divided by 103.4).
<PAGE>

Independent auditors' report

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 Intermediate
Tax-Exempt Fund (a series of IDS Tax-Exempt Bond Fund, Inc.) as of
November 30, 1997, and the related statement of operations for the year
then ended and the statements of changes in net assets and the financial
highlights for the year ended November 30, 1997, and for the period from
November 13, 1996 (commencement of operations) to November 30, 1996. 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
but not received, 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 Intermediate
Tax-Exempt Fund at November 30, 1997, 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 2, 1998

(This annual report is not part of the prospectus.)

Financial statements

Statement of assets and liabilities
IDS Intermediate Tax-Exempt Fund
Nov. 30, 1997

Assets

Investments in securities, at value (Note 1)
<S> <C>
(identified cost $22,266,182) $22,511,911
Cash in bank on demand deposit 13,365
Accrued interest receivable 314,055
-------
Total assets 22,839,331
----------

Liabilities

Dividends payable 7,063
Payable for investment securities purchased 202,744
Accrued investment management services fee 558
Accrued distribution fee 229
Accrued service fee 217
Accrued transfer agency fee 1,804
Accrued administrative services fee 50
Other accrued expenses 37,965
------
Total liabilities 250,630
-------
Net assets applicable to outstanding capital stock $22,588,701
===========

Represented by

Capital stock-- of $.01 par value (Note 1) $ 44,408
Additional paid-in capital 22,337,109
Excess of distributions over net investment income (2)
Accumulated net realized gain (loss) (Note 5) (38,543)
Unrealized appreciation (depreciation) on investments 245,729
-------
Total-- representing net assets applicable to outstanding capital stock $22,588,701
===========
Net assets applicable to outstanding shares: Class A $17,031,483
Class B $ 5,556,164
Class Y $ 1,054
Net asset value per share of outstanding capital stock: Class A shares 3,348,204 $ 5.09
Class B shares 1,092,400 $ 5.09
Class Y shares 207 $ 5.09

See accompanying notes to financial statements.

(This annual report is not part of the prospectus.)
</TABLE>

Statement of operations
IDS Intermediate Tax-Exempt Fund
Year ended Nov. 30, 1997

Investment income

Income:
<S> <C>
Interest $779,028
--------
Total income 779,028
-------
Expenses (Note 2):
Investment management services fee 77,792
Distribution fee -- Class B 32,642
Transfer agency fee 10,077
Incremental transfer agency fee-- Class B 194
Service fee
Class A 22,623
Class B 7,616
Administrative services fees and expenses 11,962
Compensation of board members 5,308
Compensation of officers 64
Custodian fees 7,846
Postage 1,727
Registration fees 96,234
Reports to shareholders 497
Audit fees 12,000
Other 1,500
-----
Total expenses 288,082
Less expenses voluntarily reimbursed by AEFC (Note 2) (95,207)
-------
192,875
Earnings credits on cash balances (Note 2) (4,702)
------
Total net expenses 188,173
-------
Investment income (loss)-- net 590,855
-------

Realized and unrealized gain (loss) -- net

Net realized gain (loss) on security transactions (Note 3) (38,543)
Net change in unrealized appreciation (depreciation) on investments 239,163
-------
Net gain (loss) on investments 200,620
-------
Net increase (decrease) in net assets resulting from operations $791,475
========

See accompanying notes to financial statements.

(This annual report is not part of the prospectus.)

</TABLE>
<PAGE>
<TABLE>
<CAPTION>

Financial statements

Statements of changes in net assets
IDS Intermediate Tax-Exempt Fund

Operations and distributions

For the period from
Nov. 30,1997 Nov. 13,1996* to
Year ended Nov. 30,1996

<S> <C> <C>
Investment income (loss)-- net $ 590,855 $ 936
Net realized gain (loss) on security transactions (38,543) --
Net change in unrealized appreciation (depreciation) on investments 239,163 6,566
------- -----
Net increase (decrease) in net assets resulting from operations 791,475 7,502
------- -----
Distributions to shareholders from:
Net investment income
Class A (465,805) (787)
Class B (125,014) (148)
Class Y (38) (1)
--- --
Total distributions (590,857) (936)
-------- ----

Capital share transactions (Note 4)

Proceeds from sales
Class A shares (Note 2) 29,600,212 1,554,812
Class B shares 8,114,669 450,691
Reinvestment of distributions at net asset value
Class A shares 401,413 474
Class B shares 115,617 103
Class Y shares 38 1
Payments for redemptions
Class A shares (14,648,786) (16,159)
Class B shares (Note 2) (3,194,018) (550)
---------- ----
Increase (decrease) in net assets from capital share transactions 20,389,145 1,989,372
---------- ---------
Total increase (decrease) in net assets 20,589,763 1,995,938
Net assets at beginning of period 1,998,938 3,000
--------- -----
Net assets at end of period $22,588,701 $1,998,938
=========== ==========

*Commencement of operations
See accompanying notes to financial statements.

(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>

Notes to financial statements

IDS Intermediate Tax-Exempt Fund

Summary of
significant
accounting policies

IDS Intermediate Tax-Exempt 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. On Nov.
12, 1996, American Express Financial Corporation (AEFC) invested $3,000 in
the Fund which represented 200 shares for Class A, Class B and Class Y,
respectively.

The Fund invests primarily in investment-grade bonds and other debt
securities issued by or on behalf of state or local governmental units
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 shares during the
ninth calendar year of ownership. 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
traded on national securities exchanges or included in national market
systems are valued at the last quoted sales price. Debt securities are
generally traded in the over-the-counter market and are valued at a price
deemed best to reflect fair value as quoted by dealers who make markets in
these securities or by an independent pricing service. Securities for
which market quotations are not readily available are valued at fair value
according to methods selected in good faith by the board. Short-term
securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current
interest rates; those maturing in 60 days or less are valued at amortized
cost.

Option transactions

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 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
also 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 will 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 financial 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.

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.

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.

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.

At Nov. 30, 1997, AEFC owned 207 Class Y shares.

Expenses and
sales charges

The Fund entered into agreements with 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 its Administrative Services Agreement, the Fund pays AEFC a fee 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. Additional administrative service expenses paid by the Fund are
office expenses, consultants' fees and compensation of officers and
employees. Under this agreement, the Fund also pays taxes, audit and
certain legal fees, registration fees for shares, compensation of board
members, corporate filing fees, organizational expenses, and any other
expenses properly payable by the Fund and approved by the board.

Under a separate Transfer Agency Agreement, American Express Client
Service Corporation (AECSC) maintains shareholder accounts and records.
The Fund pays AECSC an annual fee per shareholder account for this service
as follows:

oClass A $15.50
oClass B $16.50
oClass Y $15.50

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.

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 and commencing on May 9,
1997, the fee is calculated at a rate of 0.10% of the Fund's average daily
net assets attributable to Class Y shares.

Sales charges received by American Express Financial Advisors Inc. for
distributing Fund shares were $453,256 for Class A and $4,190 for Class B
for the year ended Nov. 30, 1997.

AEFC agreed to waive certain fees and to absorb certain other of the
Fund's expenses. Under this agreement, the Fund's total expenses, net of
earnings credits, could not exceed 0.90% for Class A, 1.66% for Class B
and 0.83% for Class Y of the Fund's average daily net assets.

During the year ended Nov. 30, 1997 the Fund's custodian and transfer
agency fees were reduced by $4,702 as a result of earning credits from
overnight cash balances.

Securities
transactions

Cost of purchases of securities and proceeds from sales (other than
short-term obligations) aggregated $21,130,209 and $3,436,768 respectively
for the year ended Nov. 30, 1997. Realized gains and losses are determined
on an identified cost basis.

Capital share
transactions

Transactions in shares of capital stock for the periods indicated are as
follows:

Year ended Nov. 30, 1997

Class A Class B Class Y

Sold 5,874,257 1,612,479 --
Issued for reinvested 79,549 22,888 7
distributions
Redeemed (2,911,999) (632,712) --
---------- -------- ----

Net increase (decrease) 3,041,807 1,002,655 7

Period ended Nov. 30, 1996*

Class A Class B Class Y

Sold 309,309 89,635 --
Issued for reinvested 94 20 --
distributions
Redeemed (3,206) (110) --
------ ---- ----

Net increase (decrease) 306,197 89,545 --

* Inception date was Nov. 13, 1996.

Capital loss
carryover

For federal income tax purposes, the Fund had a capital loss carryover of
$39,411 at Nov. 30, 1997, that if not offset by subsequent capital gains,
will expire in 2005. It is unlikely the board will authorize a
distribution of any net realized gain for the Fund until its captial loss
carryover has been offset or expires.

Financial highlights

"Financial highlights" showing per share data and selected information is
presented on page 6 of the prospectus.

(This annual report is not part of the prospectus.)

Investments in securities

IDS Intermediate
Tax-Exempt Fund (Percentages represent value of
Nov. 30, 1997 investments compared to net assets)

Municipal bonds (83.3%)
Name of issuer and title of issue (b,c,d) Coupon Maturity Principal Value(a)
rate year amount

Alaska (2.4%)
Anchorage Light & Power Senior Lien
Electric Utilities Refunding Revenue Bonds
<S> <C> <C> <C> <C>
Series 1996C (AMBAC Insured) 4.10% 1999 $100,000 $ 100,000
Anchorage Unlimited Tax General Obligation Bonds
Series 1992 (MBIA Insured) 5.85 2001 425,000 448,179
Total 548,179

Arizona (1.1%)
Phoenix Water System Refunding Revenue Bonds
Series 1993 4.40 1999 75,000 75,433
Salt River Agricultural Improvement & Power
District Electric Refunding Revenue Bonds
Series 1993C 4.25 2001 70,000 70,320
State Health Facility Authority Hospital
Refunding Revenue Bonds Samaritan Health Systems
Series A (MBIA Insured) 5.10 2002 25,000 25,870
State Transportation Board Highway Sales Tax
Refunding Revenue Bonds Series 1993 4.25 1998 85,000 85,237
Total 256,860

Arkansas (0.2%)
State Finance Authority Revolving Loan
Refunding Revenue Bonds
Series 1993B (MBIA Insured) 4.80 2004 40,000 40,920

California (5.7%)
Lake Elsinore School Financing Authority
Revenue Bonds Series 1997 5.10 2002 205,000 209,760
Lake Elsinore School Financing Authority
Revenue Bonds Series 1997 5.20 2003 220,000 226,035
Long Beach Harbor Revenue Bonds Series 1993 A.M.T. 4.50 2002 500,000 503,005
Southern California College of Optometry
Educational Facilities Authority College
Revenue Bonds Series 1997B 4.90 1999 340,000 343,631
Total 1,282,431

Colorado (3.3%)
Arvada Urban Renewal Authority
Tax Allocation Refunding Revenue Bonds
Series 1997A (MBIA Insured) 5.25 2002 200,000 207,560
Denver City & County Airport Revenue Bonds
Series 1996 (MBIA Insured) A.M.T. 4.80 2000 500,000 507,855
Denver City & County School District 1 Facility
Certificate of Participation
Series 1996 (AMBAC Insured) 5.00 2005 30,000 30,941
Total 746,356

Connecticut (1.5%)
State Development Authority Refunding Revenue Bonds
Church Homes Incorporated 1st Mortgage
Gross Health Care Series 1997 4.65 2000 200,000 200,604
State Unlimited General Obligation Bonds Series 1995A 5.00 2000 130,000 132,532
Total 333,136

Florida (4.3%)
Grand Haven Community Development District
Special Assessment Bonds Flagler County Series 1997A 6.30 2002 300,000 306,582
North Springs Improvement District Special Assessment
Revenue Bonds Parkland Isles Series 1997B 6.25 2005 500,000 502,500
State Ports Financing Commission Port District
Revenue Bonds Series 1996 (MBIA Insured) A.M.T. 4.60 2003 100,000 101,017
State Unlimited General Obligation Bonds Series 1991 5.40 1998 65,000 65,095
Total 975,194

Georgia (1.2%)
Clarke County Hospital Authority Hospital Revenue Certificates
Series 1996 (MBIA Insured) 5.00 2001 150,000 153,702
Dalton Development Authority Revenue Certificates
Series 1996 (MBIA Insured) 4.625 2004 125,000 126,467
Total 280,169

Illinois (6.3%)
Chicago Unlimited General Obligation
Refunding Bonds Series 1996B (FGIC Insured) 5.00 2000 130,000 132,135
Chicago Unlimited Tax General Obligation
Refunding Bonds Series 1996B (FGIC Insured) 6.00 2002 520,000 552,219
Dundee Township Open Space General Obligation Bonds
Series 1997 (FSA Insured) 4.40 2002 250,000 250,288
North Chicago Unlimited General Obligation
Refunding Bonds Series 1996 (FGIC Insured) 4.60 2001 200,000 202,348
State Educational Facilities Authority Revenue Bonds
Lewis University Series 1996 5.10 2003 140,000 142,681
State Health Facilities Authority Hospital
Refunding Revenue Bonds Series 1996A 5.00 2003 125,000 126,976
State Health Facilities Authority Hospital
Riverside Health Systems Refunding Revenue Bonds
Series 1996A (MBIA Insured) 5.00 2004 25,000 25,694
Total 1,432,341

Indiana (1.3%)
State Bank Revenue Bonds Series B 5.00 1999 160,000 161,805
State Transportation Finance Authority Airport
Facility Lease Refunding Revenue Bonds
Series 1996A (AMBAC Insured) 4.50 2003 125,000 125,706
Total 287,511

Iowa (0.9%)
Higher Education Loan Authority Refunding Revenue Bonds
Luther College Series 1997 4.40 1999 200,000 199,754

Kansas (0.9%)
State Development Finance Authority
Health Facilities Revenue Bonds Hays Medical Center
Series B (MBIA Insured) 5.00 2000 200,000 204,916

Louisiana (2.7%)
Jefferson Parish Home Mortgage Authority Single Family
Revenue Bonds Series 1997A
(GNMA & FNMA Insured) A.M.T. 4.90 2007 300,000 301,812
State Public Facilities Authority College Revenue Bonds
Series 1997 5.10 2003 100,000 101,812
State Unlimited Tax General Obligation
Refunding Bonds Series 1996A 6.00 2002 200,000 214,246
Total 617,870

Maine (0.4%)
State Technical College System Certificates of Participation
Series 1997 (MBIA Insured) 4.80 2002 100,000 101,741

Michigan (2.6%)
Chippewa County Hospital Finance Authority
Hospital Refunding Revenue Bonds
Chippewa County War Memorial Hospital Series 1997B 4.75 2001 200,000 200,418
Detroit Sewer Disposal Refunding Revenue Bonds
Series 1993A (FGIC Insured) 5.25 2005 25,000 26,128
State Hospital Finance Authority Revenue Bonds
Series 1997 5.40 1999 125,000 125,922
State Hospital Finance Authority Revenue Bonds
Series 1997 5.60 2000 135,000 136,557
State Trunk Line Fuel Sales Tax
Refunding Revenue Bonds 1st Series 1992B 5.10 1999 100,000 101,876
Total 590,901

Minnesota (3.3%)
Minneapolis Community Development Agency
Limited Tax Supported Development Revenue Common
Fund Bonds Series 1997 4.70 1999 160,000 160,994
Minneapolis Community Development Agency
Limited Tax Supported Development Revenue Common
Fund Bonds Series 1997 A.M.T. 4.90 1999 205,000 206,986
Minneapolis Community Development Agency
Limited Tax Supported Development Revenue Common
Funds Bonds Series 1997 A.M.T. 5.10 2000 215,000 218,638
State Unlimited General Obligation Refunding Bonds
Series 1993 4.80 1998 150,000 150,987
Total 737,605

Mississippi (1.3%)
Jackson Airport Authority Revenue Bonds
(AMBAC Insured) A.M.T. 6.25 2001-02 280,000 300,603

Missouri (1.0%)
Kansas City Water Revenue Bonds Series 1996B 5.75 1999 100,000 103,403
State Health & Educational Facility Authority
Hospital Revenue Bonds Series 1993A 4.50 2002 125,000 125,902
Total 229,305

Nevada (1.3%)
Clark County Special Improvement District 108
Local Improvement Bonds Series 1997 4.90 1999 200,000 201,562
Washoe County Limited General Obligation
Refunding Bonds Series 1993B (AMBAC Insured) 4.80 2000 100,000 101,724
Total 303,286

New Hampshire (0.4%)
State Business Finance Authority Resource
Recovery Revenue Bonds (MBIA Insured) 4.65 2001 100,000 101,216
New Mexico (2.2%)
Santa Fe Educational Facilities College
Revenue Improvement Refunding Bonds Series 1997 5.20 2003 235,000 240,565
Santa Fe Educational Facilities College
Revenue Improvement Refunding Bonds Series 1997 5.30 2004 245,000 251,625
Total 492,190

New York (7.0%)
New York City Individual Development Agency
Civilian Facilities Revenue Bonds Young Men's
Christian Association Greater New York 5.00 2002 300,000 302,715
New York City Unlimited General Obligation Bonds
Series 1996E 5.10 2002 20,000 20,432
New York City Unlimited General Obligation Bonds
Series 1997G 5.00 2000-2 300,000 305,499
State Dormitory Authority Federal Housing
Authority Insured Hospital Revenue Bonds
Series 1996 (AMBAC Insured) 5.00 2001 125,000 127,788
State Dormitory Authority Health Care Revenue Bonds
Mental Health Services Facilities Series 1997B 5.00 2002 500,000 511,970
State Environmental Facilities Corporation
Special Obligation Lease Refunding Revenue Bonds
Series 1996 (AMBAC Insured) 4.60 2001 200,000 202,646
State Urban Development Corporation Lease Revenue Bonds
Series 1996-97 5.00 2004 70,000 71,024
State Urban Development Correctional Facility
Sub Lien Revenue Bonds Series 1996 5.25 2002 30,000 31,099
Total 1,573,173

North Carolina (0.6%)
State Medical Care Community Hospital Revenue Bonds
Duke University Hospital Series 1996C 4.75 2004 30,000 30,606
Union City Unlimited General Obligation Bonds
Series 1996B (MBIA Insured) 5.25 2001 100,000 103,604
Total 134,210
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

North Dakota (0.5%)
Ward County Health Care Facility Revenue Bonds
<S> <C> <C> <C> <C> <C>
Series 1996A 5.40 2003 100,000 102,759

Ohio (1.4%)
Cleveland Cuyahoga County Port Authority
Refunding Revenue Bonds
Sub Rock & Roll Hall of Fame 5.10 2002 300,000 306,237

Oklahoma (1.3%)
Enid Municipal Authority Sales Tax & Utility
Refunding Revenue Bonds
Series 1996 (AMBAC Insured) 4.50 2000 250,000 251,685
Norman Hospital Authority Refunding Revenue Bonds
Series 1996A (MBIA Insured) 5.00 2004 30,000 30,864
Total 282,549

Oregon (0.3%)
Health Sciences University College Revenue Bonds
Series 1995A (MBIA Insured) 4.375 2002 60,000 60,283
Pennsylvania (5.8%)
Clarion County Hospital Authority
Hospital Refunding Revenue Bonds
Clarion Hospital Series 1997 4.60% 2000 200,000 199,750
Clarion County Hospital Authority
Hospital Refunding Revenue Bonds
Clarion Hospital Series 1997 4.75 2001 200,000 199,470
Commonwealth of Pennsylvania Unlimited General
Obligation Bonds 3rd Series 1993 4.50 2000 150,000 151,425
Cumberland County Municipal Authority
Nursing Home Revenue Bonds Series 1996 5.35 2003 125,000 126,390
Delaware County Industrial Development Authority
Pollution Control Refunding Revenue Bonds Series 1997A 5.30 2001 500,000 509,960
Philadelphia Independent Development Authority Lease
Revenue Bonds Series 1996A (MBIA Insured) 4.45 2001 70,000 70,475
Philadelphia Intergovernmental Cooperation Authority
Special Tax Revenue Bonds Series 1992 6.00 2002 40,000 42,520
Total 1,299,990

Rhode Island (0.9%)
State Refunding Certificates of Participation
Series 1997 (MBIA Insured) 4.70 2002 200,000 202,842

South Carolina (0.3%)
Pickens County School District Unlimited General
Obligation Bonds Series 1996A (FGIC Insured) 4.90 2006 70,000 71,360

South Dakota (0.7%)
Sioux Falls Sales Tax Revenue Bonds
Series 1996A (AMBAC Insured) 5.00 2004 150,000 154,800

Tennessee (2.3%)
Knox County Unlimited Tax General
Obligation Bonds Series 1997 4.45 2003 500,000 502,175
Memphis Unlimited General Obligation Bonds
Series 1992 4.80 1998 25,000 25,023
Total 527,198

Texas (9.7%)
Arlington Independent School District Unlimited
General Obligation Refunding & Improvement Bonds
Series 1995 Permanent School Fund Guarantee 6.50 2004 25,000 27,825
Austin Utility System Refunding Revenue Bonds
Series 1993 5.00 1999 300,000 304,050
Denison Hospital Authority Revenue Bonds Series 1997 5.45 2002 255,000 262,658
Houston Water & Sewer System Junior Lien
Refunding Revenue Bonds Series 1992C (MBIA Insured) 5.10 1999 100,000 102,005
Houston Water & Sewer System Prior Lien
Refunding Revenue Bonds Series 1992B (MBIA Insured) 5.75 2002 500,000 532,355
Houston Water & Sewer System Refunding Revenue Bonds
Series 1992B 5.25 1999 250,000 255,535
Hutto Independent School District Unlimited Tax
School Building & Refunding Bonds
Series 1997 Permanent School Fund Guarantee 4.40 2000 100,000 100,551
North Municipal Water District Solid Waste
Disposal Systems Revenue Bonds Series 1996
(AMBAC Insured) 4.90 2004 35,000 35,950
Trinity River Authority Wastewater System
Refunding Revenue Bonds Series A (AMBAC Insured) 5.10 2001 25,000 25,766
Tyler Health Facilities Development Hospital
Revenue Bonds Mother Frances Hospital Series 1997A 5.00 1999 200,000 201,114
University of Texas Permanent Fund College
Refunding Revenue Bonds Series 1996 4.50 1999 40,000 40,322
Webb County Certificates of Participation
Series 1997A Asset Guaranty 4.45 2000 300,000 301,176
Total 2,189,307

Utah (2.6%)
St. George Excise Tax Revenue Bonds
Series 1996 (AMBAC Insured) 4.05 1998 250,000 250,473
Salt Lake City College Revenue Bonds
Westminster College Series 1997 4.50 2000 185,000 185,381
Salt Lake City School District Unlimited General
Obligation Bonds Series 1995A 5.25 2001 150,000 154,971
Total 590,825

Virginia (1.3%)
Chesapeake Individual Development Authority Public Facility
Lease Revenue Bonds Series 1996 (MBIA Insured) 4.80 2003 100,000 102,134
State College Building Authority Educational
Facilities Revenue Bonds 21st Century College Program 5.00 1998 200,000 201,556
Total 303,690

Washington (1.4%)
State Public Power Supply System Nuclear Project 3
Refunding Revenue Bonds Series 1993B 5.15 2002 300,000 308,874

West Virginia (0.5%)
State Facility Authority Community Building
Series A (MBIA Insured) 5.00 2002 100,000 102,843

Wisconsin (2.4%)
Mequon Pre-Refunded Bond Anticipation Note Series 1996 4.10 1998 150,000 150,030
Milwaukee Unlimited General Obligation Bonds Series 1996F 4.50 2002 35,000 35,387
State Health & Educational Facilities Authority
Revenue Bonds Series 1996 (MBIA Insured) 4.75 2004 150,000 152,052
State Health & Educational Facilities Authority
Revenue Bonds Meriter Hospital Series 1996 4.45 1998 100,000 100,314
State Health & Educational Facilities Authority
Revenue Bonds Meriter Hospital Series 1996 4.65 1999 100,000 100,704
Total 538,487

Total municipal bonds
(Cost: $18,566,182) $18,811,911

See accompanying notes to investments in securities.

(This annual report is not part of the prospectus.)
</TABLE>

Short-term securities (16.4%)
Issuer Effective Amount Value(a)
(d,e) yield payable at
maturity
Municipal notes
Burke County Georgia Development Authority Pollution Control
Revenue Bonds Georgia Power Vogtle
<S> <C> <C> <C>
09-01-26 3.80% $600,000 $ 600,000
New York City Municipal Water Finance Authority
Series 1994C
06-15-23 3.85 100,000 100,000
Ohio State Air Quality Development Authority Revenue Bonds
Cincinnati Gas & Electric Series 1985 V.R.D.B.
12-01-15 4.00 300,000 300,000
Port Arthur Naval District of Jefferson Texas Pollution Control
Revenue Bonds Texaco
10-01-24 4.00 600,000 600,000
Regents of the University of Michigan Hospital Revenue Bonds
Series 1995A
12-01-27 3.90 1,000,000 1,000,000
Sabine River Texas Authority Pollution Control Revenue Bonds
Series A Texas Utilities
03-01-26 3.90 $500,000 500,000
Washoe County Nevada Water Facility Sierra Pacific
Series 1990 A.M.T.
12-01-20 4.10 600,000 600,000

Total short-term securities
(Cost: $3,700,000) $ 3,700,000

Total investment in securities
(Cost: $22,266,182) (f) $22,511,911

See accompanying notes to investments in securities.

(This annual report is not part of the prospectus.)
</TABLE>
<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 11-30-97 11-30-96

AAA 41% 36%
AA 15 29
A 11 30
BBB 26 3
BB and below 2 2
Non-rated 5 --

Total 100% 100%

AMBAC -- American Municipal Bond Association Corporation
FGIC -- Financial Guarantee Insurance Corporation
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
MBIA -- Municipal Bond Investors Assurance

(d) The following abbreviation is used in the portfolio descriptions:

A.M.T. -- Alternative Minimum Tax-- As of Nov. 30, 1997, the value of securities
subject to alternative minimum tax represented 12.1% of net assets.

(e) Interest rate varies to reflect current market conditions, rate shown is
effective rate on Nov. 30, 1997. The Fund is entitled to receive principal
amount from issuer or corporate guarantor, if indicated in parentheses, after a
day or week's notice. The maturity date disclosed represents the final maturity.
The following abbreviation is used in the portfolio descriptions:

V.R.D.B. -- Variable Rate Demand Bond

(f) At Nov. 30, 1997, the cost of securities for federal income tax purposes was
$22,266,182 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:

Unrealized appreciation.............................................$246,081
Unrealized depreciation.................................................(352)
----
Net unrealized appreciation.........................................$245,729

See accompanying notes to investments in securities.

(This annual report is not part of the prospectus.)

<PAGE>

Independent auditors' report

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,
1997, 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 then ended, and the financial highlights for each of the
years in the six-year period ended November 30, 1997, 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, 1997, 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 2, 1998

(This annual report is not part of the prospectus.)

Financial statements

Statement of assets and liabilities
IDS Tax Exempt Bond Fund
Nov. 30, 1997

Assets

Investments in securities, at value (Note 1)
<S> <C>
(identified cost $889,555,471) $1,009,140,996
Cash in bank on demand deposit 161,965
Accrued interest receivable 16,241,657
Receivable for investment securities sold 696,266
-------
Total assets 1,026,240,884
-------------

Liabilities

Dividends payable to shareholders 422,636
Payable for investment securities purchased 3,516,178
Accrued investment management services fee 25,163
Accrued distribution fee 1,000
Accrued service fee 9,797
Accrued transfer agency fee 2,387
Accrued administrative services fee 2,233
Other accrued expenses 55,740
------
Total liabilities 4,035,134
---------
Net assets applicable to outstanding capital stock $1,022,205,750
==============

Represented by

Capital stock-- of $.01 par value (Note 1) $ 2,489,728
Additional paid-in capital 935,734,414
Undistributed net investment income 182,753
Accumulated net realized gain (loss) (Note 5) (35,786,670)
Unrealized appreciation (depreciation) on investments 119,585,525
-----------
Total-- representing net assets applicable to outstanding capital stock $1,022,205,750
==============
Net assets applicable to outstanding shares: Class A $ 997,628,611
Class B $ 24,566,751
Class Y $ 10,388
Net asset value per share of outstanding capital stock: Class A shares 242,987,712 $ 4.11
Class B shares 5,982,562 $ 4.11
Class Y shares 2,530 $ 4.11

See accompanying notes to financial statements.

(This annual report is not part of the prospectus.)
</TABLE>

Statement of operations
IDS Tax Exempt Bond Fund
Year ended Nov. 30, 1997

Investment income

Income:
<S> <C>
Interest $60,913,244
-----------
Expenses (Note 2):
Investment management services fee 4,632,571
Distribution fee-- Class B 161,253
Transfer agency fee 456,380
Incremental transfer agency fee-- Class B 1,097
Service fee
Class A 1,732,696
Class B 37,337
Class Y 6
Administrative services fees and expenses 427,708
Compensation of board members 16,594
Compensation of officers 804
Custodian fees 55,163
Postage 68,088
Registration fees 64,692
Reports to shareholders 8,385
Audit fees 35,000
Other 6,544
-----
Total expenses 7,704,318
Earnings credits on cash balances (Note 2) (163,220)
--------
Total net expenses 7,541,098
---------
Investment income (loss) -- net 53,372,146
----------

Realized and unrealized gain (loss) -- net

Net realized gain (loss) on:
Security transactions (Note 3) 8,773,720
Financial futures contracts (3,865,475)
----------
Net realized gain (loss) on investments 4,908,245
Net change in unrealized appreciation (depreciation) on investments 18,124,449
Net gain (loss) on investments 23,032,694
Net increase (decrease) in net assets resulting from operations $76,404,840

See accompanying notes to financial statements.

(This annual report is not part of the prospectus.)
</TABLE>

Financial statements

Statements of changes in net assets
IDS Tax Exempt Bond Fund
Year ended Nov. 30,

Operations and distributions 1997 1996

<S> <C> <C>
Investment income (loss)-- net $ 53,372,146 $ 57,320,335
Net realized gain (loss) on investments 4,908,245 3,923,552
Net change in unrealized appreciation (depreciation) on investments 18,124,449 (19,137,045)
---------- -----------
Net increase (decrease) in net assets resulting from operations 76,404,840 42,106,842
---------- ----------
Distributions to shareholders from:
Net investment income
Class A (52,470,173) (56,736,844)
Class B (952,585) (763,420)
Class Y (522) (493)
---- ----
Total distributions (53,423,280) (57,500,757)
----------- -----------

Capital share transactions (Note 4)

Proceeds from sales
Class A shares (Note 2) 52,223,529 83,652,708
Class B shares 7,592,260 8,693,815
Reinvestment of distributions at net asset value
Class A shares 35,670,478 38,617,746
Class B shares 796,513 649,236
Class Y shares 522 493
Payments for redemptions
Class A shares (180,159,766) (201,981,153)
Class B shares (Note 2) (4,187,660) (3,055,212)
---------- ----------
Increase (decrease) in net assets from capital share transactions (88,064,124) (73,422,367)
----------- -----------
Total increase (decrease) in net assets (65,082,564) (88,816,282)
Net assets at beginning of year 1,087,288,314 1,176,104,596
------------- -------------
Net assets at end of year $1,022,205,750 $1,087,288,314
============== ==============
Undistributed net investment income $ 182,753 $ 87,424
-------------- --------------

See accompanying notes to financial statements.

</TABLE>

<PAGE>

Notes to financial statements

IDS Tax-Exempt Bond Fund

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 shares during the
ninth calendar year of ownership. Class Y shares have no sales charge and
are offered only to qualifying institutional investors.

Significant accounting policies followed by the Fund are summarized below:

Use of estimates

Valuation of securities

All securities are valued at the close of each business day. Securities
traded on national securities exchanges or included in national market
systems are valued at the last quoted sale price. Debt securities are
generally traded in the over-the-counter market and are valued at a price
deemed best to reflect fair value as quoted by dealers who make markets in
these securities or by an independent pricing service. Securities for
which market quotations are not readily available are valued at fair value
according to methods selected in good faith by the board. Short-term
securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current
interest rates; those maturing in 60 days or less are valued at amortized
cost.

Option transactions

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

Federal taxes

On the statement of assets and liabilities, as a result of permanent
book-to-tax differences, undistributed net investment income has been
increased by $146,463, and accumulated net realized loss has been
increased by $146,463.

Dividends to shareholders

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.

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 a separate Transfer Agency Agreement, American Express Client
Service Corporation (AECSC) maintains shareholder accounts and records.
The Fund pays AECSC 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.

Sales charges by American Express Financial Advisors Inc. for distributing
Fund shares were $872,100 for Class A and $37,175 for Class B for the year
ended Nov. 30, 1997.

During the year ended Nov. 30, 1997, the Fund's custodian and transfer
agency fees were reduced by $163,220 as a result of earnings credits from
overnight cash balances.

Securities
transactions

Cost of purchases and proceeds from sales of securities (other than
short-term obligations) aggregated $191,697,780 and $263,021,259,
respectively, for the year ended Nov. 30, 1997. Realized gains and losses
are determined on an identified cost basis.

Capital share
transactions

Transactions in shares of capital stock for the years indicated are as
follows:

Year ended Nov. 30, 1997
Class A Class B Class Y

Sold 13,009,697 1,888,443 --

Issued for reinvested
distributions 8,904,140 198,576 130

Redeemed (44,990,511) (1,043,800) --
----------- ---------- ----

Net increase (decrease) (23,076,674) 1,043,219 130

Year ended Nov. 30, 1996
Class A Class B Class Y

Sold 21,003,086 2,184,310 --

Issued for reinvested
distributions 9,722,609 163,650 125

Redeemed (50,899,679) (771,956) --
----------- -------- ----

Net increase (decrease) (20,173,984) 1,576,004 125

Capital loss
carryover

For federal income tax purposes, the Fund has a capital loss carryover of
$12,085,373 at Nov. 30, 1997 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.

Financial
highlights

"Financial highlights" showing per share data and selected information is
presented on pages 7 and 8 of the prospectus.

(This annual report is not part of the prospectus.)

Investments in securities

IDS Tax-Exempt Bond Fund (Percentages represent
Nov. 30, 1997 value of investments
compared to net assets)

Municipal bonds (94.3%)
Name of issuer and Coupon Maturity Principal Value(a)
title of issue (b,c) rate year amount

Alabama (0.4%)
Mobile Industrial Development Board Solid Waste
Refunding Revenue Bonds
<S> <C> <C> <C> <C>
Mobile Energy Services 6.95 % 2020 $ 3,750,000 $ 4,111,687

Alaska (0.6%)
North Slope Borough General Obligation Bonds Zero Coupon
Series 1994B (CGIC Insured) 7.05 2004 3,000,000(d) 2,207,520
North Slope Borough General Obligation Bonds Zero Coupon
Series 1994B (CGIC Insured) 7.15 2005 3,000,000(d) 2,091,540
State Housing Finance Veterans Mortgage
Corporation Collateralized Bonds Series 1990
(GNMA Insured) 7.50 2030 2,305,000 2,432,397
Total 6,731,457

Arizona (4.0%)
Maricopa County Industrial Development Authority
Multi-family Housing Revenue Bonds Series A 6.625 2026 2,500,000 2,657,275
Phoenix Industrial Development Authority Refunding
Revenue Bonds Christian Care Apartments 6.25 2016 2,000,000 2,086,440
Phoenix Industrial Development Authority Single
Family Mortgage Revenue Capital Appreciation Bonds
Zero Coupon Escrowed to Maturity 6.74 2014 39,000,000(d) 16,020,420
Phoenix Junior Lien Street & Highway User
Refunding Revenue Bonds Series 1992 6.25 2011 10,350,000 11,150,055
Tucson Street & Highway User Pre-Refunded
Revenue Bonds Series 1991B 6.25 2010 8,250,000 8,745,330
Total 40,659,520

California (8.5%)
Anaheim Public Finance Authority Capital
Appreciation Improvement Revenue Bonds
Zero Coupon Series 1997C9 (FSA Insured) 5.72 2017 9,195,000(d) 3,227,261
Foothill/Eastern Transportation Corridor Agency
Toll Road Revenue Bonds Series 1995A 5.00 2035 12,000,000 11,001,360
Los Angeles County Certificate of Participation
Pre-Refunded Bonds 6.71 2015 3,600,000 3,803,760
Los Angeles International Airport Regional Airports
Improvement Corporation Refunding
Revenue Bonds Delta Airlines 6.35 2025 5,000,000 5,393,650
Orange County Certificate of Participation
Civic Center Facility Capital Appreciation
Refunding Bonds Zero Coupon (AMBAC Insured) 6.75 2018 13,795,000(d) 4,439,645
Sacramento Cogeneration Authority Revenue Bonds
Proctor & Gamble Series 1995 6.50 2014 5,000,000 5,421,550
Sacramento Power Authority Cogeneration
Revenue Bonds Campbell Soup Series 1995 6.00 2022 2,700,000 2,811,537
San Joaquin Hills Transportation Corridor Agency
Capital Appreciation Toll Road Refunding
Revenue Bonds Zero Coupon Series 1997A
(MBIA Insured) 5.55 2026 9,000,000(d) 1,977,570
San Jose Redevelopment Agency Merged Area
Redevelopment Tax Allocation Bonds
Series 1993 (MBIA Insured) 4.75 2024 9,000,000 8,248,770
Southern California Public Power Authority
Revenue Bonds Mead Adelanto Series A
(AMBAC Insured) 4.875 2020 6,590,000 6,190,317
State Public Works Board California Community
Colleges Lease Pre-Refunded Revenue Bonds
Series 1994B 7.00 2019 3,900,000 4,543,539
State Public Works Board University of California
Lease Refunding Revenue Bonds
Series A (AMBAC Insured) 5.00 2023 6,000,000 5,653,860
State Public Works Board University of California
Lease Refunding Revenue Bonds
Series A (AMBAC Insured) 5.50 2014 7,275,000 7,588,771
Statewide Community Development Authority
Insurance Certificate of Participation
Childrens Hospital of Los Angeles
Revenue Bonds (MBIA Insured) 4.75 2021 5,250,000 4,811,677
Ukiah Unified School District Building
Mendocino County Certificate of Participation
Series 1993 6.00 2010 3,790,000 3,934,323
Upland Certificate of Participation
San Antonio Community Hospital 5.00 2018 2,745,000 2,585,570
West Covina Redevelopment Agency Community
Facilities District Special Tax Refunding Bonds
Series 1996 6.00 2017 5,000,000 5,437,850
Total 87,071,010

Colorado (1.7%)
Arapahoe County Public Highway Authority Capital
Improvement Trust Fund E-470 Highway
Pre-Refunded Revenue Bonds 7.00 2026 5,685,000 6,735,304
Castle Rock Ranch Improvement Public Facility
Revenue Bonds Series 1996 6.375 2011 5,750,000 6,373,817
Colorado Health Facility Authority Hospital
Improvement Refunding Revenue Bonds
Parkview Episcopal Medical Center Series 1995 6.00 2016 4,000,000 4,118,640
Total 17,227,761

Connecticut (0.9%)
State General Obligation Bonds Series 1992A 6.40 2006 8,000,000 8,749,040

Delaware (0.2%)
State University Revenue Bonds Series 1989 6.00 2014 2,000,000 2,035,820

District of Columbia (2.3%)
District of Columbia Redevelopment
Limited Agency Special Tax Revenue Bonds
Sports Arena Series 1996 5.625 2010 1,890,000 1,906,330
General Obligation Bonds Zero Coupon
Series 1994B (MBIA Insured) 6.59 2013 23,945,000(d) 10,526,940
General Obligation Bonds Zero Coupon
Series 1994B (MBIA Insured) 6.64 2014 26,415,000(d) 10,995,772
Total 23,429,042

Florida (3.3%)
Duvall County Housing Authority Single Family
Mortgage Refunding Revenue Bonds
Series 1991 (FGIC Insured) 7.35 2024 3,430,000 3,660,427
Jacksonville Excise Taxes Refunding
Revenue Bonds Series 1992 (AMBAC Insured) 6.50 2008 5,000,000 5,527,100
St. John's River Water Management District
Land Acquisition Pre-Refunded Revenue Bonds
Series 1989 (AMBAC Insured) 6.00 2009 7,000,000 7,216,790
State Board of Education Administration Capital
Outlay Public Education Pre-Refunded Bonds
Series 1991C 6.50 2008-09 11,225,000 12,344,133
Village Center Community Development District 12
Lake County Recreational Revenue Bonds
Anticipation Notes Series 1996 6.50 2000 4,945,000 4,972,741
Total 33,721,191

Georgia (2.9%)
Municipal Electric Authority Pre-Refunded
Revenue Bonds Series 1989T 6.50 2025 5,000,000 5,138,700
Municipal Electric Authority Special
Obligation Bonds Project 1 4th Crossover Series X
(Secondary MBIA Insured) 6.50 2020 19,550,000 22,935,278
Richmond County Development Authority
Revenue Bonds Zero Coupon
Escrowed to Maturity 5.74 2021 7,880,000(d) 2,151,949
Total 30,225,927

Hawaii (0.6%)
City & County of Honolulu General Obligation
Pre-Refunded Bonds Series 1992A 6.30 2006 5,880,000 6,452,536
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Idaho (0.4%)
Health Facilities Authority Revenue Bonds
<S> <C> <C> <C> <C>
Bannock Regional Medical Center Series 1995 6.125 2025 2,250,000 2,315,362
Health Facilities Authority Revenue Bonds
Bannock Regional Medical Center Series 1995 6.375 2017 1,450,000 1,526,053
Total 3,841,415

Illinois (9.1%)
Alton Madison County Hospital Facility
Refunding Revenue Bonds
St. Anthony's Health Center Series 1996 6.00 2010-14 4,740,000 4,833,317
Cook & Will Counties TWP High School
District 206 Capital Appreciation Bonds
Zero Coupon Series 1994C (AMBAC Insured) 6.55 2010 2,605,000(d) 1,332,562
Cook County School District 170 Chicago Heights
Capital Appreciation Pre-Refunded Bonds
Zero Coupon Series 1994C (AMBAC Insured) 6.50 2009 2,155,000(d) 1,190,961
Cook County School District 170 Chicago Heights
Capital Appreciation Bonds
Zero Coupon Series 1994C (AMBAC Insured) 6.55 2010 2,155,000(d) 1,119,285
Cook County Unlimited Tax General Obligation
Pre-Refunded Bonds Series 1989 6.50 2009 5,800,000 6,057,114
Development Finance Authority Pollution Control
Refunding Revenue Bonds
Illinois Power Series 1991A 7.375 2021 10,000,000 11,523,900
Development Finance Authority Retirement Housing
Revenue Bonds Zero Coupon Escrowed to Maturity 7.75 2020 13,745,000(d) 4,010,654
Educational Facilities Authority
Medium-term College Revenue Bonds
Northwestern University Series 1997 5.20 2032 3,500,000 3,514,945
Educational Facilities Authority Revenue Bonds
Lewis University Series 1996 6.10 2016 2,005,000 2,080,508
Educational Facilities Revenue Bonds
Columbian College 6.125 2018 3,015,000 3,073,189
Educational Facilities Revenue Bonds
Columbian College 6.875 2017 2,760,000 2,945,224
Health Facilities Authority Refunding Revenue Bonds
Edwards Hospital Series 1993A 6.00 2019 3,055,000 3,124,196
Health Facilities Authority Refunding Revenue Bonds
Masonic Medical Center Series 1993 5.50 2019 5,000,000 4,949,450
Health Facilities Authority
Sarah Bush Lincoln Health Center
Hospital Refunding Revenue Bonds Series 1996B 5.50 2016 5,490,000 5,445,860
Metropolitan Pier & Exposition Authority
Dedicated State Tax Capital Appreciation
Revenue Bonds Zero Coupon Series A
(FGIC Insured) 6.54 2021 5,000,000(d) 1,422,550
Metroplitan Pier & Exposition Authority
Dedicated State Tax Capital Appreciation
Refunding Revenue Bonds McCormick Place
Zero Coupon Series 1994 (MBIA Insured) 5.70 2020 3,070,000(d) 921,338
Metropolitan Pier & Exposition Authority
McCormick Place Expansion Bonds
Zero Coupon Series A (FGIC Insured) 6.64 2010 11,000,000(d) 5,797,660
Metropolitan Pier & Exposition Authority
McCormick Place Expansion Bonds
Zero Coupon Series A (FGIC Insured) 6.80 2016 9,000,000(d) 3,362,130
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 24,595,335
State Development Finance Authority Regency Park
Retirement Housing Revenue Bonds Zero Coupon
Series 1991B Escrowed to Maturity 6.50 2025 10,000,000(d) 2,185,700
Total 93,485,878

Indiana (2.7%)
Health Facilities Financial Authority Hospital
Revenue Bonds Hancock Series 1996 6.00 2010 3,260,000 3,358,648
Municipal Power Agency Power Supply System
Pre-Refunded Revenue Bonds Series 1989A
(AMBAC Insured) 6.50 2016 8,800,000 9,212,896
Seymour Economic Development Revenue Bonds
Union Camp Series 1992 6.25 2012 2,870,000 3,184,695
Transportation Finance Authority Highway
Revenue Bonds Series 1990A 7.25 2015 10,000,000 12,363,800
Total 28,120,039

Iowa (0.4%)
State Finance Authority Single Family
Mortgage-Backed Securities Program Bonds
Series 1991A 7.25 2016 3,490,000 3,693,397

Kentucky (0.8%)
Muhlenberg County Hospital
Refunding Revenue Bonds
Muhlenberg Community Hospital Series 1996 6.75 2010 3,985,000 4,140,176
Owensboro Electric Light & Power
Refunding Revenue Bonds
Zero Coupon Series B (AMBAC Insured) 6.65 2015 9,125,000(d) 3,756,945
Total 7,897,121

Louisiana (2.4%)
Industrial Development Board of Bastrop Percent
Pollution Control Refunding Revenue Bonds
International Paper Company Series 1992A 6.90 2007 6,875,000 7,566,144
New Orleans Capital Appreciation Refunding
Revenue Bonds Zero Coupon (AMBAC Insured) 6.63 2012 6,250,000(d) 2,942,563
New Orleans Home Mortgage Authority
Special Obligation Refunding Bonds
Series 1992 Escrowed to Maturity 6.25 2011 9,000,000 9,981,180
Public Facilities Authority College Revenue Bonds
Series 1997 5.90 2017 1,000,000 1,016,270
Public Facilities Authority Revenue Bonds
Windsor Multi-family Housing Foundation
Series 1996A 6.125 2015 3,385,000 2,966,986
Total 24,473,143

Maryland (2.7%)
Health & Educational Facility Authority
Revenue Bonds Frederick Memorial Hospital
Series 1993 (FGIC Insured) 5.00 2028 10,000,000 9,665,200
State Community Development Administration
Department of Housing & Community
Development Single Family Program Bonds
1st Series 1991 7.30 2017 10,500,000 11,088,735
State Health & Higher Educational Facility Authority
Revenue Bonds Anne Arndel Medical Center
(AMBAC Insured) 5.00 2023 7,000,000 6,783,560
Total 27,537,495

Massachusetts (1.8%)
Health & Educational Facilities Authority
Revenue Bonds Valley Regional Health System
Series C (Connie Lee Insured) 5.75 2018 3,500,000 3,612,245
Health & Educational Facilities Authority
Revenue Bonds Melrose-Wakefield Hospital
Series 1992B 6.375 2016 1,430,000 1,514,942
Industrial Finance Agency Hampshire College
Revenue Bonds Series 1997 5.80 2017 2,200,000 2,214,806
Municipal Wholesale Electric Power Supply System
Pre-Refunded Revenue Bonds Series 1992B 6.75 2017 10,000,000 11,175,000
Total 18,516,993

Michigan (2.5%)
Battle Creek Calhoun County Downtown
Development Authority Pre-Refunded Bonds
Series 1994 7.65 2022 3,750,000 4,449,675
Detroit Downtown Development Authority
Area Project 1 Junior Lien Tax Increment
Refunding Bonds Series 1996D 6.50 2025 6,000,000 6,367,560
Detroit Water Supply System Refunding
Revenue Bonds
Series 1992 (FGIC Insured) 6.25 2007 2,000,000 2,172,760
State Hospital Finance Authority
Refunding Revenue Bonds
Central Michigan Community Hospital 6.25 2016 2,225,000 2,320,920
State Hospital Finance Authority
Refunding Revenue Bonds
Presbyterian Villages Obligated Group Series 1995 6.50 2025 1,000,000 1,045,070
State Hospital Finance Authority Refunding
Revenue Bonds Presbyterian Villages Series 1997 6.375 2015 400,000 416,932
State Hospital Finance Authority
Refunding Revenue Bonds
Sinai Hospital of Greater Detroit Series 1995 6.625 2016 2,000,000 2,194,440
State Hospital Finance Authority Revenue Bonds
Presbyterian Villages of Michigan
Obligated Group Series 1995 6.40 2015 1,000,000 1,041,410
State Strategic Fund Limited Tax Obligation
Refunding Revenue Bonds Ford Motor
Series 1991A 7.10 2006 5,000,000 5,868,600
Total 25,877,367

Minnesota (2.9%)
Minneapolis & St. Paul Housing & Redevelopment
Authority Health Care System Series 1990A
(MBIA Insured) 7.40 2005 4,500,000 4,933,530
Rochester Health Care Facility Revenue Bonds
Mayo Foundation Series A 4.95 2019 15,000,000 14,066,250
State Housing Finance Agency Single Family
Mortgage Bonds Series 1990C (FHA Insured) 7.70 2014 2,080,000 2,191,072
State Housing Finance Agency Single Family
Mortgage Revenue Bonds Series 1988E 7.65 2014 5,515,000 5,719,000
Washington County Housing & Redevelopment
Authority Refunding Revenue Bonds
Woodbury Multi-family Housing Series 1996 6.95 2023 2,475,000 2,522,619
Total 29,432,471

Missouri (1.0%)
Regional Convention & Sports Complex Authority
Pre-Refunded Bonds St. Louis Sponsor
Series 1991C 7.90 2021 8,500,000 9,969,257

Nevada (0.4%)
Clark County Special Improvement District 108
Local Improvement Bonds Series 1997 6.50 2012 4,440,000 4,571,335

New Hampshire (0.1%)
Higher Education & Health Facilities
Authority College Revenue Bonds
New Hampshire College Series 1997 6.375 2027 1,000,000 1,042,330
</TABLE>
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<CAPTION>

New Jersey (1.7%)
<S> <C> <C> <C> <C>
Turnpike Authority Revenue Bonds Series 1991C 6.50 2005 16,000,000 17,060,160

New Mexico (0.1%)
Santa Fe Education Facilities College Improvement
Refunding Revenue Bonds Series 1997 5.875 2021 1,000,000 1,010,700

New York (10.0%)
Dormitory Authority New York City Court
Facility Lease Revenue Bonds Series 1993A 5.25 2021 20,000,000 19,091,600
Dormitory Authority New York City
University System Consolidated 2nd Generation
Resource Revenue Bonds Series 1994A 5.75 2018 5,500,000 5,786,385
Dormitory Authority New York State
Department of Health
Refunding Revenue Bonds 5.50 2020 3,060,000 3,020,863
New York City General Obligation Bonds Series B 6.75 2017 11,150,000 12,191,187
New York City General Obligation Bonds
Series 1995B 7.00 2016 8,850,000 10,008,819
State Medical Care Facility Finance Agency
Mental Health Services Facility Improvement
Refunding Revenue Bonds Series 1993F 5.375 2014 7,510,000 7,473,201
State Mortgage Agency Homeowner
Mortgage Revenue Bonds Series TT 7.50 2015 15,945,000 17,150,442
State Urban Development Correctional Capital
Facilities Refunding Revenue Bonds Series 1993A 5.25 2021 5,000,000 4,780,750
State Urban Development Correctional Capital
Facilities Revenue Bonds Series 4 5.375 2023 23,815,000 23,096,263
Total 102,599,510

North Carolina (3.9%)
Eastern Municipal Power Agency Power System
Refunding Revenue Bonds Series 1989A 6.50 2024 20,000,000 20,294,600
Eastern Municipal Power Agency System
Revenue Bonds Series D 5.60 2016 6,500,000 6,492,265
Eastern Municipal Power Agency System
Revenue Bonds Series G 5.75 2016 12,750,000 12,932,580
Total 39,719,445

North Dakota (0.4%)
Ward County Health Care Facilities
Refunding Revenue Bonds Series 1996B 6.25 2021 4,365,000 4,527,334

Ohio (0.9%)
Air Quality Development Authority
Pollution Control Refunding Revenue Bonds
Ohio Edison Series A 5.95 2029 5,000,000 5,115,600
Columbus Sewerage System
Refunding Revenue Bonds Series 1992 6.30 2005 3,500,000 3,810,100
State Water & Air Quality Development Authority
Pollution Control Refunding Revenue Bonds
Cleveland Electric Illuminating Series 1995 7.70 2025 300,000 343,266
Total 9,268,966

Oklahoma (0.4%)
Stillwater Medical Center Authority
Hospital Revenue Bonds Series 1997B 6.35 2012 1,000,000 1,062,790
Valley View Hospital Authority
Refunding Revenue Bonds Series 1996 6.00 2014 2,695,000 2,782,884
Total 3,845,674

Pennsylvania (4.1%)
Allegheny County Industrial Development
Authority Environmental Improvement
Refunding Revenue Bonds Series 1996 6.00 2014 3,500,000 3,649,905
Delaware County Industrial Development Authority
Pollution Control Refunding Revenue Bonds
Philadelphia Electric Series A 7.375 2021 23,540,000 25,674,372
Delaware County Industrial Development Authority
Pollution Control Refunding Revenue Bonds
Series 1997A 6.10 2013 4,000,000 4,257,000
Higher Education Facilities Authority
College Revenue Bonds Series 1997 5.85 2017 1,480,000 1,524,977
Montgomery County Industrial Development Authority
Retirement Community Revenue Bonds
Series 1996B 5.625 2012 4,000,000 4,070,320
Philadelphia Hospital & Higher Education Facility
Authority Hospital Revenue Bonds
Friends Hospital Series 1993 6.20 2011 2,500,000 2,593,050
Total 41,769,624

Rhode Island (0.2%)
Providence Special Tax Increment Obligation Bonds
Series D 6.65 2016 1,500,000 1,604,145

South Carolina (0.4%)
Horry County Hospital Refunding Revenue Bonds
Conway Hospital Series 1992 6.75 2012 4,000,000 4,276,040

Tennessee (0.2%)
Nashville & Davidson Counties Health & Education
Facilities Board Revenue Bonds
Zero Coupon Escrowed to Maturity 5.71 2021 7,500,000(d) 2,104,275

Texas (12.5%)
Austin Utility System Capital Appreciation
Refunding Revenue Bonds
Zero Coupon (AMBAC Insured) 6.51 2010 5,055,000(d) 2,608,178
Austin Utility System Capital Appreciation
Refunding Revenue Bonds
Zero Coupon (MBIA Insured) 6.65 2010 16,000,000(d) 8,255,360
Austin Utility System Combined Utility
Refunding Revenue Bonds
Series 1992 (AMBAC Insured) 6.25 2006 10,500,000 11,433,345
Coastal Water Authority Water Conveyance System
Refunding Revenue Bonds
Series 1991 Escrowed to Maturity
(AMBAC Insured) 6.25 2017 5,000,000 5,469,200
Cypress-Fairbanks Independent School District
Harris County Unlimited Tax Schoolhouse
Pre-Refunded Bonds Series 1990 (FGIC Insured) 6.50 2008 1,500,000 1,590,225
Harris County Health Facilities Development
Hermann Hospital Revenue Bonds (MBIA Insured) 6.375 2024 8,820,000 9,529,745
Houston Water & Sewer System Junior Lien
Refunding Revenue Bonds
Zero Coupon Series C (AMBAC Insured) 6.60 2008 8,000,000(d) 4,660,000
Municipal Power Agency Capital Appreciation
Refunding Revenue Bonds
Zero Coupon (AMBAC Insured) 6.90 2009 18,000,000(d) 9,990,720
Northwest Independent School District
Unlimited Tax General Obligation Capital
Appreciation Refunding Revenue Bonds Zero Coupon
Series 1997 Permanent School Fund Guaranty 6.23 2017 3,000,000(d) 959,730
San Antonio Electric & Gas Systems
Refunding Revenue Bonds Series 1989 6.00 2014 6,000,000 6,175,020
San Antonio Electric & Gas Systems
Refunding Revenue Bonds Series 1989-89A 6.50 2012 26,250,000 27,233,588
San Antonio Water Refunding Revenue Bonds
(FGIC Insured) 6.40 2007 25,000,000 27,268,500
State Public Property Financial Corporation
Lease Revenue Bonds Texas Mental Health
Series 1996 6.20 2016 2,340,000 2,450,331
Turnpike Authority Dallas North Tollway
Pre-Refunded Revenue Bonds Series 1990
(AMBAC Insured) 6.00 2020 10,000,000 10,224,500
Total 127,848,442

Utah (0.1%)
Salt Lake City College Revenue Bonds
Westminster College Series 1997 5.75 2027 1,000,000 1,007,940

Virginia (0.7%)
Augusta County Industrial Development Authority
Hospital Refunding Revenue Bonds
Augusta Hospital Series 1993 (AMBAC Insured) 5.125 2021 3,600,000 3,486,780
Fairfax County Water Authority
Refunding Revenue Bonds Series 1997 5.00 2021 3,750,000 3,649,013
Total 7,135,793

Washington (4.7%)
Auburn School District 408 King County
Unlimited Tax General Obligation Bonds
Series 1992A 6.375 2006 8,000,000 8,999,920
Issaquah School District 411 King County
Unlimited Tax General Obligation Refunding Bonds
Series 1992 6.375 2008 16,675,000 19,069,530
King County Housing Authority Pooled Housing
Refunding Revenue Bonds Series 1995A 6.80 2026 2,500,000 2,647,475
Public Power Supply System Nuclear Project 1
Pre-Refunded Revenue Bonds Series 1989A 6.00 2017 12,130,000 12,484,924
Public Power Supply System Nuclear Project 3
Capital Appreciation Refunding Revenue Bonds
Zero Coupon Series B (MBIA Insured) 6.61 2013 10,360,000(d) 4,493,443
Total 47,695,292

West Virginia (1.0%)
School Building Authority Capital Improvement
Pre-Refunded Revenue Bonds Series 1990B
(MBIA Insured) 6.00 2020 9,730,000 10,179,721

Wyoming (0.4%)
Community Development Authority Single Family
Mortgage Bonds Series 1991
Federally Insured or Guaranteed Mortgage Loan 7.40 2031 3,510,000 3,714,703

Total municipal bonds
(Cost: $844,655,471) $964,240,996

See accompanying notes to investments in securities.

(This annual report is not part of the prospectus.)

</TABLE>

Short-term securities (4.4%)
Issuer (c,e) Effective Amount Value(a)
yield payable at
maturity
Municipal notes
Burke County Georgia Development Authority Pollution Control
Revenue Bonds Georgia Power Vogtle 3rd Series
<S> <C> <C> <C>
09-01-25 3.80% $2,400,000 $ 2,400,000
Farmington Minnesota Pollution Control Revenue Bonds
Public Services Series B V.R.
05-01-24 3.80 4,700,000 4,700,000
Harris County Texas Health Facilities Development
Hospital Revenue Bonds Methodist Hospital V.R.
12-01-25 3.85 5,500,000 5,500,000
Missouri Health & Education Facilities Authority
Washington University Series A (MBIA Insured)
09-01-30 3.95 3,600,000 3,600,000
New York City Government Obligation Bonds Series 1995B
08-15-23 3.85 7,400,000 7,400,000
New York City Municipal Water Finance Authority
Water & Sewer System Revenue Bonds Series A
06-15-25 4.00 6,200,000 6,200,000
Perry County Mississippi Pollution Control Revenue Bonds
Leaf River V.R.
03-01-02 3.90 3,200,000 3,200,000
Port Arthur Naval District of Jefferson Texas
Pollution Control Revenue Bonds Texaco
10-01-24 4.00 800,000 800,000
Putnam County Georgia Development Authority Pollution Control
Revenue Bonds Georgia Power 2nd Series
09-01-29 3.85 1,800,000 1,800,000
Regents of the University of Michigan Hospital Revenue Bonds
Series 1995A
12-01-27 3.90 2,200,000 2,200,000
Unita County Wyoming Pollution Control Revenue Bonds
Chevron USA V.R.
12-01-22 3.85 1,600,000 1,600,000
Valdez Alaska Marine Term Exxon Pipeline
Series 1985 V.R.
10-01-25 3.90 5,500,000 5,500,000

Total short-term securities
(Cost: $44,900,000) $ 44,900,000

Total investments in securities
(Cost: $889,555,471)(f) $1,009,140,996

See accompanying notes to investments in securities.

(This annual report is not part of the prospectus.)
</TABLE>

<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 11-30-97 11-30-96

AAA 44% 36%

AA 15 15

A 10 13

BBB 31 36

BB and below -- --

Non-rated -- --

Total 100% 100%

AMBAC -- American Municipal Bond Association Corporation

BIG -- Bond Investors Guarantee

CGIC -- Capital Guaranty Insurance Company

FGIC -- Financial Guarantee Insurance Corporation

FHA -- Federal Housing Authority

FSA -- Financial Security Assurance

GNMA -- Government National Mortgage Association

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) The Fund is entitled to receive principal amount from issuer or corporate
guarantor, if indicated in parentheses, after a day or a week's notice. The
maturity date disclosed represents the final maturity. Interest rate varies to
reflect current market conditions; rates shown are the effective rates on Nov.
30, 1997. The following abbreviation is used in the portfolio description:

V.R. -- Variable Rate

(f) At Nov. 30, 1997, the cost of securities for federal income tax purposes was
$888,154,898 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:

Unrealized appreciation.........................................$121,404,112
Unrealized depreciation.............................................(418,014)
--------
Net unrealized appreciation.....................................$120,986,098

(This annual report is not part of the prospectus.)

<PAGE>
PART A. Registrant's effective prospectus to this registration
statement is hereby incorporated by reference.

PART B. Registrant's effective statement of additional information
for this registration statement is hereby incorporated by reference.

PART C. OTHER INFORMATION

Item 24. Financial Statements and Exhibits.

(a) FINANCIAL STATEMENTS:

List of financial statements filed as part of this Post-Effective
Amendment to the Registration Statement:

For IDS Tax-Exempt Bond Fund
o Independent Auditors' Report dated Jan. 2, 1998
o Statement of Assets and Liabilities, Nov. 30, 1997
o Statement of Operations, Year ended Nov. 30, 1997
o Statement of Changes in Net Assets, for the two-year
period ended Nov. 30, 1996 and Nov. 30, 1997
o Notes to Financial Statements
o Investments in Securities, Nov. 30, 1997
o Notes to Investments in Securities

For IDS Intermediate Tax-Exempt Fund
o Independent Auditors' Report dated Jan. 2, 1998
o Statement of Assets and Liabilities, Nov. 30, 1997
o Statement of Operations, Year ended Nov. 30, 1997
o Statement of Changes in Net Assets, for year ended
Nov. 30, 1997 and the period from Nov. 13, 1996
to Nov. 30, 1996
o Notes to Financial Statements
o Investments in Securities, Nov. 30, 1997
o Notes to Investments in Securities

(b) EXHIBITS:

1. Copy of Articles of Incorporation amended October 17, 1988, filed as
Exhibit 1 to Post-Effective Amendment No. 23 to this Registration
Statement, is herein incorporated by reference.

2. Copy of By-Laws as amended June 14, 1987, filed as Exhibit 2 to
Post-Effective Amendment No. 20 to this Registration Statement, is
herein incorporated by reference.

3. Not Applicable.

4. Form of Stock certificate, filed as Exhibit 4 to Registrant's
Registration Statement No. 2-57382 on September 30, 1976, is
incorporated herein by reference.
<PAGE>
5. Copy of Investment Management Services Agreement between Registrant
and American Express Financial Corporation, dated March 20, 1995,
filed as Exhibit 5 to Registrant's Post-Effective Amendment No. 42 to
Registration Statement 2-57328 is incorporated herein by reference.

5(a). Copy of Investment Management Services Agreement between Registrant's
series fund, IDS Intermediate Tax-Exempt Fund and American Express
Financial Corporation, dated Nov. 13, 1996, is filed electronically
herewith.

6. Copy of Distribution Agreement between Registrant and American Express
Financial Advisors Inc., dated March 20, 1995, filed electronically as
Exhibit 6 to Registrant's Post-Effective Amendment No. 42 to
Registration Statement 2-57328 is incorporated herein by reference.

6(a). Copy of Distribution Agreement between Registrant's series fund, IDS
Intermediate Tax-Exempt Fund and American Express Financial Advisors
Inc., dated Nov. 13, 1996, is filed electronically herewith.

7. All employees are eligible to participate in a profit sharing plan.
Entry into the plan is Jan. 1 or July 1. The Registrant contributes
each year an amount up to 15 percent of their annual salaries, the
maximum deductible amount permitted under Section 404(a) of the
Internal Revenue Code.

8. Copy of Custodian Agreement between Registrant and First National Bank
of Minneapolis, dated August 16, 1979, filed electronically as Exhibit
8 to Registrant's Post-Effective Amendment No. 42 to Registration
Statement 2-57328 is incorporated herein by reference.

8(a) Copy of Custodian Agreement between Registrant's series fund, IDS
Intermediate Tax-Exempt Fund and First Bank National Association,
dated Nov. 13, 1996, is filed electronically herewith.

9(a). Copy of Transfer Agency Agreement between Registrant and American
Express Client Service Corporation, dated January 1, 1998, is filed
electronically herewith.

9(b). Copy of Shareholder Service Agreement between Registrant and American
Express Financial Advisors Inc., dated March 20, 1995, filed
electronically as Exhibit 9(b) to Registrant's Post-Effective Amendment
No. 42 to Registration Statement 2-57328 is incorporated herein by
reference.

9(c). Copy of Administrative Services Agreement between Registrant and
American Express Financial Corporation dated March 20, 1995, filed
electronically as Exhibit 9(c) to Registrant's Post-Effective Amendment
No. 42 to Registration Statement 2-57328 is incorporated herein by
reference.

9(d) Copy of Shareholder Service Agreement between Registrant's series
fund, IDS Intermediate Tax-Exempt Fund and American Express Financial
Advisors Inc., dated Nov. 13, 1996, is filed electronically herewith.
<PAGE>
9(e) Copy of Administrative Services Agreement between Registrant's series
fund, IDS Intermediate Tax-Exempt Fund and American Express Financial
Corporation, dated Nov. 13, 1996, is filed electronically herewith.

9(f) Copy of Class Y Shareholder Service Agreement between IDS Precious
Metals Fund, Inc. and American Express Financial Advisors Inc., dated
May 9, 1997 filed electronically on or about May 27, 1997 as Exhibit
9(e) to IDS Precious Metals Fund, Inc.'s Amendment No. 30 to
Registration Statement No. 2-93745, is incorporated herein by
reference. Registrant's Class Y Shareholder Service Agreement differs
from the one incorporated by reference only by the fact that Registrant
is one executing party.

10. Opinion and consent of counsel as to the legality of the securities
being registered is filed electronically herewith.

11. Independent Auditors' Consent, is filed electronically herewith.

12. None.

13. Not Applicable.

14. Form of Keogh, IRA and other retirement plans, filed as Exhibits 14(a)
through 14(n) to IDS Growth Fund, Inc., Post Effective Amendment
No. 34 to Registration Statement No. 2-38355, are incorporated herein
by reference.

15. Copy of Plan and Agreement of Distribution between Registrant and
American Express Financial Advisors Inc., dated March 20, 1995 filed
electronically as Exhibit 15 to Registrant's Post-Effective Amendment
No. 42 to Registration Statement 2-57328 is incorporated herein by
reference.

15(a). Copy of Plan and Agreement of Distribution between Registrant's
series fund, IDS Intermediate Tax-Exempt Fund and American Express
Financial Advisors Inc., dated Nov. 13, 1996, is filed electronically
herewith.

16. Copy of Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item 22, filed
electronically as Exhibit 16 to Post-Effective Amendment No. 29, is
herein incorporated by reference.

17. Financial Data Schedules are filed electronically herewith.

18. Copy of plan Rule 18f-3 Plan, dated May 9, 1997, filed electronically
on or about January 27, 1988 Exhibit 18 to IDS Equity Select Fund,
Inc.'s Post Effective Amendment No. 86 to Registration Statement No.
2-13188 is incorporated herein by reference. Registrant's 18f-3 Plan
differs from the one incorporated by reference only by the fact that
Registrant is one executing party.

19(a). Directors'/Trustees Power of Attorney to sign amendments to this
Registration Statement dated January 7, 1998, filed electronically
herewith.

19(b). Officers' Power of Attorney to sign amendments to this Registration
Statement dated Nov. 1, 1995, filed electronically as Exhibit 19(b)
to Registrant's Post-Effective Amendment No. 39, is incorporated
herein by reference.
<PAGE>
Item 25. Persons Controlled by or Under Common Control with Registrant:

None.

Item 26. Number of Holders of Securities

(1) (2)

Number of Record
Holders as of
Title of Class Jan. 13, 1998

For IDS Tax-Exempt Bond Fund

Common Stock
Class A 26,625
Class B 1,208
Class Y 1

For IDS Intermediate Tax-Exempt Fund

Common Stock
Class A 595
Class B 289
Class Y 1

Item 27. Indemnification

The Articles of Incorporation of the registrant provide that the Fund shall
indemnify any person who was or is a party or is threatened to be made a party,
by reason of the fact that she or he is or was a director, officer, employee or
agent of the Fund, or is or was serving at the request of the Fund as a
director, officer, employee or agent of another company, partnership, joint
venture, trust or other enterprise, to any threatened, pending or completed
action, suit or proceeding, wherever brought, and the Fund may purchase
liability insurance and advance legal expenses, all to the fullest extent
permitted by the laws of the State of Minnesota, as now existing or hereafter
amended. The By-laws of the registrant provide that present or former directors
or officers of the Fund made or threatened to be made a party to or involved
(including as a witness) in an actual or threatened action, suit or proceeding
shall be indemnified by the Fund to the full extent authorized by the Minnesota
Business Corporation Act, all as more fully set forth in the By-laws filed as an
exhibit to this registration statement. Insofar as indemnification for liability
arising under the Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
<PAGE>
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

Any indemnification hereunder shall not be exclusive of any other rights of
indemnification to which the directors, officers, employees or agents might
otherwise be entitled. No indemnification shall be made in violation of the
Investment Company Act of 1940.
<PAGE>

<PAGE>
PAGE 1
<PAGE>
Item 29(c). Not applicable.

Item 30. Location of Accounts and Records

American Express Financial Corporation
IDS Tower 10
Minneapolis, MN 55440

Item 31. Management Services

Not Applicable.

Item 32. Undertakings

(a) Not Applicable.
(b) Not Applicable.
(c) The Registrant undertakes to furnish each person
to whom a prospectus is delivered with a copy of
the Registrant's latest annual report to
shareholders, upon request and without charge.

<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, IDS Tax-Exempt Bond Fund, Inc. certifies
that it meets all of the requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933,
and has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis and the State of Minnesota on the 27th day of January, 1998.

IDS TAX-EXEMPT BOND FUND, INC.
IDS Tax-Exempt Bond Fund
IDS Intermediate Tax-Exempt Fund

By /s/ William R. Pearce**
William R. Pearce, Chief Executive Officer

By ________________________________
Matthew N. Karstetter, Treasurer

Pursuant to the requirements of the Securities Act of 1933, this Amendment to
its Registration Statement has been signed below by the following persons in the
capacities indicated on the 27th day of January, 1998.

Signature Capacity

/s/ William R. Pearce* Chairman of the Board
William R. Pearce

/s/ H. Brewster Atwater, Jr.* Director
H. Brewster Atwater, Jr.

/s/ Lynne V. Cheney* Director
Lynne V. Cheney

/s/ William H. Dudley* Director
William H. Dudley

/s/ David R. Hubers* Director
David R. Hubers
<PAGE>
Signature Capacity

/s/ Heinz F. Hutter* Director
Heinz F. Hutter

/s/ Anne P. Jones* Director
Anne P. Jones

/s/ Alan K. Simpson* Director
Alan K. Simpson

/s/ Edson W. Spencer* Director
Edson W. Spencer

/s/ John R. Thomas* Director
John R. Thomas

/s/ Wheelock Whitney* Director
Wheelock Whitney

/s/ C. Angus Wurtele* Director
C. Angus Wurtele

*Signed pursuant to Directors'/Trustees Power of Attorney dated Jan. 7, 1998,
filed electronically herewith.

___________________________
Leslie L. Ogg

**Signed pursuant to Officers' Power of Attorney dated November 1, 1995, filed
electronically as Exhibit 19 to Registrant's Post-Effective Amendment No. 39 to
Registration Statement No. 2-57328 by:

___________________________
Leslie L. Ogg

<PAGE>
CONTENTS OF THIS
POST-EFFECTIVE AMENDMENT NO. 43
TO REGISTRATION STATEMENT NO. 2-57328

This post-effective amendment comprises the following papers and documents:

The facing sheet.

Cross reference sheet.

Part A.

The prospectus.

Part B.

Statement of Additional Information.

Financial Statements.

Part C.

Other information.

Exhibits.

The signatures.

IDS Tax-Exempt Bond Fund, Inc.
File No. 2-57328/811-2686
EXHIBIT INDEX

Exhibit 5(a): Copy of Investment Management Services Agreement between
Registrant's series fund, IDS Intermediate Tax-Exempt Fund and
American Express Financial Corporation

Exhibit 6(a). Copy of Distribution Agreement between Registrant's series
fund, IDS Intermediate Tax-Exempt Fund and American Express
Financial Advisors Inc.

Exhibit 8(a) Copy of Custodian Agreement between Registrant's series fund,
IDS Intermediate Tax-Exempt Fund and First Bank National
Association

Exhibit 9(a). Copy of Transfer Agency Agreement between Registrant and
American Express Client Service Corporation

Exhibit 9(d) Copy of Shareholder Service Agreement between Registrant's
series fund, IDS Intermediate Tax-Exempt Fund and American
Express Financial Advisors Inc.

Exhibit 9(e) Copy of Administrative Services Agreement between Registrant's
series fund, IDS Intermediate Tax-Exempt Fund and American
Express Financial Corporation

Exhibit 10. Opinion and consent of counsel as to the legality of the
securities being registered

Exhibit 11. Independent Auditors' Consent

Exhibit 15(a). Copy of Plan and Agreement of Distribution between Registrant's
series fund, IDS Intermediate Tax-Exempt Fund and American
Express Financial Advisors Inc.

Exhibit 17. Financial Data Schedules

Exhbiti 19(a). Directors'/Trustees Power of Attorney to sign amendments to
this Registration Statement

INVESTMENT MANAGEMENT SERVICES AGREEMENT

AGREEMENT made the 13th day of November, 1996, by and between IDS
Tax-Exempt Bond Fund, Inc. (the "Corporation"), a Minnesota corporation, on
behalf of its underlying series fund: IDS Intermediate Tax-Exempt Fund (the
"Fund"); and American Express Financial Corporation, a Delaware corporation.

Part One: INVESTMENT MANAGEMENT AND OTHER SERVICES

(1) The Corporation hereby retains American Express Financial
Corporation, and American Express Financial Corporation hereby agrees, for the
period of this agreement and under the terms and conditions hereinafter set
forth, to furnish the Fund continuously with suggested investment planning; to
determine, consistent with the Fund's investment objectives and policies, which
securities in American Express Financial Corporation's discretion shall be
purchased, held or sold and to execute or cause the execution of purchase or
sell orders; to prepare and make available to the Fund all necessary research
and statistical data in connection therewith; to furnish all other services of
whatever nature required in connection with the management of the Fund as
provided under this agreement; and to pay such expenses as may be provided for
in Part Three; subject always to the direction and control of the Board of
Directors (the "Board"), the Executive Committee and the authorized officers of
the Corporation. American Express Financial Corporation agrees to maintain an
adequate organization of competent persons to provide the services and to
perform the functions herein mentioned. American Express Financial Corporation
agrees to meet with any persons at such times as the Board deems appropriate for
the purpose of reviewing American Express Financial Corporation's performance
under this agreement.

(2) American Express Financial Corporation agrees that the investment
planning and investment decisions will be in accordance with general investment
policies of the Fund as disclosed to American Express Financial Corporation from
time to time by the Fund and as set forth in the Fund's current Prospectus and
Registration Statement filed with the United States Securities and Exchange
Commission (the "SEC").

(3) American Express Financial Corporation agrees that it will maintain
all required records, memoranda, instructions or authorizations relating to the
acquisition or disposition of securities for the Fund.

(4) The Corporation agrees that it will furnish to American Express
Financial Corporation any information that the latter may reasonably request
with respect to the services performed or to be performed by American Express
Financial Corporation under this agreement.

(5) American Express Financial Corporation is authorized to select the
brokers or dealers that will execute the purchases and sales of portfolio
securities for the Fund and is directed to use its best efforts to obtain the
best available price and most favorable execution, except as prescribed herein.
Subject to prior authorization by the Board of appropriate policies and
procedures, and subject to termination at any time by the Board, American
Express Financial Corporation may also be authorized to effect individual
securities transactions at commission rates in excess of the minimum commission
rates available, to the extent authorized by law, if American Express Financial
Corporation determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer, viewed in terms of
<PAGE>
either that particular transaction or American Express Financial Corporation's
overall responsibilities with respect to the Fund and other funds for which it
acts as investment adviser.

(6) It is understood and agreed that in furnishing the Fund with the
services as herein provided, neither American Express Financial Corporation, nor
any officer, director or agent thereof shall be held liable to the Corporation
or the Fund or its creditors or shareholders for errors of judgment or for
anything except willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or reckless disregard of its obligations and duties
under the terms of this agreement. It is further understood and agreed that
American Express Financial Corporation may rely upon information furnished to it
reasonably believed to be accurate and reliable.

Part Two: COMPENSATION TO INVESTMENT MANAGER

(1) The Corporation, on behalf of the Fund, agrees to pay to American
Express Financial Corporation, and American Express Financial Corporation
covenants and agrees to accept from the Corporation in full payment for the
services furnished, a fee for each calendar day of each year equal to the total
of 1/365th (1/366th in each leap year) of the amount computed as shown below.
The computation shall be made for each day on the basis of net assets as of the
close of business of the full business day two (2) business days prior to the
day for which the computation is being made. In the case of the suspension of
the computation of net asset value, the asset charge for each day during such
suspension shall be computed as of the close of business on the last full
business day on which the net assets were computed. Net assets as of the close
of a full business day shall include all transactions in shares of the Fund
recorded on the books of the Fund for that day.

The asset charge shall be based on the net assets of the Fund as set
forth in the following table.

Asset Charge

Assets Annual Rate at
(Billions) Each Asset Level
First $1.0 0.450%
Next 1.0 0.425
Next 1.0 0.400
Next 3.0 0.375
Over 6.0 0.350

(2) The fee shall be paid on a monthly basis and, in the event of the
termination of this agreement, the fee accrued shall be pro rated on the basis
of the number of days that this agreement is in effect during the month with
respect to which such payment is made.

(3) The fee provided for hereunder shall be paid in cash to American
Express Financial Corporation within five business days after the last day of
each month.
<PAGE>
Part Three: ALLOCATION OF EXPENSES

(1) The Corporation agrees to pay:

(a) Fees payable to American Express Financial Corporation for its
services under the terms of this agreement;

(b) Taxes;

(d) Custodian fees and charges;

(e) Fees and charges of its independent certified public accountants
for services the Corporation requests;

(f) Premium on the bond required by Rule 17g-1 under the Investment
Company Act of 1940;

(g) Fees and expenses of attorneys (i) it employs in matters not
involving the assertion of a claim by a third party against the Corporation, its
directors and officers, (ii) it employs in conjunction with a claim asserted by
the Board against American Express Financial Corporation, except that American
Express Financial Corporation shall reimburse the Corporation for such fees and
expenses if it is ultimately determined by a court of competent jurisdiction, or
American Express Financial Corporation agrees, that it is liable in whole or in
part to the Corporation (and/or the Fund), and (iii) it employs to assert a
claim against a third party;

(h) Fees paid for the qualification and registration for public sale
of the securities of the Fund under the laws of the United States and of the
several states in which such securities shall be offered for sale;

(i) Fees of consultants employed by the Corporation;

(j) Directors, officers and employees expenses which shall include
fees, salaries, memberships, dues, travel, seminars, pension, profit sharing,
and all other benefits paid to or provided for directors, officers and
employees, directors and officers liability insurance, errors and omissions
liability insurance, worker's compensation insurance and other expenses
applicable to the directors, officers and employees, except the Corporation will
not pay any fees or expenses of any person who is an officer or employee of
American Express Financial Corporation or its affiliates;

(k) Filing fees and charges incurred by the Corporation in connection
with filing any amendment to its articles of incorporation, or incurred in
filing any other document with the State of Minnesota or its political
subdivisions;

(l) Organizational expenses of the Fund;

(m) Expenses incurred in connection with lending portfolio securities
of the Fund; and

(n) Expenses properly payable by the Corporation, on behalf of the
Fund, approved by the Board.
<PAGE>
(2) American Express Financial Corporation agrees to pay all expenses
associated with the services it provides under the terms of this agreement.
Further, American Express Financial Corporation agrees that if, at the end of
any month, the expenses of the Fund under this agreement and any other agreement
between the Fund and American Express Financial Corporation, but excluding those
expenses set forth in (1)(b) and (1)(c) of this Part Three, exceed the most
restrictive applicable state expenses limitation, the Fund shall not pay those
expenses set forth in (1)(a) and (d) through (n) of this Part Three to the
extent necessary to keep the Fund's expenses from exceeding the limitation, it
being understood that American Express Financial Corporation will assume all
unpaid expenses and bill the Fund for them in subsequent months but in no event
can the accumulation of unpaid expenses or billing be carried past the end of
the Fund's fiscal year.

Until November 12, 1997, American Express Financial Corporation has agreed to
waive certain fees and to absorb certain fund expenses under this agreement. If,
at the end of any month, the fees and expense of the Fund's Class A Common
Stock, $0.01 par value per share (the "Class A Shares"), under this agreement
and any other agreement between the Fund and American Express Financial
Corporation exceed 0.90%, the Fund shall not pay fees or expenses under this
agreement to the extent necessary to keep the expense ratio from exceeding the
limitation. In any month that fees and expenses of Class A Shares exceed 0.90%,
all management fees and expenses in excess of that limit will be returned to the
Fund. Any fee waiver or elimination of expenses will apply to each class on a
pro rata basis.

Part Four: MISCELLANEOUS

(1) American Express Financial Corporation shall be deemed to be an
independent contractor and, except as expressly provided or authorized in this
agreement, shall have no authority to act for or represent the Fund.

(2) A "full business day" shall be as defined in the By-laws of the
Corporation.

(3) The Corporation recognizes that American Express Financial
Corporation now renders and may continue to render investment advice and other
services to other investment companies and persons which may or may not have
investment policies and investments similar to those of the Fund and that
American Express Financial Corporation manages its own investments and/or those
of its subsidiaries. American Express Financial Corporation shall be free to
render such investment advice and other services and the Corporation hereby
consents thereto.

(4) Neither this agreement nor any transaction had pursuant hereto
shall be invalidated or in any way affected by the fact that directors,
officers, agents and/or shareholders of the Fund are or may be interested in
American Express Financial Corporation or any successor or assignee thereof, as
directors, officers, stockholders or otherwise; that directors, officers,
stockholders or agents of American Express Financial Corporation are or may be
interested in the Fund as directors, officers, shareholders, or otherwise; or
that American Express Financial Corporation or any successor or assignee, is or
may be interested in the Fund as shareholder or otherwise, provided, however,
that neither American Express Financial Corporation, nor any officer, director
or employee thereof or of the Fund, shall sell to or buy from the Fund any
property or security other than shares issued by the Fund, except in accordance
with applicable regulations or orders of the SEC.
<PAGE>
(5) Any notice under this agreement shall be given in writing,
addressed, and delivered, or mailed postpaid, to the party to this agreement
entitled to receive such, at such party's principal place of business in
Minneapolis, Minnesota, or to such other address as either party may designate
in writing mailed to the other.

(6) American Express Financial Corporation agrees that no officer,
director or employee of American Express Financial Corporation will deal for or
on behalf of the Fund with himself or herself as principal or agent, or with any
corporation or partnership in which he or she may have a financial interest,
except that this shall not prohibit:

(a) Officers, directors or employees of American Express Financial
Corporation from having a financial interest in the Fund or in American Express
Financial Corporation.

(b) The purchase of securities for the Fund, or the sale of securities
owned by the Fund, through a security broker or dealer, one or more of whose
partners, officers, directors or employees is an officer, director or employee
of American Express Financial Corporation, provided such transactions are
handled in the capacity of broker only and provided commissions charged do not
exceed customary brokerage charges for such services.

(c) Transactions with the Fund by a broker-dealer affiliate of American
Express Financial Corporation as may be allowed by rule or order of the SEC, and
if made pursuant to procedures adopted by the Board.

(7) American Express Financial Corporation agrees that, except as
herein otherwise expressly provided or as may be permitted consistent with the
use of a broker-dealer affiliate of American Express Financial Corporation under
applicable provisions of the federal securities laws, neither it nor any of its
officers, directors or employees shall at any time during the period of this
agreement, make, accept or receive, directly or indirectly, any fees, profits or
emoluments of any character in connection with the purchase or sale of
securities (except shares issued by the Fund) or other assets by or for the
Fund.

Part Five: RENEWAL AND TERMINATION

(1) This agreement shall continue in effect until Nov. 12, 1998, or
until a new agreement is approved by a vote of the majority of the outstanding
shares of the Fund and by vote of the Board, including the vote required by (b)
of this paragraph, and if no new agreement is so approved, this agreement shall
continue from year to year thereafter unless and until terminated by either
party as hereinafter provided, except that such continuance shall be
specifically approved at least annually (a) by the Board or by a vote of the
majority of the outstanding shares of the Fund and (b) by the vote of a majority
of the directors who are not parties to this agreement or interested persons of
any such party, cast in person at a meeting called for the purpose of voting on
such approval. As used in this paragraph, the term "interested person" shall
have the same meaning as set forth in the Investment Company Act of 1940, as
amended (the "1940 Act").

(2) This agreement may be terminated by either the Corporation or
American Express Financial Corporation at any time by giving the other party 60
days' written notice of such intention to terminate, provided that any
termination shall be made without the payment of any penalty, and provided
further that termination may be effected either by the Board or by a vote of
<PAGE>
the majority of the outstanding voting shares of the Fund. The vote of the
majority of the outstanding voting shares of the Fund for the purpose of this
Part Five shall be the vote at a shareholders' regular meeting, or a special
meeting duly called for the purpose, of 67% or more of the Fund's shares present
at such meeting if the holders of more than 50% of the outstanding voting shares
are present or represented by proxy, or more than 50% of the outstanding voting
shares of the Fund, whichever is less.

(3) This agreement shall terminate in the event of its assignment, the
term "assignment" for this purpose having the same meaning as set forth in the
1940 Act.

IN WITNESS THEREOF, the parties hereto have executed the foregoing
agreement as of the day and year first above written.

IDS TAX-EXEMPT BOND FUND, INC.
IDS INTERMEDIATE TAX-EXEMPT FUND

By /s/ Leslie L. Ogg
Leslie L. Ogg
Vice President

AMERICAN EXPRESS FINANCIAL CORPORATION

By /s/ Michael J. Hogan
Michael J. Hogan
Vice President

DISTRIBUTION AGREEMENT

Agreement made as of the 13th day of November, 1996, by and between IDS
Tax-Exempt Bond Fund, Inc. (the "Corporation"), a Minnesota corporation, for and
on behalf of its underlying series fund: IDS Intermediate Tax-Exempt Fund (the
"Fund"); and American Express Financial Advisors Inc., a Delaware corporation.

Part One: DISTRIBUTION OF SECURITIES

(1) The Corporation covenants and agrees that, during the term of this agreement
and any renewal or extension, American Express Financial Advisors Inc. shall
have the exclusive right to act as principal underwriter for the Fund and to
offer for sale and to distribute either directly or through any affiliate any
and all shares of each class of common stock of the Fund.

(2) American Express Financial Advisors Inc. hereby covenants and agrees to act
as the principal underwriter of each class of common stock of the Fund during
the period of this agreement and agrees during such period to offer for sale
such common stock as long as such common stock remains available for sale,
unless American Express Financial Advisors Inc. is unable or unwilling to make
such offer for sale or sales or solicitations therefor legally because of any
federal, state, provincial or governmental law, rule or agency or for any
financial reason.

(3) With respect to the offering for sale and sale of shares of each class of
common stock to be issued by the Fund, it is mutually understood and agreed that
such shares are to be sold on the following terms:

(a) All sales shall be made by means of an application, and every
application shall be subject to acceptance or rejection by the Corporation at
its principal place of business. Shares are to be sold for cash, payable at the
time the application and payment for such shares are received at the principal
place of business of the Corporation.

(b) No shares shall be sold at less than the asset value (computed in
the manner provided by the Fund's currently effective Prospectus or Statement of
Additional Information and the Investment Company Act of 1940, and rules
thereunder). The number of shares or fractional shares to be acquired by each
applicant shall be determined by dividing the amount of each accepted
application by the public offering price of one share of the capital stock of
the appropriate class as of the close of business on the day when the
application, together with payment, is received by the Corporation at its
principal place of business. The computation as to the number of shares and
fractional shares shall be carried to three decimal points of one share with the
computation being carried to the nearest 1/lOOOth of a share. If the day of
receipt of the application and payment is not a full business day, then the
asset value of the share for use in such computation shall be determined as of
the close of business on the next succeeding full business day. In the event of
a period of emergency, the computation of the asset value for the purpose of
determining the number of shares or fractional shares to be acquired by the
applicant may be deferred until the close of business on the first full business
day following the termination of the period of emergency. A period of emergency
shall have the definition given thereto in the Investment Company Act of 1940,
and rules thereunder.
<PAGE>
(4) The Corporation agrees to make prompt and reasonable effort to do any and
all things necessary, in the opinion of American Express Financial Advisors
Inc., to have and to keep the Fund and the shares properly registered or
qualified in all appropriate jurisdictions and, as to shares, in such amounts as
American Express Financial Advisors Inc. may from time to time designate in
order that the Fund's shares may be offered or sold in such jurisdictions.

(5) The Corporation agrees that it will furnish American Express Financial
Advisors Inc. with information with respect to the affairs and accounts of the
Fund, and in such form, as American Express Financial Advisors Inc. may from
time to time reasonably require and further agrees that American Express
Financial Advisors Inc., at all reasonable times, shall be permitted to inspect
the books and records of the Fund.

(6) American Express Financial Advisors Inc. or its agents may prepare or cause
to be prepared from time to time circulars, sales literature, broadcast
material, publicity data and other advertising material to be used in the sales
of shares of common stock issued by the Fund, including material which may be
deemed to be a prospectus under rules promulgated by the Securities and Exchange
Commission (each separate promotional piece is referred to as an "Item of
Soliciting Material"). At its option, American Express Financial Advisors Inc.
may submit any Item of Soliciting Material to the Corporation for its prior
approval. Unless a particular Item of Soliciting Material is approved in writing
by the Corporation prior to its use, American Express Financial Advisors Inc.
agrees to indemnify the Corporation and its directors and officers against any
and all claims, demands, liabilities and expenses which the Corporation or such
persons may incur arising out of or based upon the use of any Item of Soliciting
Material. The term "expenses" includes amounts paid in satisfaction of judgments
or in settlements. The foregoing right of indemnification shall be in addition
to any other rights to which the Corporation or any director or officer may be
entitled as a matter of law. Notwithstanding the foregoing, such indemnification
shall not be deemed to abrogate or diminish in any way any right or claim
American Express Financial Advisors Inc. may have against the Corporation or its
officers or directors in connection with the Fund's Registration Statement,
Prospectus, Statement of Additional Information or other information furnished
by or caused to be furnished by the Corporation.

(7) American Express Financial Advisors Inc. agrees to submit to the
Corporation each application for shares immediately after the receipt of such
application and payment therefor by American Express Financial Advisors Inc.
at its principal place or business.

(8) American Express Financial Advisors Inc. agrees to cause to be delivered
to each person submitting an application a current prospectus or circular in
the form required by the applicable federal laws or by the acts or statutes of
any applicable state, province or country.

(9) The Fund shall have the right to extend to shareholders of each class of
common stock the right to use the proceeds of any cash dividend paid by the Fund
to that shareholder to purchase shares of the same class at the net asset value
at the close of business upon the day of purchase, to the extent set forth in
the Fund's currently effective Prospectus or Statement of Additional
Information.
<PAGE>
(10) Shares of each class of common stock of the Fund may be offered and sold at
their asset value to the shareholders of the same class of other funds in the
IDS MUTUAL FUND GROUP who wish to exchange their investments in shares of the
other funds in the IDS MUTUAL FUND GROUP to investments in shares of the Fund,
to the extent set forth in the Fund's currently effective Prospectus or
Statement of Additional Information, such asset value to be computed as of the
close of business on the day of sale of such shares of the Fund.

(11) American Express Financial Advisors Inc. and the Corporation agree to
use their best efforts to conform with all applicable state and federal laws
and regulations relating to any rights or obligations under the term of this
agreement.

Part Two: ALLOCATION OF EXPENSES

Except as provided by any other agreements between the parties, American Express
Financial Advisors Inc. covenants and agrees that during the period of this
agreement it will pay or cause or be paid all expenses incurred by American
Express Financial Advisors Inc., or any of its affiliates, in the offering for
sale or sale of each class of the Fund's shares that is subject to the terms of
this agreement.

Part Three: COMPENSATION

(1) It is covenanted and agreed that American Express Financial Advisors
Inc. shall be paid:

(i) for a class of shares imposing a front-end sales charge, by the
purchasers of shares in an amount equal to the difference between the total
amount received upon each sale of shares issued by the Fund and the asset value
of such shares at the time of such sale; and

(ii) for a class of shares imposing a deferred sales charge, by owners
of shares at the time the sales charge is imposed in an amount equal to any
deferred sales charge, as described in the Fund's prospectus.

Such sums as are received by the Corporation shall be received as Agent for
American Express Financial Advisors Inc. and shall be remitted to American
Express Financial Advisors Inc. as soon as practicable after receipt.

(2) The asset value of any share of each class of common stock of the Fund shall
be determined in the manner provided by the Fund's currently effective
Prospectus and Statement of Additional Information and the Investment Company
Act of 1940, and rules thereunder.

Part Four: MISCELLANEOUS

(1) American Express Financial Advisors Inc. shall be deemed to be an
independent contractor and, except as expressly provided or authorized in this
agreement, shall have no authority to act for or represent the Corporation.

(2) American Express Financial Advisors Inc. shall be free to render to
others services similar to those rendered under this agreement.

(3) Neither this agreement nor any transaction had pursuant hereto shall be
invalidated or in any way affected by the fact that directors, officers, agents
and/or shareholders of the Corporation are or may be interested in American
Express Financial Advisors Inc. as directors, officers, shareholders
<PAGE>
or otherwise; that directors, officers, shareholders or agents of American
Express Financial Advisors Inc. are or may be interested in the Corporation as
directors, officers, shareholders or otherwise; or that American Express
Financial Advisors Inc. is or may be interested in the Corporation as
shareholder or otherwise, provided, however, that neither American Express
Financial Advisors Inc. nor any officer or director of American Express
Financial Advisors Inc. or any officers or directors of the Corporation shall
sell to or buy from the Corporation any property or security other than a
security issued by the Corporation, except in accordance with a rule, regulation
or order of the United States Securities and Exchange Commission.

(4) For the purposes of this agreement, a "business day" shall have the same
meaning as is given to the term in the By-laws of the Corporation.

(5) Any notice under this agreement shall be given in writing, addressed and
delivered, or mailed postpaid, to the parties to this agreement at each
company's principal place of business in Minneapolis, Minnesota, or to such
other address as either party may designate in writing mailed to the other.

(6) American Express Financial Advisors Inc. agrees that no officer,
director or employee of American Express Financial Advisors Inc. will deal for
or on behalf of the Corporation with himself or herself as principal or agent,
or with any corporation or partnership in which he or she may have a financial
interest, except that this shall not prohibit:

(a) Officers, directors and employees of American Express Financial
Advisors Inc. from having a financial interest in the Corporation, the Fund or
in American Express Financial Advisors Inc;

(b) The purchase of securities for the Fund, or the sale of securities
owned by the Fund, through a security broker or dealer, one or more of whose
partners, officers, directors or employees is an officer, director or employee
of American Express Financial Advisors Inc., provided such transactions are
handled in the capacity of broker only and provided commissions charged do not
exceed customary brokerage charges for such services; or

(c) Transactions with the Fund by a broker-dealer affiliate of American
Express Financial Advisors Inc. if allowed by rule or order of the Securities
and Exchange Commission and if made pursuant to procedures adopted by the Board
of Directors.

(7) American Express Financial Advisors Inc. agrees that, except as otherwise
provided in this agreement, or as may be permitted consistent with the use of a
broker-dealer affiliate of American Express Financial Advisors Inc. under
applicable provisions of the federal securities laws, neither it nor any of its
officers, directors or employees shall at any time during the period of this
agreement make, accept or receive, directly or indirectly, any fees, profits or
emoluments of any character in connection with the purchase or sale of
securities (except securities issued by the Fund) or other assets by or for the
Fund.

Part Five: TERMINATION

(1) This agreement shall continue from year to year unless and until terminated
by American Express Financial Advisors Inc. or the Corporation, except that such
continuance shall be specifically approved at least annually by a vote of a
majority of the Board of Directors of the Corporation who are not parties to
this agreement or interested persons of any such party, cast in
<PAGE>
person at a meeting called for the purpose of voting on such approval, and by a
majority of the Board of Directors or by vote of a majority of the outstanding
voting securities of the Corporation. As used in this paragraph, the term
"interested person" shall have the meaning as set forth in the Investment
Company Act of 1940, as amended.

(2) This agreement may be terminated by American Express Financial Advisors
Inc. or the Corporation at any time by giving the other party sixty (60) days
written notice of such intention to terminate.

(3) This agreement shall terminate in the event of its assignment, the term
"assignment" for this purpose having the same meaning as set forth in the
Investment Company Act of 1940, as amended.

IN WITNESS WHEREOF, The parties hereto have executed the foregoing agreement on
the date and year first above written.

IDS TAX-EXEMPT BOND FUND, INC.
IDS INTERMEDIATE TAX-EXEMPT FUND

By _/s/ Leslie L. Ogg_________________
Leslie L. Ogg
Vice President

AMERICAN EXPRESS FINANCIAL ADVISORS INC.

By _/s/ Michael J. Hogan______________
Michael J. Hogan
Vice President

CUSTODIAN AGREEMENT

THIS CUSTODIAN AGREEMENT made this 13th day of November, 1996, between IDS
Tax-Exempt Bond Fund, Inc. a Minnesota Corporation (hereinafter also called the
"Corporation"), on behalf of its underlying series fund: IDS Intermediate
Tax-Exempt Fund (the "Fund"); and First Bank National Association, a corporation
with its principal place of business at Minneapolis, Minnesota (hereinafter also
called the "Custodian").

WHEREAS, the Corporation desires that its securities and cash be hereafter
held and administered by Custodian pursuant to the terms of this agreement.

NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Corporation and the Custodian agree as follows:

Section 1. Definitions

The word "securities" as used herein shall be construed to include, without
being limited to, shares, stocks, treasury stocks, including any stocks of this
Corporation, notes, bonds, debentures, evidences of indebtedness, options to buy
or sell stocks, certificates of interest or participation in any profit-sharing
agreements, collateral trust certificates, preorganization certificates or
subscriptions, transferable shares, investment contracts, voting trust
certificates, certificates of deposit for a security, fractional or undivided
interests in oil, gas or other mineral rights, or any certificates of interest
or participation in, temporary or interim certificates for, receipts for,
guarantees of, or warrants or rights to subscribe to or purchase any of the
foregoing, acceptances and other obligations and any evidence of any right or
interest in or to any cash, property or assets and any interest or instrument
commonly known as a security.

The words "custodian order" shall mean a request or direction, including a
computer printout, directed to the Custodian and signed in the name of the
Corporation by any two individuals designated in the current certified list
referred to in Section 2.

The word "facsimile" shall mean an exact copy or likeness which is
electronically transmitted for instant reproduction.

Section 2. Names, Titles and Signatures of Authorized Persons

The Corporation will certify to the Custodian the names and signatures of its
present officers and other designated persons authorized on behalf of the
Corporation to direct the Custodian by custodian order as defined herein. The
Corporation agrees that, whenever any change occurs in this list it will file
with the Custodian a copy of a resolution certified by the Secretary or an
Assistant Secretary of the Corporation as having been duly adopted by the Board
of Directors or the Executive Committee of the Board of Directors of the
Corporation designating those persons currently authorized on behalf of the
Corporation to direct the Custodian by custodian order and upon such filing (to
be accompanied by the filing of specimen signatures of the designated persons)
the persons so designated in said resolution shall constitute the current
certified list. The Custodian is authorized to rely and act upon the names and
signatures of the individuals as they appear in the most recent certified list
from the Corporation which has been delivered to the Custodian as hereinabove
provided.
<PAGE>
Section 3. Use of Subcustodians

The Custodian may make arrangements, where appropriate, and as approved by
the Corporation, with other national banks having not less than two million
dollars aggregate capital, surplus and undivided profits for the custody of
securities. Any such bank selected by the Custodian to act as subcustodian shall
be deemed to be the agent of the Custodian.

Section 4. Receipt and Disbursement of Money

(1) The Custodian shall open and maintain a separate account or accounts in
the name of the Fund or cause its agent to open and maintain such account or
accounts subject only to checks, drafts or directives by the Custodian pursuant
to the terms of this agreement. The Custodian or its agent shall hold in such
account or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Fund. The Custodian or its agent shall make
payments of cash to or for the account of the Fund from such cash only:

(a) for the purchase of securities for the Fund upon the receipt of such
securities by the Custodian or its agent;

(b) for the purchase or redemption of the Fund's common stock;

(c) for the payment of interest, dividends, taxes, management fees, or operating
expenses (including, without limitation thereto, fees for legal, accounting and
auditing services);

(d) for payment of distribution fees, commissions or redemption fees, if
any;

(e) for payments in connection with the conversion, exchange or surrender
of securities owned or subscribed to by the Fund held by or to be delivered to
the Custodian;

(f) for payments in connection with the return of securities loaned by the Fund
upon receipt of such securities or the reduction of collateral upon receipt of
proper notice;

(g) for payments for other proper corporate purposes; or

(h) upon the termination of this agreement.

Before making any such payment for the purposes permitted under the terms of
items (a), (b), (c), (d), (e), (f) or (g) of paragraph (1) of this section, the
Custodian shall receive and may rely upon a custodian order directing such
payment and stating that the payment is for such a purpose permitted under these
items (a), (b), (c), (d), (e), (f) or (g) and that in respect to item (g), a
copy of a resolution of the Board of Directors or of the Executive Committee of
the Board of Directors of the Corporation signed by an officer of the
Corporation and certified by its Secretary or an Assistant Secretary, specifying
the amount of such payment, setting forth the purpose to be a proper corporate
purpose, and naming the person or persons to whom such payment is made.
Notwithstanding the above, for the purposes permitted under items (a) or (f) of
paragraph (1) of this Section, the Custodian may rely upon a facsimile order.
<PAGE>
(2) The Custodian is hereby appointed the attorney-in-fact of the
Corporation to endorse and collect all checks, drafts or other orders for the
payment of money received by the Custodian for the account of the Corporation
and drawn on or to the order of the Corporation and to deposit same to the
account of the Corporation pursuant to this agreement.

Section 5. Receipt of Securities

Except as permitted by the second paragraph of this section, the Custodian
or its agent shall hold in a separate account or accounts, and physically
segregated at all times from those of any other persons, firms or corporations,
pursuant to the provisions hereof, all securities received by it for the account
of the Fund. The Custodian shall record and maintain a record of all certificate
numbers. Securities so received shall be held in the name of the Fund, in the
name of an exclusive nominee duly appointed by the Custodian or in bearer form,
as appropriate.

Subject to such rules, regulations or guidelines as the United States
Securities and Exchange Commission may adopt, the Custodian may deposit all or
any part of the securities owned by the Fund in a securities depository which
includes any system for the central handling of securities established by a
national securities exchange or a national securities association registered
with the Securities and Exchange Commission under the Securities Exchange Act of
1934, or such other person as may be permitted by the Commission, pursuant to
which system all securities of any particular class or series of any issuer
deposited within the system are treated as fungible and may be transferred or
pledged by bookkeeping entry without physical delivery of such securities.

All securities are to be held or disposed of by the Custodian for, and
subject at all times to the instructions of, the Corporation pursuant to the
terms of this agreement. The Custodian shall have no power or authority to
assign, hypothecate, pledge or otherwise dispose of any such securities, except
pursuant to the directive of the Corporation and only for the account of the
Corporation as set forth in Section 6 of this Agreement.

Section 6. Transfer Exchange, Delivery, etc. of Securities

The Custodian shall have sole power to release or deliver any securities of
the Fund held by it pursuant to this agreement. The Custodian agrees to
transfer, exchange or deliver securities held by it or its agent hereunder only:

(a) for sales of such securities for the account of the Fund, upon receipt
of payment therefor;

(b) when such securities are called, redeemed, retired or otherwise become
payable;

(c) for examination upon the sale of any such securities in accordance with
"street delivery" custom which would include delivery against interim receipts
or other proper delivery receipts;

(d) in exchange for or upon conversion into other securities alone or other
securities and cash whether pursuant to any plan of merger, consolidation,
reorganization, recapitalization or readjustment, or otherwise;

(e) for the purpose of exchanging interim receipts or temporary
certificates for permanent certificates;
<PAGE>
(f) upon conversion of such securities pursuant to their terms into other
securities;

(g) upon exercise of subscription, purchase or other similar rights
represented by such securities;

(h) for loans of such securities by the Corporation upon receipt of
collateral;

(i) for other proper corporate purposes.

As to any deliveries made by the Custodian pursuant to items (a), (b), (c),
(d), (e), (f), (g) and (h), securities or cash received in exchange therefore
shall be delivered to the Custodian, its agent, or to a securities depository.
Before making any such transfer, exchange or delivery, the Custodian shall
receive a custodian order or a facsimile from the Corporation requesting such
transfer, exchange or delivery and stating that it is for a purpose permitted
under Section 6 (whenever a facsimile is utilized, the Corporation will also
deliver an original signed custodian order) and, in respect to item (i), a copy
of a resolution of the Board of Directors or of the Executive Committee of the
Board of Directors of the Corporation signed by an officer of the Corporation
and certified by its Secretary or an Assistant Secretary, specifying the
securities, setting forth the purpose for which such payment, transfer,
exchange, or delivery is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom such transfer,
exchange or delivery of such securities shall be made.

Section 7. Custodian's Acts Without Instructions

Unless and until the Custodian receives a contrary custodian order from the
Corporation, the Custodian shall or shall cause its agent to:

(a) present for payment all coupons and other income items held by the Custodian
or its agent for the account of the Fund which call for payment upon
presentation and hold all cash received by it upon such payment for the account
of the Fund;

(b) present for payment all securities held by it or its agent which mature or
when called, redeemed, retired, or otherwise become payable;

(c) ascertain all stock dividends, rights and similar securities to be issued
with respect to any securities held by the Custodian or its agent hereunder, and
to collect and hold for the account of the Fund all such securities;

(d) ascertain all interest and cash dividends to be paid to security holders
with respect to any securities held by the Custodian or its agent, and to
collect and hold such interest and cash dividends for the account of the Fund.

Section 8. Voting and Other Action

Neither the Custodian nor any nominee of the Custodian shall vote any of the
securities held hereunder by or for the account of the Fund. The Custodian shall
promptly deliver to the Corporation all notices, proxies and proxy soliciting
materials with relation to such securities, such proxies to be executed by the
registered holder of such securities (if registered otherwise than in the name
of the Corporation), but without indicating the manner in which such proxies are
to be voted.
<PAGE>
Custodian shall transmit promptly to the Corporation all written information
(including, without limitation, pendency of calls and maturities of securities
and expirations of rights in connection therewith) received by the Custodian
from issuers of the securities being held for the Fund. With respect to tender
or exchange offers, the Custodian shall transmit promptly to the Corporation all
written information received by the Custodian from issuers of the securities
whose tender or exchange is sought and from the party (or his agents) making the
tender or exchange offer.

Section 9. Transfer Taxes

The Corporation shall pay or reimburse the Custodian for any transfer taxes
payable upon transfers of securities made hereunder, including transfers
resulting from the termination of this agreement. The Custodian shall execute
such certificates in connection with securities delivered to it under this
agreement as may be required, under any applicable law or regulation, to exempt
from taxation any transfers and/or deliveries of any such securities which may
be entitled to such exemption.

Section 10. Custodian's Reports

The Custodian shall furnish the Corporation as of the close of business each
day a statement showing all transactions and entries for the account of the
Fund. The books and records of the Custodian pertaining to its actions as
Custodian under this agreement and securities held hereunder by the Custodian
shall be open to inspection and audit, at reasonable times, by officers of the
Corporation, internal auditors employed by the Corporation's investment adviser,
and independent auditors employed by the Corporation. The Custodian shall
furnish the Corporation in such form as may reasonably be requested by the
Corporation a list of the securities held by it in custody for the account of
the Fund as of the close of business on the last business day of each month,
which shall be certified by a duly authorized officer of the Custodian. It is
further understood that additional reports may from time to time be requested by
the Corporation. Should any report ever be filed with any governmental authority
pertaining to lost or stolen securities, the Custodian will concurrently provide
the Corporation with a copy of that report.

The Custodian also shall furnish such reports on its systems of internal
accounting control as the Corporation may reasonably request from time to time.

Section 11. Concerning Custodian

For its services hereunder the Custodian shall be paid such compensation at
such times as may from time to time be agreed on in writing by the parties
hereto in a Custodian Fee Agreement.

The Custodian shall not be liable for any action taken in good faith upon
any custodian order or facsimile herein described or certified copy of any
resolution of the Board of Directors or of the Executive Committee of the Board
of Directors of the Corporation, and may rely on the genuineness of any such
document which it may in good faith believe to have been validly executed.

The Corporation agrees to indemnify and hold harmless Custodian and its nominee
from all taxes, charges, expenses, assessments, claims and liabilities
(including counsel fees) incurred or assessed against it or its nominee in
connection with the performance of this agreement, except such as may arise
<PAGE>
from the Custodian's or its nominee's own negligent action, negligent failure to
act or willful misconduct. In the event of any advance of cash for any purpose
made by Custodian resulting from orders or instructions of the Corporation, or
in the event that Custodian or its nominee shall incur or be assessed any taxes,
charges, expenses, assessments, claims or liabilities in connection with the
performance of this agreement, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the Fund shall be security
therefor.

The Custodian shall maintain a standard of care equivalent to that which
would be required of a bailee for hire and shall not be liable for any loss or
damage to the Corporation resulting from participation in a securities
depository unless such loss or damage arises by reason of any negligence,
misfeasance, or willful misconduct of officers or employees of the Custodian, or
from its failure to enforce effectively such rights as it may have against any
securities depository or from use of an agent, unless such loss or damage arises
by reason of any negligence, misfeasance, or willful misconduct of officers or
employees of the Custodian, or from its failure to enforce effectively such
rights as it may have against any agent.

Section 12. Termination and Amendment of Agreement

The Corporation and the Custodian mutually may agree from time to time in
writing to amend, to add to, or to delete from any provision of this agreement.

The Custodian may terminate this agreement by giving the Corporation ninety
days' written notice of such termination by registered mail addressed to the
Corporation at its principal place of business.

The Corporation may terminate this agreement at any time by written notice
thereof delivered, together with a copy of the resolution of the Board of
Directors authorizing such termination and certified by the Secretary of the
Corporation, by registered mail to the Custodian.

Upon such termination of this agreement, assets of the Fund held by the
Custodian shall be delivered by the Custodian to a successor custodian, if one
has been appointed by the Corporation, upon receipt by the Custodian of a copy
of the resolution of the Board of Directors of the Corporation certified by the
Secretary, showing appointment of the successor custodian, and provided that
such successor custodian is a bank or trust company, organized under the laws of
the United States or of any State of the United States, having not less than two
million dollars aggregate capital, surplus and undivided profits. Upon the
termination of this agreement as a part of the transfer of assets, either to a
successor custodian or otherwise, the Custodian will deliver securities held by
it hereunder, when so authorized and directed by resolution of the Board of
Directors of the Corporation, to a duly appointed agent of the successor
custodian or to the appropriate transfer agents for transfer of registration and
delivery as directed. Delivery of assets on termination of this agreement shall
be effected in a reasonable, expeditious and orderly manner; and in order to
accomplish an orderly transition from the Custodian to the successor custodian,
the Custodian shall continue to act as such under this agreement as to assets in
its possession or control. Termination as to each security shall become
effective upon delivery to the successor custodian, its agent, or to a transfer
agent for a specific security for the account of the successor custodian, and
such delivery shall constitute effective delivery by the Custodian to the
successor under this agreement.
<PAGE>
In addition to the means of termination authorized hereunder, this agreement
may be terminated at any time by the vote of a majority of the outstanding
shares of the Fund and after written notice of such action to the Custodian.

Section 13. General

Nothing expressed or mentioned in or to be implied from any provision of
this agreement is intended to, or shall be construed to give any person or
corporation other than the parties hereto, any legal or equitable right, remedy
or claim under or in respect of this agreement, or any covenant, condition or
provision herein contained, this agreement and all of the covenants, conditions
and provisions hereof being intended to be and being for the sole and exclusive
benefit of the parties hereto and their respective successors and assigns.

This agreement shall be governed by the laws of the State of Minnesota.

IN WITNESS WHEREOF, the Corporation and the Custodian have caused this
agreement to be executed as of the date first above written by their respective
officers thereunto duly authorized.

IDS TAX-EXEMPT BOND FUND, INC.
IDS INTERMEDIATE TAX-EXEMPT FUND

By /s/ Leslie L. Ogg
Leslie L. Ogg
Vice President

FIRST BANK NATIONAL ASSOCIATION

By /s/ Robert Spies
Robert Spies
Vice President

TRANSFER AGENCY AGREEMENT

AGREEMENT dated as of January 1, 1998, between IDS Tax-Exempt Bond Fund, Inc.
(the "Company"), a Minnesota corporation, on behalf of its underlying series
funds (individually a "Fund" and collectively the "Funds"), and American Express
Client Service Corporation (the "Transfer Agent"), a Minnesota corporation.

In consideration of the mutual promises set forth below, the Company and the
Transfer Agent agree as follows:

1. Appointment of the Transfer Agent. The Company hereby appoints the
Transfer Agent, as transfer agent for its shares and as shareholder
servicing agent for the Company, and the Transfer Agent accepts such
appointment and agrees to perform the duties set forth below.

2. Compensation. The Company will compensate the Transfer Agent for the
performance of its obligations as set forth in Schedule A. Schedule A
does not include out-of-pocket disbursements of the Transfer Agent for
which the Transfer Agent shall be entitled to bill the Company
separately.

The Transfer Agent will bill the Company monthly. The fee provided for
hereunder shall be paid in cash by the Company to the Transfer Agent
within five (5) business days after the last day of each month.

Out-of-pocket disbursements shall include, but shall not be limited to,
the items specified in Schedule B. Reimbursement by the Company for
expenses incurred by the Transfer Agent in any month shall be made as
soon as practicable after the receipt of an itemized bill from the
Transfer Agent.

Any compensation jointly agreed to hereunder may be adjusted from time
to time by attaching to this Agreement a revised Schedule A, dated and
signed by an officer of each party.

3. Documents. The Company will furnish from time to time such
certificates, documents or opinions as the Transfer Agent deems to be
appropriate or necessary for the proper performance of its duties.

4. Representations of the Company and the Transfer Agent.

(a) The Company represents to the Transfer Agent that all
outstanding shares are validly issued, fully paid and
non-assessable by the Company. When shares are hereafter
issued in accordance with the terms of the Company's Articles
of Incorporation and its By-laws, such shares shall be validly
issued, fully paid and non-assessable by the Company.

(b) The Transfer Agent represents that it is registered under
Section 17A(c) of the Securities Exchange Act of 1934. The
Transfer Agent agrees to maintain the necessary facilities,
equipment and personnel to perform its duties and obligations
under this agreement and to comply with all applicable laws.
<PAGE>
5. Duties of the Transfer Agent. The Transfer Agent shall be responsible,
separately and through its subsidiaries or affiliates, for the
following functions:

(a) Sale of Fund Shares.

(1) On receipt of an application and payment, wired
instructions and payment, or payment identified as
being for the account of a shareholder, the Transfer
Agent will deposit the payment, prepare and present
the necessary report to the Custodian and record the
purchase of shares in a timely fashion in accordance
with the terms of the respective Fund's prospectus.
All shares shall be held in book entry form and no
certificate shall be issued unless the Fund is
permitted to do so by its prospectus and the
purchaser so requests.

(2) On receipt of notice that payment was dishonored, the
Transfer Agent shall stop redemptions of all shares
owned by the purchaser related to that payment, place
a stop payment on any checks that have been issued to
redeem shares of the purchaser and take such other
action as it deems appropriate.

(b) Redemption of Fund Shares. On receipt of instructions to
redeem shares in accordance with the terms of the Fund's
prospectus, the Transfer Agent will record the redemption of
shares of the Fund, prepare and present the necessary report
to the Custodian and pay the proceeds of the redemption to the
shareholder, an authorized agent or legal representative upon
the receipt of the monies from the Custodian.

(c) Transfer or Other Change Pertaining to Fund Shares. On receipt
of instructions or forms acceptable to the Transfer Agent to
transfer the shares to the name of a new owner, change the
name or address of the present owner or take other legal
action, the Transfer Agent will take such action as is
requested.

(d) Exchange of Fund Shares. On receipt of instructions to
exchange the shares of the Fund for the shares of another fund
in the IDS MUTUAL FUND GROUP or other American Express
Financial Corporation product in accordance with the terms of
the prospectus, the Transfer Agent will process the exchange
in the same manner as a redemption and sale of shares.

(e) Right to Seek Assurance. The Transfer Agent may refuse to
transfer, exchange or redeem shares of a Fund or take any
action requested by a shareholder until it is satisfied that
the requested transaction or action is legally authorized
or until it is satisfied there is no basis for any claims
adverse to the transaction or action. It may rely on the
provisions of the Uniform Act for the Simplification of
Fiduciary Security Transfers or the Uniform Commercial
Code. The Company shall indemnify the Transfer Agent for
any act done or omitted to be done in reliance on such laws
or for refusing to transfer, exchange or redeem shares or
taking any requested action if it acts on a good faith belief
that the transaction or action is illegal or unauthorized.
<PAGE>
(f) Shareholder Records, Reports and Services.

(1) The Transfer Agent shall maintain all shareholder
accounts, which shall contain all required tax,
legally imposed and regulatory information; shall
provide shareholders, and file with federal and state
agencies, all required tax and other reports
pertaining to shareholder accounts; shall prepare
shareholder mailing lists; shall cause to be printed
and mailed all required prospectuses, annual reports,
semiannual reports, statements of additional
information (upon request), proxies and other
mailings to shareholders; and shall cause proxies to
be tabulated.

(2) The Transfer Agent shall respond to all valid
inquiries related to its duties under this Agreement.

(3) The Transfer Agent shall create and maintain all
records in accordance with all applicable laws, rules
and regulations, including, but not limited to, the
records required by Section 31(a) of the Investment
Company Act of 1940.

(g) Dividends and Distributions. The Transfer Agent shall prepare
and present the necessary report to the Custodian and shall
cause to be prepared and transmitted the payment of income
dividends and capital gains distributions or cause to be
recorded the investment of such dividends and distributions in
additional shares of the Funds or as directed by instructions
or forms acceptable to the Transfer Agent.

(h) Confirmations and Statements. The Transfer Agent shall confirm
each transaction either at the time of the transaction or
through periodic reports as may be legally permitted.

(i) Lost or Stolen Checks. The Transfer Agent will replace lost or
stolen checks issued to shareholders upon receipt of proper
notification and will maintain any stop payment orders against
the lost or stolen checks as it is economically desirable to
do.

(j) Reports to Company. The Transfer Agent will provide reports
pertaining to the services provided under this Agreement as
the Company may request to ascertain the quality and level of
services being provided or as required by law.

(k) Other Duties. The Transfer Agent may perform other duties for
additional compensation if agreed to in writing by the
parties to this Agreement.

6. Ownership and Confidentiality of Records. The Transfer Agent agrees
that all records prepared or maintained by it relating to the services
to be performed by it under the terms of this Agreement are the
property of the Company and may be inspected by the Company or any
person retained by the Company at reasonable times. The Company and
Transfer Agent agree to protect the confidentiality of those records.
<PAGE>
7. Action by Board and Opinion of Counsel. The Transfer Agent may rely on
resolutions of the Board of Directors (the "Board") or the Executive
Committee of the Board and on opinion of counsel for the Company.

8. Duty of Care. It is understood and agreed that, in furnishing the
Company with the services as herein provided, neither the Transfer
Agent, nor any officer, director or agent thereof shall be held liable
for any loss arising out of or in connection with their actions under
this Agreement so long as they act in good faith and with due
diligence, and are not negligent or guilty of any willful misconduct.
It is further understood and agreed that the Transfer Agent may rely
upon information furnished to it reasonably believed to be accurate
and reliable. In the event the Transfer Agent is unable to perform its
obligations under the terms of this Agreement because of an act of
God, strike or equipment or transmission failure reasonably beyond its
control, the Transfer Agent shall not be liable for any damages
resulting from such failure.

9. Term and Termination. This Agreement shall become effective on the
date first set forth above (the "Effective Date") and shall continue
in effect from year to year thereafter as the parties may mutually
agree; provided that either party may terminate this Agreement by
giving the other party notice in writing specifying the date of such
termination, which shall be not less than 60 days after the date of
receipt of such notice. In the event such notice is given by the
Company, it shall be accompanied by a vote of the Board, certified by
the Secretary, electing to terminate this Agreement and designating a
successor transfer agent or transfer agents. Upon such termination and
at the expense of the Company, the Transfer Agent will deliver to such
successor a certified list of shareholders of the Funds (with name,
address and taxpayer identification or Social Security number), a
historical record of the account of each shareholder and the status
thereof, and all other relevant books, records, correspondence, and
other data established or maintained by the Transfer Agent under this
Agreement in the form reasonably acceptable to the Company, and will
cooperate in the transfer of such duties and responsibilities,
including provisions for assistance from the Transfer Agent's
personnel in the establishment of books, records and other data by
such successor or successors.

10. Amendment. This Agreement may not be amended or modified in any manner
except by a written agreement executed by both parties.

11. Subcontracting. The Company agrees that the Transfer Agent may
subcontract for certain of the services described under this Agreement
with the understanding that there shall be no diminution in the quality
or level of the services and that the Transfer Agent remains fully
responsible for the services. Except for out-of-pocket expenses
identified in Schedule B, the Transfer Agent shall bear the cost of
subcontracting such services, unless otherwise agreed by the parties.
<PAGE>
12. Miscellaneous.

(a) This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable
without the written consent of the other party.

(b) This Agreement shall be governed by the laws of the State
of Minnesota.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers as of the day and year written above.

IDS TAX-EXEMPT BOND FUND, INC.
IDS Intermediate Tax-Exempt Fund
IDS Tax-Exempt Bond Fund

By: ____/s/ Leslie L. Ogg_________
Leslie L. Ogg
Vice President

AMERICAN EXPRESS CLIENT SERVICE CORPORATION

By: ____/s/ Barry J. Murphy_______
Barry J. Murphy
President
<PAGE>
Schedule A

IDS TAX-EXEMPT BOND FUND, INC.

FEE

The annual per account fee for services under this agreement, accrued daily and
payable monthly, is as follows:

Class A Class B Class Y
IDS Intermediate Tax-Exempt Fund $15.50 $16.50 $15.50
IDS Tax-Exempt Bond Fund $15.50 $16.50 $15.50

Until November 30, 1998, the Transfer Agent has agreed to waive certain fees and
to absorb certain fund expenses under this Agreement. If, at the end of any
month, the fees and expenses of Intermediate Tax-Exempt Fund exceed 0.90% the
Fund shall not pay fees and expenses under this Agreement to the extent
necessary to keep the Fund's expense ratio from exceeding the limitation. In any
month that the fees and expenses of Class A shares exceed this limitation all
fees and expenses in excess of that limit will be returned to that Fund. Any fee
waiver or elimination of expenses will apply to each class on a pro rata basis.
<PAGE>
Schedule B

OUT-OF-POCKET EXPENSES

The Company shall reimburse the Transfer Agent monthly for the following
out-of-pocket expenses:

o typesetting, printing, paper, envelopes, postage and return postage
for proxy soliciting material, and proxy tabulation costs

o printing, paper, envelopes and postage for dividend notices, dividend
checks, records of account, purchase confirmations, exchange
confirmations and exchange prospectuses, redemption confirmations,
redemption checks, confirmations on changes of address and any other
communication required to be sent to shareholders

o typesetting, printing, paper, envelopes and postage for prospectuses,
annual and semiannual reports, statements of additional information,
supplements for prospectuses and statements of additional information
and other required mailings to shareholders

o stop orders

o outgoing wire charges

o other expenses incurred at the request or with the consent of
the Company

Shareholder Service Agreement

This agreement is between IDS Tax-Exempt Bond Fund, Inc. (the "Corporation") on
behalf of its underlying series fund: IDS Intermediate Tax-Exempt Fund (the
"Fund"); and American Express Financial Advisors Inc., the principal underwriter
of the Fund, for services to be provided to shareholders by personal financial
advisors and other servicing agents.

American Express Financial Advisors Inc. represents that shareholders consider
their financial advisor or servicing agent a significant factor in their
satisfaction with their investment and, to help retain financial advisors or
servicing agents, it is necessary for the Fund to pay annual servicing fees to
financial advisors and other servicing agents.

American Express Financial Advisors Inc. represents that fees paid to financial
advisors will be used by financial advisors to help shareholders thoughtfully
consider their investment goals and objectively monitor how well the goals are
being achieved. As principal underwriter, American Express Financial Advisors
Inc. will use its best efforts to assure that other distributors provide
comparable services to shareholders for the servicing fees received.

American Express Financial Advisors Inc. agrees to monitor the services provided
by financial advisors and servicing agents, to measure the level and quality of
services provided, to provide training and support to financial advisors and
servicing agents and to devise methods for rewarding financial advisors and
servicing agents who achieve an exemplary level and quality of services.

The Corporation agrees to pay American Express Financial Advisors Inc. and other
servicing agents 0.15 percent of the net asset value for each shareholder
account assigned to a financial advisor or servicing agent that holds either of
the Fund's Class A or Class B Common Stock, $0.01 par value per share (the
"Class A Shares" and "Class B Shares"). In addition, the Corporation, on behalf
of the Fund, agrees to pay American Express Financial Advisors Inc.'s costs to
monitor, measure, train and support services provided by financial advisors or
servicing agents up to 0.025 percent of the net asset value for each shareholder
account assigned to a financial advisor or servicing agent that holds either
Class A Shares or Class B Shares. The Corporation agrees to pay American Express
Financial Advisors Inc. in cash within five (5) business days after the last day
of each month.

American Express Financial Advisors Inc. agrees to provide the Fund, prior to
the beginning of the calendar year, a budget covering its expected costs to
monitor, measure, train and support services and a quarterly report of its
actual expenditures. American Express Financial Advisors Inc. agrees to meet
with representatives of the Fund at their request to provide information as
may be reasonably necessary to evaluate its performance under the terms of
this agreement.

American Express Financial Advisors Inc. agrees that if, at the end of any
month, the expenses of the Fund, including fees under this agreement and any
other agreement between the Fund and American Express Financial Advisors Inc. or
American Express Financial Corporation, but excluding taxes, brokerage
commissions and charges in connection with the purchase and sale of assets
exceed the most restrictive applicable state expense limitation for the Fund's
current fiscal year, the Fund shall not pay fees and expenses under this
<PAGE>
agreement to the extent necessary to keep the Fund's expenses from exceeding the
limitation, it being understood that American Express Financial Advisors will
assume all unpaid expenses and bill the Fund for them in subsequent months but
in no event can the accumulation of unpaid expenses or billing be carried past
the end of the Fund's fiscal year.

This agreement shall continue in effect for a period of more than one year so
long as it is reapproved at least annually at a meeting called for the purpose
of voting on the agreement by a vote, in person, of the members of the Board who
are not interested persons of the Corporation and have no financial interest in
the operation of the agreement, and of all the members of the Board.

This agreement may be terminated at any time without payment of any penalty by a
vote of a majority of the members of the Board who are not interested persons of
the Corporation and have no financial interest in the operation of the agreement
or by American Express Financial Advisors Inc. The agreement will terminate
automatically in the event of its assignment as that term is defined in the
Investment Company Act of 1940. This agreement may be amended at any time
provided the amendment is approved in the same manner the agreement was
initially approved and the amendment is agreed to by American Express Financial
Advisors Inc.

Approved this 13th day of November, 1996.

IDS TAX-EXEMPT BOND FUND, INC.
IDS INTERMEDIATE TAX-EXMPT FUND

/s/ Leslie L. Ogg
Leslie L. Ogg
Vice President

AMERICAN EXPRESS FINANCIAL ADVISORS INC.

/s/ Michael J. Hogan
Michael J. Hogan
Vice President

ADMINISTRATIVE SERVICES AGREEMENT

AGREEMENT made the 13th day of November, 1996, by and between IDS Tax-Exempt
Bond Fund, Inc. (the "Corporation"), a Minnesota corporation, on behalf of its
underlying series fund: IDS Intermediate Tax-Exempt Fund (the "Fund"); and
American Express Financial Corporation, a Delaware corporation.

Part One: SERVICES

(1) The Corporation hereby retains American Express Financial Corporation, and
American Express Financial Corporation hereby agrees, for the period of this
agreement and under the terms and conditions hereinafter set forth, to furnish
the Fund continuously with all administrative, accounting, clerical,
statistical, correspondence, corporate and all other services of whatever nature
required in connection with the administration of the Fund as provided under
this agreement; and to pay such expenses as may be provided for in Part Three
hereof; subject always to the direction and control of the Board of Directors,
the Executive Committee and the authorized officers of the Corporation. American
Express Financial Corporation agrees to maintain an adequate organization of
competent persons to provide the services and to perform the functions herein
mentioned. American Express Financial Corporation agrees to meet with any
persons at such times as the Board of Directors deems appropriate for the
purpose of reviewing American Express Financial Corporation's performance under
this agreement.

(2) The Corporation agrees that it will furnish to American Express Financial
Corporation any information that the latter may reasonably request with respect
to the services performed or to be performed by American Express Financial
Corporation under this agreement.

(3) It is understood and agreed that in furnishing the Fund with the services as
herein provided, neither American Express Financial Corporation, nor any
officer, director or agent thereof shall be held liable to the Corporation (or
the Fund) or its creditors or shareholders for errors of judgment or for
anything except willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or reckless disregard of its obligations and duties
under the terms of this agreement. It is further understood and agreed that
American Express Financial Corporation may rely upon information furnished to it
reasonably believed to be accurate and reliable.

Part Two: COMPENSATION FOR SERVICES

Assets Annual Rate At
(Billions) Each Asset Level

First $1.0 0.040%
Next 1.0 0.035
Next 1.0 0.030
Next 3.0 0.025
Over 6.0 0.020
<PAGE>
The administrative fee for each calendar day of each year shall be equal to
1/365th (1/366th in each leap year) of the total amount computed. The
computation shall be made for each such day on the basis of net assets as of the
close of business of the full business day two (2) business days prior to the
day for which the computation is being made. In the case of the suspension of
the computation of net asset value, the administrative fee for each day during
the suspension shall be computed as of the close of business on the last full
business day on which the net assets were computed. "Net assets" as of the close
of a full business day shall include all transactions in shares of the Fund
recorded on the books of the Fund for that day.

(2) The administrative fee shall be paid on a monthly basis and, in the event of
the termination of this agreement, the administrative fee accrued shall be
prorated on the basis of the number of days that this agreement is in effect
during the month with respect to which such payment is made.

(3) The administrative fee provided for hereunder shall be paid in cash to
American Express Financial Corporation within five (5) business days after the
last day of each month.

Part Three: ALLOCATION OF EXPENSES

(1) The Corporation, on behalf of the Fund, agrees to pay:

(a) Administrative fees payable to American Express Financial Corporation for
its services under the terms of this agreement;

(b) Taxes;

(d) Fees and expenses of attorneys (i) it employs in matters not involving the
assertion of a claim by a third party against the Corporation, its directors and
officers, (ii) it employs in conjunction with a claim asserted by the Board of
Directors against American Express Financial Corporation, except that American
Express Financial Corporation shall reimburse the Corporation for such fees and
expenses if it is ultimately determined by a court of competent jurisdiction, or
American Express Financial Corporation agrees, that it is liable in whole or in
part to the Corporation (and/or the Fund) and (iii) it employs to assert a claim
against a third party;

(e) Fees paid for the qualification and registration for public sale of the
securities of the Fund under the laws of the United States and of the several
states in which such securities shall be offered for sale;

(f) Office expenses which shall include a charge for occupancy, insurance on the
premises, furniture and equipment, telephone, telegraph, electronic information
services, books, periodicals, published services and office supplies used by the
Corporation, equal to the cost of such incurred by American Express Financial
Corporation;

(g) Fees of consultants employed by the Corporation;

(h) Directors, officers and employees expenses which shall include fees,
salaries, memberships, dues, travel, seminars, pension, profit sharing and all
other benefits paid to or provided for directors, officers and employees,
directors and officers liability insurance, errors and omissions liability
<PAGE>
insurance, worker's compensation insurance and other expenses applicable to the
directors, officers and employees, except the Corporation will not pay any fees
or expenses of any person who is an officer or employee of American Express
Financial Corporation or its affiliates;

(i) Filing fees and charges incurred by the Corporation in connection with
filing any amendment to its articles of incorporation, or incurred in filing any
other document with the State of Minnesota or its political subdivisions;

(j) Organizational expenses of the Fund;

(k) One-half of the Investment Company Institute membership dues charged jointly
to the IDS MUTUAL FUND GROUP and American Express Financial Corporation; and

(l) Expenses properly payable by the Corporation, approved by the Board of
Directors.

(2) American Express Financial Corporation agrees to pay all expenses associated
with the services it provides under the terms of this agreement. Further,
American Express Financial Corporation agrees that if, at the end of any month,
the expenses of the Fund under this agreement and any other agreement between
the Fund and American Express Financial Corporation, but excluding those
expenses set forth in (1)(b) of this Part Three, exceed the most restrictive
applicable state expense limitation, the Corporation shall not pay those
expenses set forth in (1)(a) and (c) through (m) of this Part Three to the
extent necessary to keep the Fund's expenses from exceeding the limitation, it
being understood that American Express Financial Corporation will assume all
unpaid expenses and bill the Corporation for them in subsequent months but in no
event can the accumulation of unpaid expenses or billing be carried past the end
of the Fund's fiscal year.

Until November 12, 1997, American Express Financial Corporation has agreed to
waive certain fees and to absorb certain fund expenses under this agreement. If,
at the end of any month, the fees and expense of the Fund's Class A Common
Stock, $0.01 par value per share (the "Class A Shares"), under this agreement
and any other agreement between the Fund and American Express Financial
Corporation exceed 0.90%, the Corporation shall not pay fees or expenses under
this agreement to the extent necessary to keep the expense ratio from exceeding
the limitation. In any month that fees and expenses of Class A Shares exceed
0.90%, all fees and expenses in excess of that limit will be returned to the
Fund. Any fee waiver or elimination of expenses will apply to each class on a
pro rata basis.

Part Four: MISCELLANEOUS

(1) American Express Financial Corporation shall be deemed to be an independent
contractor and, except as expressly provided or authorized in this agreement,
shall have no authority to act for or represent the Corporation.

(2) A "full business day" shall be as defined in the By-laws of the
Corporation.

(3) The Corporation recognizes that American Express Financial Corporation now
renders and may continue to render investment advice and other services to other
investment companies and persons which may or may not have investment policies
and investments similar to those of the Fund and that American Express Financial
Corporation manages its own investments and/or those of its
<PAGE>
subsidiaries. American Express Financial Corporation shall be free to render
such investment advice and other services and the Corporation hereby consents
thereto.

(4) Neither this agreement nor any transaction had pursuant hereto shall be
invalidated or in anyway affected by the fact that directors, officers, agents
and/or shareholders of the Corporation are or may be interested in American
Express Financial Corporation or any successor or assignee thereof, as
directors, officers, stockholders or otherwise; that directors, officers,
stockholders or agents of American Express Financial Corporation are or may be
interested in the Corporation as directors, officers, shareholders, or
otherwise; or that American Express Financial Corporation or any successor or
assignee, is or may be interested in the Corporation as shareholder or
otherwise, provided, however, that neither American Express Financial
Corporation, nor any officer, director or employee thereof or of the
Corporation, shall sell to or buy from the Corporation any property or security
other than shares issued by the Corporation, except in accordance with
applicable regulations or orders of the United States Securities and Exchange
Commission.

(5) Any notice under this agreement shall be given in writing, addressed, and
delivered, or mailed postpaid, to the party to this agreement entitled to
receive such, at such party's principal place of business in Minneapolis,
Minnesota, or to such other address as either party may designate in writing
mailed to the other.

(6) American Express Financial Corporation agrees that no officer, director or
employee of American Express Financial Corporation will deal for or on behalf of
the Corporation with himself or herself as principal or agent, or with any
corporation or partnership in which he or she may have a financial interest,
except that this shall not prohibit officers, directors or employees of American
Express Financial Corporation from having a financial interest in the
Corporation or in American Express Financial Corporation.

(7) The Corporation agrees that American Express Financial Corporation may
subcontract for certain of the services described under this agreement with the
understanding that there shall be no diminution in the quality or level of the
services and that American Express Financial Corporation remains fully
responsible for the services.

(8) This agreement shall extend to and shall be binding upon the parties hereto,
and their respective successors and assigns; provided, however, that this
agreement shall not be assignable without the written consent of the other
party. This agreement shall be governed by the laws of the State of Minnesota.

Part Five: RENEWAL AND TERMINATION

(1) This agreement shall become effective on the date first set forth above and
shall continue in effect from year to year thereafter as the parties may
mutually agree; provided that either party may terminate this agreement by
giving the other party notice in writing specifying the date of such
termination, which shall be not less than 60 days after the date of receipt of
such notice.

(2) This agreement may not be amended or modified in any manner except by a
written agreement executed by both parties.
<PAGE>
IN WITNESS THEREOF, the parties hereto have executed the foregoing agreement as
of the day and year first above written.

IDS TAX-EXEMPT BOND FUND, INC.
IDS INTERMEDIATE TAX-EXEMPT FUND

By: /s/ Leslie L. Ogg
Leslie L. Ogg
Vice President

AMERICAN EXPRESS FINANCIAL CORPORATION

By: /s/ Michael J. Hogan
Michael J. Hogan
Vice President

January 26, 1998

IDS Tax-Exempt Bond Fund, Inc.
IDS Tower 10
Minneapolis, Minnesota 55440-0010

Gentlemen:

I have examined the Articles of Incorporation and the By-Laws of the Company and
all necessary certificates, permits, minute books, documents and records of the
Company, and the applicable statutes of the State of Minnesota, and it is my
opinion:

(a) That the Company is a corporation duly organized and existing under the
laws of the State of Minnesota with an authorized capital stock of
10,000,000,000 shares, all of $.01 par value, that such shares may be
issued as full or fractional shares;

(b) That all such authorized shares are, under the laws of the State of
Minnesota, redeemable as provided in the Articles of Incorporation and
of the Company and upon redemption shall have the status of authorized
and unissued shares;

(d) That shares which were sold at not less than their par value and in
accordance with applicable federal and state securities laws were
legally issued, fully paid and nonassessable.

I hereby consent that the foregoing opinion may be used in connection with the
Rule Post-Effective Amendment.

Very truly yours,

Leslie L. Ogg
Attorney at Law
901 S. Marquette Ave., Suite 2810
Minneapolis, Minnesota 55402-3268

Independent auditor's consent

- ------------------------------------------------------------------------------

The board and shareholders
IDS Tax-Exempt Bond Fund, Inc.:
IDS Intermediate Tax-Exempt Fund
IDS Tax-Exempt Bond Fund

We consent to the use of our reports incorporated herein by reference and to the
references to our Firm under the headings "Financial highlights" in Part A and
"INDEPENDENT AUDITORS" in Part B of the Registration Statement.

KPMG Peat Marwick LLP
Minneapolis, Minnesota
January , 1998

Plan and Agreement of Distribution

This plan and agreement is between IDS Tax-Exempt Bond Fund, Inc. (the
"Corporation") on behalf of its underlying series fund: IDS Intermediate
Tax-Exempt Fund (the "Fund"); and American Express Financial Advisors Inc., the
principal underwriter of the Fund, for distribution services to the Fund.

The plan and agreement has been approved by members of the Board of Directors
(the "Board") of the Corporation who are not interested persons of the
Corporation and have no direct or indirect financial interest in the operation
of the plan or any related agreement, and all of the members of the Board, in
person, at a meeting called for the purpose of voting on the plan and agreement.

The plan and agreement provides that:

1. The Corporation, on behalf of the Fund, will reimburse American Express
Financial Advisors Inc. for all sales and promotional expenses attributable to
the sale of the Fund's Class B Common Stock, $0.01 per share par value (the
"Class B Shares"), including sales commissions, business and employee expenses
charged to distribution of Class B Shares, and corporate overhead appropriately
allocated to the sale of Class B Shares.

2. The amount of the reimbursement shall be equal on an annual basis to 0.75% of
the average daily net assets of the Fund attributable to Class B Shares. The
amount so determined shall be paid to American Express Financial Advisors Inc.
in cash within five (5) business days after the last day of each month. American
Express Financial Advisors Inc. agrees that if, at the end of any month, the
expenses of the Fund, including fees under this agreement and any other
agreement between the Fund and American Express Financial Advisors Inc. or
American Express Financial Corporation, but excluding taxes, brokerage
commissions and charges in connection with the purchase and sale of assets
exceed the most restrictive applicable state expense limitation for the Fund's
current fiscal year, the Fund shall not pay fees and expenses under this
agreement to the extent necessary to keep the Fund's expenses from exceeding the
limitation, it being understood that American Express Financial Advisors Inc.
will assume all unpaid expenses and bill the Fund for them in subsequent months,
but in no event can the accumulation of unpaid expenses or billing be carried
past the end of the Fund's fiscal year.

3. For each purchase of Class B Shares, after eight years the Class B Shares
will be converted to shares of the Fund's then-existing Class A Common Stock,
$0.01 per share par value (the "Class A Shares") and those assets will no longer
be included in determining the reimbursement amount.

4. The Corporation understands that if a shareholder redeems Class B Shares
before they are converted to Class A Shares, American Express Financial Advisors
Inc. will impose a sales charge directly on the redemption proceeds to cover
those expenses it has previously incurred on the sale of those shares.

5. American Express Financial Advisors Inc. agrees to provide at least
quarterly an analysis of distribution expenses and to meet with
representatives of the Corporation as reasonably requested to provide
additional information.
<PAGE>
6. The plan and agreement shall continue in effect for a period of more than one
year provided it is reapproved at least annually in the same manner in which it
was initially approved.

7. The plan and agreement may not be amended to increase materially the amount
that may be paid by the Fund without the approval of at least a majority of the
outstanding Class B Shares, as specified in the Investment Company Act of 1940.
Any other amendment must be approved in the manner in which the plan and
agreement was initially approved.

8. This agreement may be terminated at any time without payment of any penalty
by a vote of a majority of the members of the Board who are not interested
persons of the Corporation and have no financial interest in the operation of
the plan and agreement, or by vote of a majority of the outstanding Class B
shares, or by American Express Financial Advisors Inc. The plan and agreement
will terminate automatically in the event of its assignment as that term is
defined in the Investment Company Act of 1940.

Approved this 13th day of November, 1996.

IDS TAX-EXEMPT BOND FUND, INC.
IDS INTERMEDIATE TAX-EXEMPT FUND

/s/ Leslie L. Ogg
Leslie L. Ogg
Vice President

AMERICAN EXPRESS FINANCIAL ADVISORS INC.

/s/ Michael J. Hogan
Michael J. Hogan
Vice President

<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> IDS INTERMEDIATE TAX-EXEMPT FUND CLASS A

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 22266182
<INVESTMENTS-AT-VALUE> 22511911
<RECEIVABLES> 314055
<ASSETS-OTHER> 13365
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 22839331
<PAYABLE-FOR-SECURITIES> 202744
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 47886
<TOTAL-LIABILITIES> 250630
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22381517
<SHARES-COMMON-STOCK> 3348204
<SHARES-COMMON-PRIOR> 306397
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (2)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (38543)
<ACCUM-APPREC-OR-DEPREC> 245729
<NET-ASSETS> 17031483
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 779028
<OTHER-INCOME> 0
<EXPENSES-NET> 188173
<NET-INVESTMENT-INCOME> 590855
<REALIZED-GAINS-CURRENT> (38543)
<APPREC-INCREASE-CURRENT> 239163
<NET-CHANGE-FROM-OPS> 791475
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (465805)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5874257
<NUMBER-OF-SHARES-REDEEMED> (2911999)
<SHARES-REINVESTED> 79549
<NET-CHANGE-IN-ASSETS> 20589763
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 77792
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 288082
<AVERAGE-NET-ASSETS> 12969613
<PER-SHARE-NAV-BEGIN> 5.04
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<PER-SHARE-NAV-END> 5.09
<EXPENSE-RATIO> .93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> IDS INTERMEDIATE TAX-EXEMPT FUND CLASS B

<S> <C>
<PERIOD-TYPE> YEAR
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<OVERDISTRIBUTION-GAINS> (38543)
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<NET-ASSETS> 5556164
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 779028
<OTHER-INCOME> 0
<EXPENSES-NET> 188173
<NET-INVESTMENT-INCOME> 590855
<REALIZED-GAINS-CURRENT> (38543)
<APPREC-INCREASE-CURRENT> 239163
<NET-CHANGE-FROM-OPS> 791475
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (125014)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1612479
<NUMBER-OF-SHARES-REDEEMED> (632712)
<SHARES-REINVESTED> 22888
<NET-CHANGE-IN-ASSETS> 20589763
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 77792
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 288082
<AVERAGE-NET-ASSETS> 4364322
<PER-SHARE-NAV-BEGIN> 5.04
<PER-SHARE-NII> .14
<PER-SHARE-GAIN-APPREC> .05
<PER-SHARE-DIVIDEND> (.14)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.09
<EXPENSE-RATIO> 1.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> IDS INTERMEDIATE TAX-EXEMPT FUND CLASS Y

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 22266182
<INVESTMENTS-AT-VALUE> 22511911
<RECEIVABLES> 314055
<ASSETS-OTHER> 13365
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 22839331
<PAYABLE-FOR-SECURITIES> 202744
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 47886
<TOTAL-LIABILITIES> 250630
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22381517
<SHARES-COMMON-STOCK> 207
<SHARES-COMMON-PRIOR> 200
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (2)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (38543)
<ACCUM-APPREC-OR-DEPREC> 245729
<NET-ASSETS> 1054
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 779028
<OTHER-INCOME> 0
<EXPENSES-NET> 188173
<NET-INVESTMENT-INCOME> 590855
<REALIZED-GAINS-CURRENT> (38543)
<APPREC-INCREASE-CURRENT> 239163
<NET-CHANGE-FROM-OPS> 791475
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (38)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 7
<NET-CHANGE-IN-ASSETS> 20589763
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 77792
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 288082
<AVERAGE-NET-ASSETS> 1028
<PER-SHARE-NAV-BEGIN> 5.04
<PER-SHARE-NII> .18
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<EXPENSE-RATIO> .8
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> IDS TAX-EXEMPT BOND FUND CLASS A

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 889555471
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<TOTAL-LIABILITIES> 4035134
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<SHARES-COMMON-PRIOR> 266064386
<ACCUMULATED-NII-CURRENT> 36290
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (35640207)
<ACCUM-APPREC-OR-DEPREC> 119585525
<NET-ASSETS> 997628611
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 60913244
<OTHER-INCOME> 0
<EXPENSES-NET> 7541098
<NET-INVESTMENT-INCOME> 53372146
<REALIZED-GAINS-CURRENT> 4908245
<APPREC-INCREASE-CURRENT> 18124449
<NET-CHANGE-FROM-OPS> 76404840
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (52470173)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13009697
<NUMBER-OF-SHARES-REDEEMED> (44990511)
<SHARES-REINVESTED> 8904140
<NET-CHANGE-IN-ASSETS> (65082564)
<ACCUMULATED-NII-PRIOR> 87424
<ACCUMULATED-GAINS-PRIOR> (40548452)
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 4632571
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<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 1012865796
<PER-SHARE-NAV-BEGIN> 4.01
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> IDS TAX-EXEMPT BOND FUND CLASS B

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
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<TOTAL-LIABILITIES> 4035134
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 938224142
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<ACCUMULATED-NII-CURRENT> 36290
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (35640207)
<ACCUM-APPREC-OR-DEPREC> 119585525
<NET-ASSETS> 24566751
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 60913244
<OTHER-INCOME> 0
<EXPENSES-NET> 7541098
<NET-INVESTMENT-INCOME> 53372146
<REALIZED-GAINS-CURRENT> 4908245
<APPREC-INCREASE-CURRENT> 18124449
<NET-CHANGE-FROM-OPS> 76404840
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (952585)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 188443
<NUMBER-OF-SHARES-REDEEMED> (1043800)
<SHARES-REINVESTED> 198576
<NET-CHANGE-IN-ASSETS> (65082564)
<ACCUMULATED-NII-PRIOR> 87424
<ACCUMULATED-GAINS-PRIOR> (40548452)
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 21563398
<PER-SHARE-NAV-BEGIN> 4.01
<PER-SHARE-NII> .18
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<PER-SHARE-NAV-END> 4.11
<EXPENSE-RATIO> 1.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> IDS TAX-EXEMPT BOND FUND CLASS Y

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 889555471
<INVESTMENTS-AT-VALUE> 1009140996
<RECEIVABLES> 16937923
<ASSETS-OTHER> 161965
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1026240884
<PAYABLE-FOR-SECURITIES> 3516178
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 518956
<TOTAL-LIABILITIES> 4035134
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 938224142
<SHARES-COMMON-STOCK> 2530
<SHARES-COMMON-PRIOR> 2400
<ACCUMULATED-NII-CURRENT> 36290
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (35640207)
<ACCUM-APPREC-OR-DEPREC> 119585525
<NET-ASSETS> 10388
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 60913244
<OTHER-INCOME> 0
<EXPENSES-NET> 7541098
<NET-INVESTMENT-INCOME> 53372146
<REALIZED-GAINS-CURRENT> 4908245
<APPREC-INCREASE-CURRENT> 18124449
<NET-CHANGE-FROM-OPS> 76404840
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (522)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 130
<NET-CHANGE-IN-ASSETS> (65082564)
<ACCUMULATED-NII-PRIOR> 87424
<ACCUMULATED-GAINS-PRIOR> (40548452)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4632571
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 9867
<PER-SHARE-NAV-BEGIN> 4.01
<PER-SHARE-NII> .21
<PER-SHARE-GAIN-APPREC> .10
<PER-SHARE-DIVIDEND> (.21)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 4.11
<EXPENSE-RATIO> .60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

City of Minneapolis

State of Minnesota

Each of the undersigned, as directors and trustees of the below listed
open-end, diversified investment companies that previously have filed
registration statements and amendments thereto pursuant to the requirements of
the Securities Act of 1933 and the Investment Company Act of 1940 with the
Securities and Exchange Commission:

1933 Act 1940 Act
Reg. Number Reg. Number

IDS Bond Fund, Inc. 2-51586 811-2503
IDS California Tax-Exempt Trust 33-5103 811-4646
IDS Discovery Fund, Inc. 2-72174 811-3178
IDS Equity Select Fund, Inc. 2-13188 811-772
IDS Extra Income Fund, Inc. 2-86637 811-3848
IDS Federal Income Fund, Inc. 2-96512 811-4260
IDS Global Series, Inc. 33-25824 811-5696
IDS Growth Fund, Inc. 2-38355 811-2111
IDS High Yield Tax-Exempt Fund, Inc. 2-63552 811-2901
IDS International Fund, Inc. 2-92309 811-4075
IDS Investment Series, Inc. 2-11328 811-54
IDS Managed Retirement Fund, Inc. 2-93801 811-4133
IDS Market Advantage Series, Inc. 33-30770 811-5897
IDS Money Market Series, Inc. 2-54516 811-2591
IDS New Dimensions Fund, Inc. 2-28529 811-1629
IDS Precious Metals Fund, Inc. 2-93745 811-4132
IDS Progressive Fund, Inc. 2-30059 811-1714
IDS Selective Fund, Inc. 2-10700 811-499
IDS Special Tax-Exempt Series Trust 33-5102 811-4647
IDS Stock Fund, Inc. 2-11358 811-498
IDS Strategy Fund, Inc. 2-89288 811-3956
IDS Tax-Exempt Bond Fund, Inc. 2-57328 811-2686
IDS Tax-Free Money Fund, Inc. 2-66868 811-3003
IDS Utilities Income Fund, Inc. 33-20872 811-5522

hereby constitutes and appoints William R. Pearce and Leslie L. Ogg or either
one of them, as her or his attorney-in-fact and agent, to sign for her or him in
her or his name, place and stead any and all further amendments to said
registration statements filed pursuant to said Acts and any rules and
regulations thereunder, and to file such amendments with all exhibits thereto
and other documents in connection therewith with the Securities and Exchange
Commission, granting to either of them the full power and authority to do and
perform each and every act required and necessary to be done in connection
therewith.
<PAGE>
Dated the 7th day of January, 1998.

/s/ H. Brewster Atwater, Jr. /s/ William R. Pearce
H. Brewster Atwater, Jr. William R. Pearce

/s/ Lynne V. Cheney /s/ Alan K. Simpson
Lynne V. Cheney Alan K. Simpson

/s/ William H. Dudley /s/ Edson W. Spencer
William H. Dudley Edson W. Spencer

/s/ David R. Hubers /s/ John R. Thomas
David R. Hubers John R. Thomas

/s/ Heinz F. Hutter /s/ Wheelock Whitney
Heinz F. Hutter Wheelock Whitney

/s/ Anne P. Jones /s/ C. Angus Wurtele
Anne P. Jones C. Angus Wurtele