IDS SPECIAL TAX EXEMPT SERIES TRUST, 485APOS, 1994-12-23

IDS SPECIAL TAX EXEMPT SERIES TRUST
485APOS, 1994-12-23

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<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM N-1A

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 23 (FILE NO. 33-5102) /X/

AND/OR

REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 26 (File No. 811-4647) /X/
------------------------

IDS SPECIAL TAX-EXEMPT SERIES TRUST
IDS Tower 10, Minneapolis, Minnesota 55440-0534

Leslie L. Ogg
901 Marquette Avenue South
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)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/X/ on Mar. 3, 1995 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.

------------------------

THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OR AMOUNT OF SECURITIES UNDER
THE SECURITIES ACT OF 1933 PURSUANT TO SECTION 24F-2 OF THE INVESTMENT COMPANY
ACT OF 1940. RULE 24F-2 NOTICE FOR ITS MOST RECENT FISCAL YEAR WAS FILED ON OR
ABOUT AUG. 31, 1994.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Cross reference sheet for IDS California, Massachusetts, Michigan, Minnesota,
New York and Ohio Tax-Exempt Funds prospectus and the Statement of Additional
Information of the information called for by the items enumerated in Part A and
Part B of Form N-1A.

Negative answers omitted from Part A or Part B are so indicated.

<TABLE>
<CAPTION>
PART A PART B
- --------------------------------- --------------------------------
Page Number in
Statement of
Page Number Additional
Item No. in Prospectus Item No. Information
-------- --------------- --------------- ---------------
<S> <C> <C> <C>
1 3 10 82
2 5;5-9 11 83
3(a) 10-15 12 NA
(b) NA
(c) 10-18 13(a) 84-86;107-128
(d) 10-15 (b) 84-86
(c) 85
4(a) 5;18-23;34-37 (d) 88
(b) 18-23
(c) 18-23 14(a) 34-35**;102-105
(b) 102-105
5(a) 34-35;35 (c) 104-105
(b) 34-37;37
(b)(i) 37 15(a) NA
(b)(ii) 35-36 (b) NA
(b)(iii) 35-36 (c) 104-105
(c) 5
(d) 5 16(a)(i) 34-37**;37**
(e) 35-36 (a)(ii) 98-99;101-102
(f) 36-37 (a)(iii) 98
(g) 35-36 (b) 98-99;101-102
(c) NA
5A(a) * (d) None
(b) * (e) NA
(f) 100;101-102
6(a) 34;34 (g) NA
(b) NA (h) 105;105
(c) NA (i) 99-100;105
(d) 34
(e) 3;31 17(a) 86-88
(f) 32;32 (b) 86-88
(g) 32-34 (c) 86-88
(d) 87
7(a) 36-37 (e) 88
(b) 17-18;23
(c) 23-31 18(a) 34**;34**
(d) 26 (b) NA
(e) NA
(f) 36-37 19(a) 91-95
(b) 90-91;91-95
8(a) 26-29 (c) NA
(b) NA
(c) 26 20 97-98
(d) 28
21(a) 100
9 None (b) 100
(c) NA
22(a) 88-90
(b) NA
23 106
</TABLE>

Cross reference sheet for the IDS Insured Tax-Exempt Fund showing location in
the prospectus and the Statement of Additional Information of the information
called for by the items enumerated in Part A and Part B of Form N-1A.

Negative answers omitted from Part A or Part B are so indicated.

<TABLE>
<CAPTION>
PART A PART B
- --------------------------------- --------------------------------
Page Number in
Statement of
Page Number Additional
Item No. in Prospectus Item No. Information
-------- --------------- --------------- ---------------
<S> <C> <C> <C>
1 55 10 130
2 57;57-58 11 131
3(a) 59 12 NA
(b) NA
(c) 59-62 13(a) 132-134;153-167
(d) 59 (b) 132-134
(c) 133
4(a) 57;62-64;76-79 (d) 136
(b) 62-64
(c) 62-64 14(a) 77-78**;148-152
(b) 148-152
5(a) 77;77-78 (c) 151-152
(b) 76-79;79
(b)(i) 79 15(a) NA
(b)(ii) 78 (b) NA
(b)(iii) 78 (c) 151-152
(c) 57
(d) 57 16(a)(i) 76-79**;79**
(e) 78 (a)(ii) 146;148
(f) 78-79 (a)(iii) 146
(g) 78 (b) 146;148
(c) NA
5A(a) * (d) None
(b) * (e) NA
(f) 147;148
6(a) 76;76 (g) NA
(b) NA (h) 152;152
(c) NA (i) 147;152
(d) 76
(e) 55;73-74 17(a) 134-136
(f) 74;74 (b) 136
(g) 78 (c) 134-136
(d) 136
7(a) 78-79 (e) 136
(b) 61-62;64
(c) 65-73 18(a) 76**;76**
(d) 67-68 (b) NA
(e) NA
(f) 78-79 19(a) 140-143
(b) 138-139;140-143
8(a) 68-71 (c) NA
(b) NA
(c) 68 20 145-146
(d) 70
21(a) 147
9 None (b) 147
(c) NA
22(a) 137-138
(b) NA
23 152
<FN>

*Designates information is located in annual report.
**Designates page number in prospectus.
</TABLE>

<PAGE>
IDS CALIFORNIA TAX-EXEMPT TRUST
CALIFORNIA TAX-EXEMPT FUND

IDS SPECIAL TAX-EXEMPT SERIES TRUST
MASSACHUSETTS TAX-EXEMPT FUND
MICHIGAN TAX-EXEMPT FUND
MINNESOTA TAX-EXEMPT FUND
NEW YORK TAX-EXEMPT FUND
OHIO TAX-EXEMPT FUND

PROSPECTUS

AUG. 29, 1994 AS REVISED MARCH 3, 1995

Each fund's goal is to provide a high level of income generally exempt from
federal income tax as well as from the respective state and local income tax. A
portion of each fund's assets may be invested in bonds whose interest is subject
to the alternative minimum tax computation.

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

Additional facts about the funds are in a Statement of Additional
Information (SAI), filed with the Securities and Exchange Commission. The SAI,
dated Aug. 29, 1994 as revised March 3, 1995, is incorporated here by reference.
For a free copy, contact American Express Shareholder Service.

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.
SHARES IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.

American Express Shareholder Service
P.O. Box 534
Minneapolis, MN
55440-0534
612-671-3733
TTY: 800-846-4852

1
<PAGE>
TABLE OF CONTENTS

<TABLE>
<S> <C>
THE FUNDS IN BRIEF.........................................
Goals......................................................
Types of fund investments..................................
Manager and distributor....................................
Portfolio manager..........................................
Alternative sales arrangements.............................
SALES CHARGE AND FUND EXPENSES.............................
Sales charge...............................................
Operating expenses.........................................
PERFORMANCE................................................
Financial highlights.......................................
Total returns..............................................
Yield......................................................
Key terms..................................................
INVESTMENT POLICIES AND RISKS..............................
Facts about investments and their risks....................
Alternative investment option..............................
Valuing assets.............................................
HOW TO BUY, EXCHANGE OR SELL SHARES........................
Alternative sales arrangements.............................
How to buy shares..........................................
How to exchange shares.....................................
How to sell shares.........................................
Reductions of the sales charge.............................
Waivers of the sales charge................................
SPECIAL SHAREHOLDER SERVICES...............................
Services...................................................
Quick telephone reference..................................
DISTRIBUTIONS AND TAXES....................................
Dividend and capital gain distributions....................
Reinvestments..............................................
Taxes......................................................
HOW THE FUNDS ARE ORGANIZED................................
Shares.....................................................
Voting rights..............................................
Shareholder meetings.......................................
Trustees and officers......................................
Investment manager and transfer agent......................
Distributor................................................
ABOUT AEFC.................................................
General information........................................
APPENDIX A: Tax-exempt vs. taxable income..................
APPENDIX B: Description of corporate bond ratings..........
</TABLE>

2
<PAGE>
THE FUNDS IN BRIEF

GOALS
Each fund seeks to provide shareholders a high level of income generally
exempt from federal income tax as well as from the respective state and local
income tax. Because any investment involves risk, achieving these goals cannot
be guaranteed. Only shareholders can change the goals.

TYPES OF FUND INVESTMENTS
Each fund is a non-diversified mutual fund that invests primarily in high-or
medium-grade municipal securities that are generally exempt from federal income
tax as well as from the respective state and local income tax. A portion of each
fund's assets may be invested in bonds subject to the alternative minimum tax
computation.
Each of the funds may invest in lower-quality securities that tend to be
more price volatile than higher-quality securities. Funds that concentrate their
investments in a single state or invest more than 5% of their assets in a single
issuer may have more market risk than funds that have broader diversification.

MANAGER AND DISTRIBUTOR

The funds are managed by American Express Financial Corporation (AEFC), a
provider of financial services since 1894. AEFC currently manages more than $38
billion in assets for the IDS MUTUAL FUND GROUP. Shares of the funds are sold
through American Express Financial Advisors Inc., a wholly owned subsidiary of
AEFC.

PORTFOLIO MANAGER

Paul Hylle joined AEFC in 1993 and serves as portfolio manager. He also is
portfolio manager of IDS Insured Tax-Exempt Fund. Prior to joining AEFC, he had
been a portfolio manager at Lutheran Brotherhood, a Minnesota based fraternal
benefit society offering financial services to Lutherans.

ALTERNATIVE SALES ARRANGEMENTS

Each 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 6 years of
purchase and an annual distribution (12b-1) fee. Class Y shares are sold without
a sales charge to qualifying institutional investors. Other differences between
the classes include the fees paid by each class. Each fund offers these
alternatives so you may choose the method of purchasing shares that is most
beneficial given the amount of purchase, length of time you expect to hold the
shares and other circumstances.

SALES CHARGE AND FUND EXPENSES

SALES CHARGE

When you buy Class A shares, you pay a maximum sales charge of 5% of the
public offering price. This charge can be reduced, depending on your total
investments in IDS funds. See "Reductions of the sales charge." No sales charge
applies at the time of purchase of Class B shares, although Class B shares may
be subject to a CDSC on redemptions made within 6 years and are subject to
annual distribution (12b-1) fees. Class Y shares are sold without a sales charge
to qualifying institutional investors.

3
<PAGE>
SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<CAPTION>
California Class A Class B Class Y
------------- ------------- -------------
<S> <C> <C> <C>
Maximum sales charge on purchases (as a percentage of
offering price).................................... 5% 0% 0%
Maximum deferred sales charge imposed on redemptions
(as a percent of original purchase price).......... 0% 5% 0%
</TABLE>

<TABLE>
<CAPTION>
Massachusetts Class A Class B Class Y
------------- ------------- -------------
<S> <C> <C> <C>
Maximum sales charge on purchases (as a percentage of
offering price).................................... 5% 0% 0%
Maximum deferred sales charge imposed on redemptions
(as a percent of original purchase price).......... 0% 5% 0%
</TABLE>

<TABLE>
<CAPTION>
Michigan Class A Class B Class Y
------------- ------------- -------------
<S> <C> <C> <C>
Maximum sales charge on purchases (as a percentage of
offering price).................................... 5% 0% 0%
Maximum deferred sales charge imposed on redemptions
(as a percent of original purchase price).......... 0% 5% 0%
</TABLE>

<TABLE>
<CAPTION>
Minnesota Class A Class B Class Y
------------- ------------- -------------
<S> <C> <C> <C>
Maximum sales charge on purchases (as a percentage of
offering price).................................... 5% 0% 0%
Maximum deferred sales charge imposed on redemptions
(as a percent of original purchase price).......... 0% 5% 0%
</TABLE>

<TABLE>
<CAPTION>
New York Class A Class B Class Y
------------- ------------- -------------
<S> <C> <C> <C>
Maximum sales charge on purchases (as a percentage of
offering price).................................... 5% 0% 0%
Maximum deferred sales charge imposed on redemptions
(as a percent of original purchase price).......... 0% 5% 0%
</TABLE>

<TABLE>
<CAPTION>
Ohio Class A Class B Class Y
------------- ------------- -------------
<S> <C> <C> <C>
Maximum sales charge on purchases (as a percentage of
offering price).................................... 5% 0% 0%
Maximum deferred sales charge imposed on redemptions
(as a percent of original purchase price).......... 0% 5% 0%
</TABLE>

OPERATING EXPENSES

Each fund pays certain expenses out of its assets for each class of assets.
The expenses are reflected in each fund's daily share price and dividends, and
are not charged directly to shareholder accounts. The following chart gives a
projection of these expenses -- based on historical expenses.

4
<PAGE>
ANNUAL FUND OPERATING EXPENSES
(% of average daily net assets):

<TABLE>
<CAPTION>
California Class A Class B Class Y
----------- ----------- -----------
<S> <C> <C> <C>
Management fee 0.00% 0.00% 0.00%
12b-1 fee 0.00% 0.00% 0.00%
Other expenses 0.00% 0.00% 0.00%
Total 0.00% 0.00% 0.00%
</TABLE>

<TABLE>
<CAPTION>
Massachusetts Class A Class B Class Y
----------- ----------- -----------
<S> <C> <C> <C>
Management fee 0.00% 0.00% 0.00%
12b-1 fee 0.00% 0.00% 0.00%
Other expenses 0.00% 0.00% 0.00%
Total 0.00% 0.00% 0.00%
</TABLE>

<TABLE>
<CAPTION>
Michigan Class A Class B Class Y
----------- ----------- -----------
<S> <C> <C> <C>
Management fee 0.00% 0.00% 0.00%
12b-1 fee 0.00% 0.00% 0.00%
Other expenses 0.00% 0.00% 0.00%
Total 0.00% 0.00% 0.00%
</TABLE>

<TABLE>
<CAPTION>
Minnesota Class A Class B Class Y
----------- ----------- -----------
<S> <C> <C> <C>
Management fee 0.00% 0.00% 0.00%
12b-1 fee 0.00% 0.00% 0.00%
Other expenses 0.00% 0.00% 0.00%
Total 0.00% 0.00% 0.00%
</TABLE>

<TABLE>
<CAPTION>
New York Class A Class B Class Y
----------- ----------- -----------
<S> <C> <C> <C>
Management fee 0.00% 0.00% 0.00%
12b-1 fee 0.00% 0.00% 0.00%
Other expenses 0.00% 0.00% 0.00%
Total 0.00% 0.00% 0.00%
</TABLE>

<TABLE>
<CAPTION>
Ohio Class A Class B Class Y
----------- ----------- -----------
<S> <C> <C> <C>
Management fee 0.00% 0.00% 0.00%
12b-1 fee 0.00% 0.00% 0.00%
Other expenses 0.00% 0.00% 0.00%
Total 0.00% 0.00% 0.00%
</TABLE>

Expenses for Class A are based on actual expenses for the last fiscal year,
restated to reflect current fees. Expenses for Class B and Class Y are estimated
based on the restated expenses for Class A, except that the 12b-1 fee for Class
B is based on the Plan and Agreement of Distribution for that class.

5
<PAGE>
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:

CALIFORNIA

<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years**
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Class A......................... $ $ $ $
Class B......................... $ $ $ $
Class B*........................ $ $ $ $
Class Y......................... $ $ $ $
<FN>
*Assuming Class B shares are not redeemed at the end of the period.
**Assuming conversion of Class B shares to Class A shares after 8 years.
</TABLE>

MASSACHUSETTS

MICHIGAN

MINNESOTA

6
<PAGE>

NEW YORK

OHIO

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.

7
<PAGE>

IDS CALIFORNIA TAX-EXEMPT TRUST

IDS CALIFORNIA TAX-EXEMPT FUND

PERFORMANCE

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
Fiscal year ended June 30, Per share income and capital changes*
--------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989** 1988*** 1987*** 1986+
----- ----- ----- ----- ----- ------ ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $5.41 $5.18 $4.94 $4.89 $4.97 $4.82 $4.66 $5.07 $5.00

<CAPTION>
Income from investment operations:
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net investment income.............. .31 .30 .31 .32 .32 .16 .32 .32 .11
Net gains (losses) on securities
(both realized and unrealized).... (.28) .23 .24 .05 (.08) .15 .16 (.41) .07
Total from investment operations... .03 .53 .55 .37 .24 .31 .48 (.09) .18
<CAPTION>
Less distributions:
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividends from net investment
income............................ (.31) (.30) (.31) (.32) (.32) (.16) (.32) (.32) (.11)
Net asset value, end of period..... $5.13 $5.41 $5.18 $4.94 $4.89 $4.97 $4.82 $4.66 $5.07
<CAPTION>
Ratios/supplemental data
--------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989** 1988*** 1987*** 1986+
----- ----- ----- ----- ----- ------ ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net assets, end of period (in
millions)......................... $ 255 $ 261 $ 222 $ 185 $ 142 $ 95 $ 63 $ 40 $ 21
Ratio of expenses to average daily
net assets........................ .61% .63% .64% .60% .62% .64%**** .72% .78% .75%****++
Ratio of net income to average
daily net assets.................. 5.67% 5.78% 6.16% 6.51% 6.53% 6.67%**** 6.61% 6.74% 6.44%****++
Portfolio turnover rate (excluding
short-term securities)............ 27% 5% 7% 23% 20% 6% 13% 16% 0%
Total return+++.................... 0.4% 10.8% 11.4% 7.7% 5.0% 6.5%++++ 10.5% (1.6%) 3.5%++++
<FN>
*For a share outstanding throughout the year. Rounded to the nearest
cent.
**Six months ended June 30, 1989. The fund's fiscal year end was
changed from Dec. 31, to June 30, effective 1989.
***Fiscal years ended Dec. 31, 1987 and Dec. 31, 1988.
****Adjusted to an annual basis.
+Commencement of operations. Period from Aug. 18, 1986 to Dec. 31,
1986.
++During this period, AEFC voluntarily reimbursed the fund for
expenses in excess of 0.75% of its average daily net assets, on an
annual basis. Had AEFC not done so, the ratio of expenses and ratio
of net investment income would have been 0.93% and 6.26%,
respectively.
+++Total return does not reflect payment of a sales charge.
++++For the fiscal periods ended Dec. 31, 1986 and June 30, 1989, the
annualized total returns are 13.0% and 13.6%, respectively.
</TABLE>

8
<PAGE>

IDS SPECIAL TAX-EXEMPT SERIES TRUST
IDS MASSACHUSETTS TAX-EXEMPT FUND

PERFORMANCE

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
Fiscal year ended June 30, Per share income and
capital changes*
-----------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year................ $5.49 $5.20 $4.96 $4.88 $5.01 $4.91 $5.00

<CAPTION>
Income from investment operations:
-----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net investment income............................. .30 .30 .31 .32 .32 .32 .31
Net gains (losses) on securities (both realized
and unrealized).................................. (.25) .29 .24 .08 (.12) .12 (.06)
Total from investment operations.................. .05 .59 .55 .40 .20 .44 .25
<CAPTION>
Less distributions:
-----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dividends from net investment income.............. (.30) (.30) (.31) (.32) (.32) (.32) (.31)
Distributions from realized gains................. -- -- -- -- (.01) (.02) (.03)
Total distributions............................... (.30) (.30) (.31) (.32) (.33) (.34) (.34)
Net asset value, end of year...................... $5.24 $5.49 $5.20 $4.96 $4.88 $5.01 $4.91
<CAPTION>
Ratios/supplemental data
-----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990 1989 1988
----- ----- ----- ----- ----- ----- -----
Net assets, end of year (in millions)............. $ 72 $ 64 $ 44 $ 27 $ 19 $ 13 $ 4
Ratio of expenses to average daily net assets..... .69% .72% .72% .69% .70% .84% .93%+
Ratio of net income to average daily net assets... 5.40% 5.57% 6.05% 6.53% 6.59% 6.55% 6.40%+
Portfolio turnover rate (excluding short-term
securities)...................................... 6% 0% 2% 16% 36% 25% 34%
Total return**.................................... 0.9% 11.5% 11.4% 8.5% 4.2% 9.2% 5.3%
<FN>
*For a share outstanding throughout the year. Rounded to the nearest
cent.
**Total return does not reflect payment of a sales charge.
+During the period from July 2, 1987 to March 31, 1988, AEFC
voluntarily reimbursed the fund for expenses in excess of 0.75% of
its average daily net assets, on an annual basis. Had AEFC not done
so, the ratio of expenses and ratio of net investment income would
have been 1.30% and 6.03%, respectively.
</TABLE>

9
<PAGE>

IDS SPECIAL TAX-EXEMPT SERIES TRUST
IDS MICHIGAN TAX-EXEMPT FUND

PERFORMANCE

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
Fiscal year ended June 30, Per share income and capital
changes*
------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year...... $ 5.60 $ 5.31 $ 5.04 $ 4.96 $ 5.08 $ 4.85 $ 5.00

<CAPTION>
Income from investment operations:
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net investment income................... .31 .31 .32 .32 .32 .32 .31
Net gains (losses) on securities (both
realized and unrealized)............... (.25) .29 .27 .08 (.12) .23 (.11)
Total from investment operations........ .06 .60 .59 .40 .20 .55 .20
<CAPTION>
Less distributions:
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dividends from net investment income.... (.31) (.31) (.32) (.32) (.32) (.32) (.31)
Distributions from realized gains....... -- -- -- -- -- -- (.04)
Total distributions..................... (.31) (.31) (.32) (.32) (.32) (.32) (.35)
Net asset value, end of year............ $ 5.35 $ 5.60 $ 5.31 $ 5.04 $ 4.96 $ 5.08 $ 4.85
<CAPTION>
Ratios/supplemental data
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990 1989 1988
------ ------ ------ ------ ------ ------ ------
Net assets, end of year (in millions)... $ 77 $ 72 $ 55 $ 41 $ 29 $ 16 $ 8
Ratio of expenses to average daily net
assets................................. .65% .68% .67% .67% .71% .81% .87%+
Ratio of net income to average daily net
assets................................. 5.43% 5.64% 6.18% 6.45% 6.47% 6.50% 6.56%+
Portfolio turnover rate (excluding
short-term securities)................. 16% 2% 0% 3% 5% 10% 14%
Total return**.......................... 1.0% 11.6% 12.0% 8.3% 4.1% 11.7% 4.4%
<FN>
*For a share outstanding throughout the year. Rounded to the nearest
cent.
**Total return does not reflect payment of a sales charge.
+During the period from July 2, 1987 to March 31, 1988, AEFC
voluntarily reimbursed the fund for expenses in excess of 0.75% of
its average daily net assets, on an annual basis. Had AEFC not done
so, the ratio of expenses and ratio of net investment income would
have been 1.09% and 6.34%, respectively.
</TABLE>

10
<PAGE>

IDS SPECIAL TAX-EXEMPT SERIES TRUST
IDS MINNESOTA TAX-EXEMPT FUND

PERFORMANCE

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
Fiscal period ended June 30, Per share income and capital changes*
----------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989** 1988*** 1987*** 1986+
------ ------ ------ ------ ------ ------------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 5.44 $ 5.22 $ 5.01 $ 4.95 $ 5.05 $ 4.86 $ 4.76 $5.18 $ 5.00

<CAPTION>
Income from investment operations:
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net investment income.............. .31 .31 .33 .33 .32 .16 .33 .33 .12
Net gains (losses) on securities
(both realized and unrealized).... (.28) .22 .21 .06 (.10) .19 .10 (.42 ) .19
Total from investment operations... .03 .53 .54 .39 .22 .35 .43 (.09 ) .31
<CAPTION>
Less distributions:
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividends from net investment
income............................ (.31) (.31) (.33) (.33) (.32) (.16) (.33) (.33 ) (.12)
Distributions from realized
gains............................. -- -- -- -- -- -- -- -- (.01)
Total distributions................ (.31) (.31) (.33) (.33) (.32) (.16) (.33) (.33 ) (.13)
Net asset value, end of period..... $ 5.16 $ 5.44 $ 5.22 $ 5.01 $ 4.95 $ 5.05 $ 4.86 $4.76 $ 5.18
<CAPTION>
Ratios/supplemental data
----------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989** 1988*** 1987*** 1986+
------ ------ ------ ------ ------ ------------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net assets, end of period (in
millions)......................... $ 408 $ 402 $ 313 $ 233 $ 181 $ 121 $ 82 $ 50 $ 32
Ratio of expenses to average daily
net assets........................ .66% .67% .66% .63% .64% .65%**** .65% .78% .75%****++
Ratio of net income to average
daily net assets.................. 5.73% 5.91% 6.43% 6.67% 6.62% 6.84%**** 6.73% 6.83% 6.85%****++
Portfolio turnover rate (excluding
short-term securities)............ 13% 2% 7% 10% 8% 0% 14% 40% 27%
Total return+++.................... 0.4% 10.5% 11.0% 8.2% 4.8% 7.4%++++ 9.3% (1.4%) 6.1%++++
<FN>
*For a share outstanding throughout the period. Rounded to the
nearest cent.
**Six months ended June 30, 1989. The fund's fiscal year end was
changed from Dec. 31 to June 30, effective 1989.
***Fiscal years ended Dec. 31, 1987 and Dec. 31, 1988.
****Adjusted to an annual basis.
+Commencement of operations. Period from Aug. 18, 1986 to Dec. 31,
1986.
++During this period AEFC voluntarily reimbursed the fund for
expenses in excess of 0.75% of its average daily net assets, on an
annual basis. Had AEFC not so, the ratio of expenses and ratio of
net investment income would have been 0.88% and 6.72%,
respectively.
+++Total return does not reflect payment of a sales charge.
++++For the fiscal periods ended Dec. 31, 1986 and June 30, 1989, the
annualized total returns are 16.7% and 15.5%, respectively.
</TABLE>

11
<PAGE>

IDS SPECIAL TAX-EXEMPT SERIES
IDS NEW YORK TAX-EXEMPT FUND

PERFORMANCE

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
Fiscal year ended June 30, Per share income and capital changes*
--------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989** 1988*** 1987*** 1986+
------ ------ ------ ------ ------ ------------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 5.41 $ 5.13 $ 4.86 $ 4.80 $ 4.87 $ 4.73 $4.58 $5.07 $ 5.00

<CAPTION>
Income from investment operations:
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net investment income.............. .30 .30 .31 .31 .31 .16 .31 .31 .11
Net gains (losses) on securities
(both realized and unrealized).... (.29) .28 .27 .06 (.07) .14 .15 (.49 ) .07
Total from investment operations... .01 .58 .58 .37 .24 .30 .46 (.18 ) .18
<CAPTION>
Less distributions:
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividends from net investment
income............................ (.30) (.30) (.31) (.31) (.31) (.16) (.31 ) (.31 ) (.11)
Net asset value, end of period..... $ 5.12 $ 5.41 $ 5.13 $ 4.86 $ 4.80 $ 4.87 $4.73 $4.58 $ 5.07
<CAPTION>
Ratios/supplemental data
--------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989** 1988*** 1987*** 1986+
------ ------ ------ ------ ------ ------------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net assets, end of period (in
millions)......................... $ 120 $ 117 $ 95 $ 79 $ 68 $ 49 $ 34 $ 21 $ 13
Ratio of expenses to average daily
net assets........................ .65% .67% .67% .65% .65% .66%**** .71% .88% .75%****++
Ratio of net income to average
daily net assets.................. 5.61% 5.79% 6.26% 6.53% 6.57% 6.78%**** 6.61% 6.79% 6.52%****++
Portfolio turnover rate (excluding
short-term securities)............ 10% 0% 8% 17% 8% 1% 6% 20% 3%
Total return+++.................... 0.1% 11.6% 12.3% 8.2% 5.0% 6.5%++++ 10.3% (3.4%) 3.6%++++
<FN>
*For a share outstanding throughout the period. Rounded to the
nearest cent.
**Six months ended June 30, 1989. The fund's fiscal year end was
changed from Dec. 31, to June 30, effective 1989.
***Fiscal years ended Dec. 31, 1987 and Dec. 31, 1988.
****Adjusted to an annual basis.
+Commencement of operations. Period from Aug. 18, 1986 to Dec. 31,
1986.
++During this period, AEFC voluntarily reimbursed the fund for
expenses in excess of 0.75% of its average daily net assets, on an
annual basis. Had AEFC not done so, the ratio of expenses and
ratio of net investment income would have been 1.11% and 6.16%,
respectively.
+++Total return does not reflect payment of a sales charge.
++++For the fiscal periods ended Dec. 31, 1986 and June 30, 1989, the
annualized total returns are 12.1% and 13.6%, respectively.
</TABLE>

12
<PAGE>

IDS SPECIAL TAX-EXEMPT SERIES
IDS OHIO TAX-EXEMPT FUND

PERFORMANCE

FINANCIAL HIGHLIGHTS

<CAPTION>
Income from investment operations:
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net investment income............................. .30 .30 .31 .32 .31 .31 .32
Net gains (losses) on securities (both realized
and unrealized).................................. (.32) .31 .27 .07 (.09) .18 (.10)
Total from investment operations.................. (.02) .61 .58 .39 .22 .49 .22
<CAPTION>
Less distributions:
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dividends from net investment income.............. (.30) (.30) (.31) (.32) (.31) (.31) (.32)
Distributions from realized gains................. -- (.01) -- -- (.01) (.01) (.03)
Total distributions............................... (.30) (.31) (.31) (.32) (.32) (.32) (.35)
Net asset value, end of year...................... $ 5.26 $ 5.58 $ 5.28 $ 5.01 $ 4.94 $ 5.04 $ 4.87
<CAPTION>
Ratios/supplemental data
------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net assets, end of year (in millions)............. $ 72 $ 65 $ 47 $ 33 $ 25 $ 16 $ 8
Ratio of expenses to average daily net assets..... .66% .67% .70% .68% .70% .82% .86%+
Ratio of net income to average daily net assets... 5.44% 5.65% 6.14% 6.41% 6.43% 6.40% 6.64%+
Portfolio turnover rate (excluding short-term
securities)...................................... 11% 0% 5% 2% 6% 10% 0%
Total return**.................................... (0.5%) 12.1% 11.9% 8.1% 4.6% 10.5% 4.7%
<FN>
*For a share outstanding throughout the year. Rounded to the nearest
cent.
**Total return does not reflect payment of a sales charge.
+During the period from July 2, 1987 to March 31, 1988, AEFC
voluntarily reimbursed the fund for expenses in excess of 0.75% of
its average daily net assets, on an annual basis. Had AEFC not done
so, the ratio of expenses and ratio of net investment income would
have been 1.09% and 6.41%, respectively.
</TABLE>

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 each fund are contained in the funds'
annual report which, if not included with this prospectus, may be obtained
without charge. Information on Class B and Class Y shares is not included
because no shares of those classes were outstanding for the periods shown.

13
<PAGE>

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS as of June 30, 1994
- ------------------------------------------------------------------------------------------
Purchase made 1 year ago 5 years ago Since inception*
- --------------------------------------------- ---------- ----------- ----------------
<S> <C> <C> <C>
California Fund:
Class A.................................... -4.6% +5.9% +6.1%
Massachusetts Fund:
Class A.................................... -4.2% +6.1% +6.4%
Michigan Fund:
Class A.................................... -4.0% +6.2% +6.7%
Minnesota Fund:
Class A.................................... -4.6% +5.8% +6.4%
New York Fund:
Class A.................................... -4.9% +6.3% +6.1%
Ohio Fund:
Class A.................................... -5.5% +6.0% +6.5%
Lehman Brothers Municipal Bond Index......... +0.2% +7.9 +8.0(2)
+7.8(1)
<FN>
*(1)Since 8/18/86 for California, Minnesota and New York.
(2)Since 7/2/87 for Massachusetts, Michigan and Ohio.
</TABLE>

<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURNS as of June 30, 1994
- ------------------------------------------------------------------------------------------
Purchase made 1 year ago 5 years ago Since inception*
- --------------------------------------------- ---------- ----------- ----------------
<S> <C> <C> <C>
California Fund:
Class A.................................... -4.6% +33.2% +59.6%
Massachusetts Fund:
Class A.................................... -4.2% +34.4% +54.5%
Michigan Fund:
Class A.................................... -4.0% +35.2% +57.6%
Minnesota Fund:
Class A.................................... -4.6% +32.7% +62.5%
New York Fund:
Class A.................................... -4.9% +35.5% +59.3%
Ohio Fund:
Class A.................................... -5.5% +34.1% +55.1%
Lehman Brothers Municipal Bond Index......... +0.02% +46.5% +71.7(2)
+80.6(1)
<FN>
*(1)Since 8/18/86 for California, Minnesota and New York.
(2)Since 7/2/87 for Massachusetts, Michigan and Ohio.
</TABLE>

These examples show total returns from hypothetical investments in Class A
shares of each fund. No shares for Class B and Class Y were outstanding during
the periods presented. These returns are compared to those of a popular index
for the same periods.

For purposes of calculation, information about each fund assumes:

- a sales charge of 5% for Class A shares

- no adjustments for taxes an investor may have paid on the reinvested
income and capital gains
- a period of widely fluctuating securities prices. Returns shown should not
be considered a representation of a fund's future performance.

Each fund invests primarily in debt securities that may be different from
those in the index. The index reflects reinvestment of all distributions and
changes in market prices, but excludes brokerage commissions or other fees.

14
<PAGE>
Lehman Brothers Municipal Bond Index is made up of a representative list of
general obligation, revenue, insured and pre-refunded bonds.
The index is frequently used as a general measure of tax-exempt bond market
performance. However, the securities used to create the index may not be
representative of the bonds held in a fund.

YIELD
SEC standardized yield for the 30-day period ended June 30, 1994 was 4.97%
for California Fund, 5.03% for Massachusetts Fund, 4.73% for Michigan Fund,
5.10% for Minnesota Fund, 4.77% for New York Fund and 5.04% for Ohio Fund.
Each fund calculates this 30-day SEC standardized yield by dividing:
- net investment income per share deemed earned during a 30-day period by
- the public offering price per share on the last day of the period, and
- converting the result to a yearly equivalent figure.

Non-standardized (distribution) yield for the same 30-day period ended June
30, 1994 was 5.62% for California Fund, 5.37% for Massachusetts Fund, 5.41% for
Michigan Fund, 5.62% for Minnesota Fund, 5.51% for New York Fund and 5.37% for
Ohio Fund.

Each fund computes distribution yield by dividing:
- the total dividends paid over the 30-day period by
- the sum of each day's public offering price for that period, and
- converting the result to a yearly equivalent figure.
A 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.

A 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 an indicator of future yields.

KEY TERMS
NET ASSET VALUE (NAV)

Value of a single fund share. For each class, it is the total market value
of all of a fund's investments and other assets attributable to that class, less
any liabilities attributable to that class, divided by the number of shares of
that class outstanding.

When you buy shares, you pay the NAV plus any applicable sales charge. When
you sell shares, the price you receive is the NAV minus any applicable sales
charge. 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.

15
<PAGE>
PUBLIC OFFERING PRICE

Price at which you buy shares. It is the NAV plus the sales charge for Class
A. It is the NAV for Class B and Class Y. NAVs and public offering prices of IDS
funds are listed each day in major newspapers and financial publications.

INVESTMENT INCOME
Dividends and interest earned on securities held by the fund.

CAPITAL GAINS OR LOSSES

Increase or decrease in value of the securities the fund holds. Gains or
losses are realized when securities that have increased or decreased in value
are sold. A fund also may have unrealized gains or losses when securities
increase or decrease in value but are not sold.

DISTRIBUTIONS

Payments to shareholders of two types: investment income (dividends) and
realized net long-term capital gains (capital gains istributions).

TOTAL RETURN

Sum of all of your returns for a given period, assuming you reinvest all
distributions. 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
The annually compounded rate of return over a given time period (usually two
or more years) -- total return for the period converted to an equivalent annual
figure.

YIELD

Net investment income earned per share for a specified time period, divided
by the offering price at the end of the period.

INVESTMENT POLICIES AND RISKS

Under normal market conditions, California, Massachusetts, Michigan,
Minnesota, New York and Ohio Funds will invest at least 80% of their net assets
in bonds, notes and commercial paper issued by or on behalf of their respective
state or local governmental units whose interest, in the opinion of bond counsel
for the issuer, is exempt from federal, state and local (if applicable) income
tax in their respective states.

In addition, a portion of each 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,
each fund will limit its investments in these bonds to 20% of its net assets.

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

FACTS ABOUT INVESTMENTS AND THEIR RISKS

BONDS AND OTHER DEBT SECURITIES EXEMPT FROM FEDERAL, STATE AND LOCAL INCOME
TAXES: The price of an investment-grade bond fluctuates as interest rates change
or if its credit rating is upgraded or downgraded. At least 75% of each fund's
investments will be in investment-grade securities, that is securities given the
four highest ratings by Moody's Investors Service, Inc.

16
<PAGE>

(Moody's) and Standard & Poor's Corporation (S&P) or in non-rated securities of
equivalent investment quality in the judgment of the fund's investment manager.
The other 25% may be in securities rated Ba or B by Moody's or BB or B by S&P or
the equivalent (commonly known as "junk bonds").

DEBT SECURITIES BELOW INVESTMENT GRADE: The price of these bonds may react
more to the ability of a 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 both on independent rating agencies
and the investment manager's credit analysis. Securities that are subsequently
downgraded in quality may continue to be held and will be sold only when the
fund's investment manager believes it is advantageous to do so.

BOND RATINGS AND HOLDINGS FOR FISCAL 1994 FOR
CALIFORNIA TAX-EXEMPT FUND

<TABLE>
<CAPTION>
S&P Rating
(or
Percent of Moody's Protection of principal AEFC's assessment
net assets equivalent) and interest of unrated securities
- ----------- ---------- ----------------------- ----------------------
<C> <S> <C> <C>
37.93% AAA Highest quality 12.34%
24.75 AA High quality --
16.76 A Upper medium grade 0.17
3.34 BBB Medium grade 0.11
-- BB Moderately speculative 1.63
-- B Speculative 0.09
-- CCC Highly speculative --
-- CC Poor quality --
-- C Lowest quality --
-- D In default --
15.26 Unrated Unrated securities 0.92
</TABLE>

BOND RATINGS AND HOLDINGS FOR FISCAL 1994 FOR
MASSACHUSETTS TAX-EXEMPT FUND

<TABLE>
<CAPTION>
S&P Rating
(or
Percent of Moody's Protection of principal AEFC's assessment
net assets equivalent) and interest of unrated securities
- ---------- ---------- ----------------------- ---------------------
<C> <S> <C> <C>
55.91% AAA Highest quality 1.67%
10.78 AA High quality --
16.91 A Upper medium grade --
7.38 BBB Medium grade --
0.19 BB Moderately speculative 2.49
-- B Speculative --
-- CCC Highly speculative --
-- CC Poor quality --
-- C Lowest quality --
-- D In default --
4.38 Unrated Unrated securities 0.22
</TABLE>

17
<PAGE>

BOND RATINGS AND HOLDINGS FOR FISCAL 1994 FOR
MICHIGAN TAX-EXEMPT FUND

<TABLE>
<CAPTION>
S&P Rating
(or
Percent of Moody's Protection of principal AEFC's assessment
net assets equivalent) and interest of unrated securities
- ---------- ---------- ----------------------- ---------------------
<C> <S> <C> <C>
39.87% AAA Highest quality 10.08%
32.35 AA High quality --
11.50 A Upper medium grade --
2.52 BBB Medium grade 0.43
-- BB Moderately speculative --
-- B Speculative --
-- CCC Highly speculative --
-- CC Poor quality --
-- C Lowest quality --
-- D In default --
11.40 Unrated Unrated securities 0.89
</TABLE>

BOND RATINGS AND HOLDINGS FOR FISCAL 1994 FOR
MINNESOTA TAX-EXEMPT FUND

<TABLE>
<CAPTION>
S&P Rating
(or
Percent of Moody's Protection of principal AEFC's assessment
net assets equivalent) and interest of unrated securities
- ---------- ---------- ----------------------- ---------------------
<C> <S> <C> <C>
27.55% AAA Highest quality 6.67%
23.96 AA High quality 4.01
22.52 A Upper medium grade 0.20
0.57 BBB Medium grade 5.16
0.59 BB Moderately speculative 2.61
-- B Speculative 1.78
-- CCC Highly speculative --
-- CC Poor quality --
-- C Lowest quality --
1.12 D In default --
21.13 Unrated Unrated securities 0.70
</TABLE>

BOND RATINGS AND HOLDINGS FOR FISCAL 1994 FOR
NEW YORK TAX-EXEMPT FUND

<TABLE>
<CAPTION>
S&P Rating
(or
Percent of Moody's Protection of principal AEFC's assessment
net assets equivalent) and interest of unrated securities
- ---------- ---------- ----------------------- ---------------------
<C> <S> <C> <C>
29.73% AAA Highest quality 5.60%
34.95 AA High quality --
13.09 A Upper medium grade --
13.79 BBB Medium grade --
-- BB Moderately speculative --
-- B Speculative --
-- CCC Highly speculative --
-- CC Poor quality --
-- C Lowest quality --
-- D In default --
5.60 Unrated Unrated securities --
</TABLE>

18
<PAGE>

BOND RATINGS AND HOLDINGS FOR FISCAL 1994 FOR
OHIO TAX-EXEMPT FUND

<TABLE>
<CAPTION>
S&P Rating
(or
Percent of Moody's Protection of principal AEFC's assessment
net assets equivalent) and interest of unrated securities
- ---------- ---------- ----------------------- ---------------------
<C> <S> <C> <C>
50.94% AAA Highest quality 4.41%
14.50 AA High quality --
17.76 A Upper medium grade --
6.22 BBB Medium grade --
0.04 BB Moderately speculative 1.99
-- B Speculative 1.42
-- CCC Highly speculative 0.25
-- CC Poor quality --
-- C Lowest quality --
-- D In default --
8.27 Unrated Unrated securities 0.20
</TABLE>

(See Appendix to this prospectus for further information regarding ratings.)

DEBT SECURITIES SOLD AT A DEEP DISCOUNT: Some bonds are sold at deep
discounts because they do not pay interest until maturity. They include zero
coupon bonds and PIK (pay-in-kind) bonds. To comply with tax laws, the fund has
to recognize a computed amount of interest income and pay dividends to
shareholders even though no cash has been received. In some instances, the fund
may have to sell securities to have sufficient cash to pay the dividends.

CONCENTRATION: Each of the funds concentrates its investments in the
securities of its respective state. In addition, each fund may invest more than
25% of its total assets in a particular segment of the municipal securities
market, such as electric revenue bonds, hospital revenue bonds, housing agency
bonds, industrial development bonds, airport bonds, or in securities the
interest upon 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. This could
increase market risk.

Each fund may invest more than 25% of its total assets in industrial revenue
bonds, but does not intend to invest more than 25% of its total assets in
industrial revenue bonds issued for companies in the same industry. As the
similarity in issuers increases, the potential for fluctuation in the net asset
value of each fund's shares also increases.

Economic conditions in each respective state affect both the total amount of
taxes each state collects and the personal income growth within each state. In
the recent past each state has experienced financial difficulty when budgeted
expenses outpaced tax revenue collections. Budgetary shortfalls were managed
either by short-term borrowing (in the case of California, New York and
Massachusetts) or use of reserve funds (in the case of Michigan, Minnesota and
Ohio). Current state budgets are assumed to be based on conservative economic
forecasts and reduced spending levels. Budgetary shortfalls may result in
reductions in credit ratings for securities issued by the states. This may cause
an increase in the yield and a decrease in the price of a security issued by a
particular state. Furthermore, because local finances are dependent upon the
fiscal integrity of the state and upon the

19
<PAGE>
same financial factors that influence state government, the credit ratings of
state agencies, authorities and municipalities may be similarly affected. See
the SAI for more information concerning each state.
TAXABLE INVESTMENTS: If, in the opinion of the investment manager,
appropriate tax-exempt securities are not available, each fund may invest up to
20% of its net assets, or more on a temporary defensive basis, in investments
the income from which is subject to federal, state or local income tax, as
described more fully in the SAI.

DERIVATIVE INSTRUMENTS: The portfolio 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 portfolio
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. A 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. Each 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 each
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. For further information, see the options and futures appendix in the
SAI.

INVERSE FLOATERS: Inverse floaters are derivatives created by underwriters
using the interest payments on securities. A portion of the interest received is
paid to holders of instruments based on current interest rates for short-term
securities. What is left over, less a servicing fee, is paid to holders of the
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. No more than 10% of each
fund's assets will be held in inverse floaters.

SECURITIES AND DERIVATIVE INSTRUMENTS THAT ARE ILLIQUID: Illiquid means the
security or derivative instrument 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. All securities and derivative instruments,
however, can be sold in private sales, and many may be sold to other
institutions and qualified buyers or on foreign markets. The portfolio manager
will follow guidelines established by the board of trustees 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 each
fund's net assets will be held in securities and derivative instruments that are
illiquid.

20
<PAGE>
The investment policies described above, except for the policies concerning
the type and amount of tax-exempt investments, may be changed by the trustees.

LENDING PORTFOLIO SECURITIES: Each 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 shareholders approve otherwise, loans may not
exceed 30% of a fund's net assets.

ALTERNATIVE INVESTMENT OPTION

In the future, the board of the funds may determine for operating
efficiencies to use a master feeder structure. Under that structure, each fund's
investment portfolio would be managed by another investment company with the
same goal as the fund, rather than investing directly in a portfolio of
securities.

VALUING ASSETS
- Bonds and assets without readily available market values are valued at
fair value according to methods selected in good faith by the board of
trustees.
- Securities maturing in 60 days or less are valued at amortized cost.
- Securities (except bonds) and assets with available market values are
valued on that basis.

HOW TO BUY, EXCHANGE OR SELL SHARES

HOW TO BUY SHARES -- ALTERNATIVE SALES ARRANGEMENTS

Each 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 Service fee (as a %
distribution (12b-1) of average daily net
fee assets) Other information
----------------------- --------------------- -----------------------
<S> <C> <C> <C>
Class A Maximum initial sales Service fee of 0.175% Initial sales charge
charge of 5% waived or reduced for
certain purchases
Class B No initial sales Service fee of 0.175% Shares convert to Class
charge; distribution A after 8 years; CDSC
fee of 0.75% of daily waived in certain
net assets; maximum circumstances
CDSC of 5% declines to
0% after 6 years
Class Y None None Available only to
certain qualifying
institutional investors
</TABLE>

CONVERSION OF CLASS B SHARES TO CLASS A SHARES -- Eight calendar years after
Class B shares were originally purchased, Class B shares will convert to Class A
shares and will no longer be subject to a distribution fee. The conversion will
be on the basis of relative net asset values of the two classes, without the
imposition of any sales charge. Class B shares purchased through reinvested
dividends and distributions will convert to Class A shares in a pro-rata portion
as the Class B shares purchased other than through reinvestment.

21
<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.

<TABLE>
<CAPTION>
If you purchase Class A shares If you purchase Class B shares
- --------------------------------------- ---------------------------------------
<S> <C>
SALES CHARGES ON PURCHASE OR REDEMPTION
- - You will not have all of your - All of your money is invested in
purchase price invested. Part of shares of stock. However, you will
your purchase price will go to pay pay a sales charge if you redeem
the sales charge. You will not pay a your shares within 6 years of
sales charge when you redeem your purchase.
shares.
- - You will be able to take advantage - No reductions of the sales charge
of reductions in the sales charge. are available for large purchases.
If your investments in IDS funds
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.
- - The sales charges and distribution fee are structured so that you will have
approximately the same total return at the end of 8 years regardless of which
class you chose.

<CAPTION>
ONGOING EXPENSES
<S> <C>
- - Your shares will have a lower - The distribution and transfer agent
expense ratio than Class B shares fees for Class B will cause your
because Class A does not pay a shares to have a higher expense
distribution fee and the transfer ratio and to pay lower dividends
agent fee for Class A is lower than than Class A shares. After 8 years,
the fee for Class B. As a result, Class B shares will convert to Class
Class A shares will pay higher A shares and will no longer be
dividends than Class B shares. 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.

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 either a service fee or a distribution fee. The following
investors are eligible to purchase Class Y shares:

- 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

22
<PAGE>

-- 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.

- 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.

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

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

Financial advisors may receive different compensation for selling Class A,
Class B and Class Y shares.

HOW TO BUY SHARES

If you're investing in one of the funds for the first time, you'll 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 AEFC with your correct
Taxpayer Identification Number (Social Security or Employer Identification
number). See "Distributions and taxes."

When you buy 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:

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

- Wire orders can be accepted only on days when your bank, AEFC the funds
and Norwest Bank Minneapolis are open for business.

- Wire purchases are completed when wired payment is received and the fund
accepts the purchase.

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

- You must pay any fee the bank charges for wiring.
- Each fund reserves the right to reject any application for any reason.

- If your application does not specify which class of share you are
purchasing, it will be assumed that you are investing in Class A shares.

23
<PAGE>
THREE WAYS TO INVEST

<TABLE>
<S> <C> <C>
1 Send your check and application MINIMUM AMOUNTS
BY REGULAR (or your name and account number Initial investment per
ACCOUNT if you have an established fund: $2,000
account) to: Additional investments per
American Express Financial fund: $100
Advisors Inc. Account balances per fund: $300*
P.O. Box 74
Minneapolis, MN 55440-0074
Your financial advisor will help
you with this process.

2 Contact your financial advisor MINIMUM AMOUNTS
BY SCHEDULED to set up one of the following Initial investment: $100
INVESTMENT scheduled plans: Additional investments: $100/mo
PLAN - automatic payroll deduction Account balances: none
- bank authorization (on active plans of monthly
- direct deposit of payments)
Social Security check
- other plan approved by the
Fund

Give these instructions: MINIMUM AMOUNTS:
Credit IDS Account #00-30-015 Each wire investment: $1,000**
for personal account # (your
account number) for (your
name).

<FN>

*If your account balance falls below $300, AEFC will ask you in writing to
bring it up to $300 or establish a scheduled investment plan. If you don't do
so within 30 days, your shares can be redeemed and the proceeds mailed to you.
**The money sent by a single wire can be invested only in one fund.
</TABLE>

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. For complete information, including fees and expenses, read the
prospectus carefully before exchanging into a new fund.

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 sale and purchase and may result
in a gain or loss. However, you cannot create 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 SELL SHARES

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

24
<PAGE>

When you sell 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 fund's net asset value when
you sell shares is more or less than the cost of your shares, you will have a
gain or loss, which can affect your tax liability.

TWO WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES

<TABLE>
<S> <C> <C>
1 Include in your letter:
BY LETTER - the name of the fund(s)
- the class of shares to be redeemed
- your account number(s) (for exchanges, both
funds must be registered in the same ownership)
- your Taxpayer Identification Number (TIN)
- the dollar amount or number of shares you want
to exchange or sell
- signature of all registered account owners
- for redemptions, indicate how you want your
sales proceeds delivered to you
- 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 - The fund and AEFC will honor any telephone
BY PHONE exchange or redemption request believed
American Express Telephone authentic and will use reasonable procedures to
Transaction Service: confirm that they are. This includes asking
800-437-3133 or identifying questions and tape recording calls.
612-671-3800 So long as reasonable procedures are followed,
neither the fund nor AEFC will be liable for any
loss resulting from fraudulent requests.
- 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.
- 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.
- Phone privileges may be modified or discontinued
at any time.
MINIMUM AMOUNT
Redemption: $100
MAXIMUM AMOUNT
Redemption: $50,000
</TABLE>

EXCHANGE POLICIES:
- 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

25
<PAGE>
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.

- Exchanges must be made into the same class in the new fund.

- If your exchange creates a new account, it must satisfy the minimum
investment amount for new purchases.
- Once we receive your exchange request, you cannot cancel it.
- Shares of the new fund may not be used on the same day for another
exchange.
- If your shares are pledged as collateral, the exchange will be delayed
until written approval is obtained from the secured party.

- 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:

- 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 buy new shares in
the same account at the net asset value, rather than the offering price on
the date of a new purchase. If you reinvest in this manner, any CDSC you
paid on the amount you are reinvesting also will be reinvested in the
fund. 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.

- 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. Please expect a minimum of 10 days from the date of purchase before
AEFC mails a check to you. (A check may be mailed earlier if your bank provides
evidence satisfactory to the fund and AEFC that your check has cleared.)

THREE WAYS TO RECEIVE PAYMENT WHEN YOU SELL SHARES

<TABLE>
<S> <C> <C>
1 - Payable to names listed on the account.
BY REGULAR OR EXPRESS MAIL - Mailed to the address on record.
NOTE: The express mail delivery charges you pay
will vary depending on the courier you
select.
2 - Minimum wire redemption: $1,000.
BY WIRE - Request that money be wired to your bank.
- 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 - Minimum payment: $50.
BY SCHEDULED PAYOUT PLAN - 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.
- Buying new shares while under a payout plan may
be disadvantageous because of the sales charges.
</TABLE>

26
<PAGE>

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:

*To calculate the actual sales charge on an investment greater than $50,000,
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:
- the amount you are investing in this fund now,
- the amount of your existing investment in this fund, if any, and
- the amount you and your immediate family (spouse or unmarried children
under 21) are investing or have in other funds in the IDS MUTUAL FUND
GROUP that carry a sales charge.
Other policies that affect your sales charge:

- 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.

- 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.

For more details, see the SAI.

WAIVERS OF THE SALES CHARGE FOR CLASS A SHARES

Sales charges do not apply to:

- Current or retired trustees, directors, officers or employees of the fund
or AEFC or its subsidiaries, their spouses and unmarried children under
21.

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

- 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.)

- 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.

27
<PAGE>

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

-- of a product distributed by American Express Financial Advisors in a
qualified plan subject to a deferred sales charge or

-- a qualified plan where American Express Trust Company acts as
trustee or recordkeeper.

Send the fund a written request along with your payment, indicating the
amount of the redemption and the date on which it occurred.
- Purchases made with dividend or capital gain distributions from another
fund in the IDS MUTUAL FUND GROUP that has a sales charge.

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

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:

<TABLE>
<CAPTION>
If a
redemption
is made The percentage rate
during the for the CDSC is:
- -------------- --------------------
<S> <C>
First year 5%
Second year 4%
Third year 4%
Fourth year 3%
Fifth year 2%
Sixth year 1%
Seventh year 0%
</TABLE>

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 6 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.

28
<PAGE>

WAIVERS OF THE SALES CHARGE FOR CLASS B SHARES

The CDSC on Class B shares will be waived on redemptions of shares:

- In the event of the shareholder's death,

- Purchased by any trustee, director, officer or employee of a fund or AEFC
or its subsidiaries,

- Purchased by any American Express financial advisor,

- Held in a trusteed employee benefit plan,

- Held in IRAs or certain qualified plans for which AEFC 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
American Express Financial Advisors, or a custodian-to-custodian
transfer to a product not distributed by American Express Financial
Advisors, 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 TELEPHONE TRANSACTION SERVICE
Redemptions and exchanges, dividend payments or reinvestments and automatic
payment arrangements
National/Minnesota: 800-437-3133
Mpls./St. Paul area: 671-3800

AMERICAN EXPRESS SHAREHOLDER SERVICE
Fund performance, objectives and account inquiries
612-671-3733

TTY SERVICE
For the hearing impaired
800-846-4852

AMERICAN EXPRESS INFOLINE
Automated account information (TouchTone-R- phones only), including current fund
prices and performance, account values and recent account transactions
National/Minnesota: 800-272-4445
Mpls./St. Paul area: 671-1630

29
<PAGE>
DISTRIBUTIONS AND TAXES

The fund distributes to shareholders investment income and net capital
gains. It does so to qualify as a regulated investment company and to avoid
paying corporate income and excise taxes. Dividend and capital gains
distributions will have tax consequences you should know about.

DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS
Each fund distributes its net investment income (dividends and interest
earned on securities held by the fund, less operating expenses) to shareholders
of record monthly. Short-term capital gains distributed are included in net
investment income. Net realized capital gains, if any, from selling securities
are distributed at the end of the calendar year. Before they're distributed, net
capital gains are included in the value of each share. After they're
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 paid by each class will be calculated at the same time, in the
same manner and in the same amount, except the expenses attributable solely to
Class A, Class B and Class Y will be paid exclusively by that class. Class B
shareholders will receive lower per share dividends than Class A and Class Y
shareholders because expenses for Class B are higher than for Class A or Class
Y. Class A shareholders will receive lower per share dividends than Class Y
shareholders because expenses for Class A are higher than for Class Y.

REINVESTMENTS

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

- you request the fund in writing or by phone to pay distributions to you in
cash, or
- you direct the fund to invest your distributions in any publicly available
IDS fund for which you've previously opened an account. You pay no sales
charge on shares purchased through reinvestment from this fund into any
IDS fund.

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.

TAXES
Dividends distributed from interest earned by each fund 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 by each fund and capital gain distributions are not exempt from federal
income taxes. Distributions are taxable in the year a fund pays 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 a 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.

30
<PAGE>

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, AEFC sends you a statement showing the kinds and total amount
of all distributions you received during the previous year. You must report all
distributions on your tax returns, even if they are reinvested in additional
shares.

"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 either short term (for shares held for one year or less) or long
term (for shares held for more than one year).

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 at AEFC.

If you don't provide the TIN to AEFC, 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:

- a $50 penalty for each failure to supply your correct TIN
- a civil penalty of $500 if you make a false statement that results in no
backup withholding
- 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.

HOW TO DETERMINE THE CORRECT TIN

<TABLE>
<CAPTION>
Use the Social Security or Employer
For this type of account: Identification number of:
- --------------------------------------- ---------------------------------------
<S> <C>
Individual or joint account The individual or first person 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, pension trust or The legal entity (not the personal
estate representative or trustee, unless no
legal entity is designated in the
account title)
Sole proprietorship or partnership The owner or partnership
Corporate The corporation
Association, club or tax-exempt The organization
organization
</TABLE>

31
<PAGE>

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 each fund. Tax matters are highly individual and
complex, and you should consult a qualified tax advisor about your personal
situation.

HOW THE FUNDS ARE ORGANIZED
IDS Special Tax-Exempt Series Trust, of which IDS Massachusetts Tax-Exempt
Fund, IDS Michigan Tax-Exempt Fund, IDS Minnesota Tax-Exempt Fund, IDS New York
Tax-Exempt Fund and IDS Ohio Tax-Exempt Fund are a part, is an open-end
management investment company, as defined in the Investment Company Act of 1940.
It was organized as a Massachusetts business trust on April 7, 1986. IDS
California Tax-Exempt Trust, of which IDS California Tax-Exempt Fund is a part,
was organized as a Massachusetts business trust on April 7, 1986. The funds'
headquarters are at 901 S. Marquette Ave., Suite 2810, Minneapolis, MN
55402-3268.
The trustees have considered that the use of a combined prospectus for six
funds makes each fund responsible for disclosure contained in the prospectus
regardless of the particular fund to which it pertains and have concluded that
the cost savings available to shareholders support the use of a combined
prospectus.

IDS Special Tax-Exempt Series Trust currently is composed of six funds and
IDS California Tax-Exempt Trust currently is composed of one fund. Each fund
issues its own shares of capital stock. 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 bears different expenses. Each class
represents interests in the assets of the fund. Par value is 1 cent per share.
Both full and fractional shares can be issued.

The shares of each fund 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 trustees may from time to time issue other funds of the Series Trust,
the assets and liabilities of which will likewise be separate and distinct from
any other fund.
The funds no longer issue 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. 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 funds do not hold annual shareholder meetings. However, the trustees may
call meetings at their discretion, or on demand by holders of 10% or more of the
outstanding shares, to elect or remove trustees.

TRUSTEES AND OFFICERS

Shareholders elect the trustees that oversees the operations of the fund and
chooses its officers. Its officers are responsible for day-to-day business

32
<PAGE>

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. The trustees
also serve on the boards of all of the other funds in the IDS MUTUAL FUND GROUP,
except for Mr. Dudley, who is a director of all publicly offered funds.

TRUSTEES AND OFFICERS OF THE FUNDS
PRESIDENT AND INTERESTED TRUSTEE
WILLIAM R. PEARCE
President of all funds in the IDS MUTUAL FUND GROUP.

INDEPENDENT TRUSTEES
LYNNE V. CHENEY
Distinguished fellow, American Enterprise Institute for Public Policy Research.

ROBERT F. FROEHLKE
Former president of all funds in the IDS MUTUAL FUND GROUP.
HEINZ F. HUTTER
Former president and chief operating officer, Cargill, Inc.
ANNE P. JONES
Attorney and telecommunications consultant.
DONALD M. KENDALL
Former chairman and chief executive officer, PepsiCo, Inc.
MELVIN R. LAIRD
Senior counsellor for national and international affairs, The Reader's Digest
Association, Inc.
LEWIS W. LEHR
Former chairman and chief executive officer, Minnesota Mining and Manufacturing
Company (3M).
EDSON W. SPENCER
Former chairman and chief executive officer, Honeywell, Inc.
WHEELOCK WHITNEY
Chairman, Whitney Management Company.
C. ANGUS WURTELE
Chairman of the board and chief executive officer, The Valspar Corporation.

INTERESTED TRUSTEES WHO ARE OFFICERS AND/OR EMPLOYEES OF AEFC
WILLIAM H. DUDLEY
Executive vice president, AEFC.
DAVID R. HUBERS
President and chief executive officer, AEFC.
JOHN R. THOMAS
Senior vice president, AEFC.

OTHER OFFICER
LESLIE L. OGG
Vice president of all funds in the IDS MUTUAL FUND GROUP and general counsel and
treasurer of the publicly offered funds.
Refer to the SAI for the trustees' and officers' biographies.

INVESTMENT MANAGER AND TRANSFER AGENT

The funds pay AEFC for managing their portfolios, providing administrative
services and serving as transfer agent (handling shareholder accounts).

33
<PAGE>

Under its Investment Management Services Agreement, AEFC determines which
securities will be purchased, held or sold (subject to the direction and control
of the fund's trustees). Effective March 3, 1995, each fund pays AEFC a fee for
these services based on the average daily net assets of the fund, as follows:

<TABLE>
<CAPTION>
Annual rate
Assets (billions) at each asset
level
- -------------------- ------------------
<S> <C> <C>
First $ 0.25 0.470%
Next 0.25 0.445
Next 0.25 0.420
Next 0.25 0.405
Over 1.0 0.380
</TABLE>

For the fiscal year ended June 30, 1994, under a prior agreement, each fund
paid AEFC total investment management fees of 0.53% of its average daily net
assets. Under the Agreement, each fund also pays taxes, brokerage commissions
and nonadvisory expenses.

Under an Administrative Services Agreement, each 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.

In addition, under a separate Transfer Agency Agreement, AEFC maintains
shareholder accounts and records. Each fund pays AEFC an annual fee per
shareholder account for this service as follows:

- Class A $15.50

- Class B $16.50

- Class Y $15.50

DISTRIBUTOR

The funds sell shares through American Express Financial Advisors, a wholly
owned subsidiary of AEFC, under a Distribution Agreement. Financial advisors
representing American Express Financial Advisors provide information to
investors about individual investment programs, the funds and their operations,
new account applications, exchange and redemption requests. The cost of these
services is paid partially by the funds' sales charge.

Portions of sales charges may be paid to securities dealers who have sold
the funds' shares, or to banks and other financial institutions. The proceeds
paid to others range from 0.8% to 4% of each fund's offering price depending on
the monthly sales volume.

For Class B shares, to help defray costs not covered by sales charges,
including costs for marketing, sales administration, training, overhead, direct
marketing programs, advertising and related functions, each fund pays American
Express Financial Advisors a distribution fee, also known as a 12b-1 fee. This
fee is paid under a Plan and Agreement of Distribution that follows the terms of
Rule 12b-1 of the Investment Company Act of 1940. Under this Agreement, each
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.

Total 12b-1 fees paid under a prior agreement were 0.02% of average daily
net assets for California, 0.03% for Massachusetts, 0.02% for Michigan, 0.02%
for Minnesota, 0.02% for New York and 0.02% for Ohio Fund for the fiscal year
ended June 30, 1994. These fees will not cover all of the costs incurred by
American Express Financial Advisors.

34
<PAGE>

Under a Shareholder Service Agreement, each 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 the fund's average daily net assets
attributable to Class A and Class B shares.

Total expenses paid by each fund amounted to 0.61% of average daily net
assets for California, 0.69% for Massachusetts, 0.65% for Michigan, 0.66% for
Minnesota, 0.65% for New York and 0.66% for Ohio Fund for the fiscal year ended
June 30, 1994.

Total fees and expenses (excluding taxes and brokerage commissions) cannot
exceed the most restrictive applicable state expense limitation.

ABOUT AEFC

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 publicly offered 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 June 30, 1994 were more than $100 billion.

American Express Financial Advisors serves individuals and businesses
through its nationwide network of more than 175 offices and more than 7,800
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, 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
American Express and AEFC.

35
<PAGE>

APPENDIX A

Tax-exempt income vs. taxable income

1994 California Tax-Exempt and Taxable Equivalent Yield Calculation

These tables will help you determine your combined federal and
state taxable yields equivalents for given rates of tax-exempt
income.

STEP 1: CALCULATING YOUR MARGINAL TAX RATES.
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 Marginal Tax Rate. For
example: Let's assume you are married filing jointly, your
taxable income is $138,000 and your adjusted gross income is
$175,000.

Under Taxable Income married filing jointly status, $138,000 is in
the $91,850-$140,000 range. Under Adjusted Gross Income, $175,000
is in the $167,700 to $290,200 column. The Taxable
Income line and Adjusted Gross Income column meet at 38.26 percent.
This is the rate you'll use in Step 2.

ADJUSTED GROSS INCOME*
________________________________________________________

TAXABLE INCOME** $ 0 $ 111,800 $ 167,700 OVER
to to to
$111,800(1) $167,700(2) $290,200(3) $290,200(2)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Married Filing Jointly

$ 0 - $ 9,332 15.85%
9,332 - 22,118 16.70
22,118 - 34,906 18.40
34,906 - 38,000 20.10
38,000 - 48,456 32.32
48,456 - 61,240 33.76
61,240 - 91,850 34.70
91,850 - 140,000 37.42 38.26% 38.26%
140,000 - 212,380 41.95 42.93 44.21
212,380 - 250,000 42.40 44.64 43.37%
250,000 - 424,760 45.64 48.11*** 46.71
424,760 + 46.24 47.30
- -------------------------------------------------------------------------------------------

36
<PAGE>

$ 0 $ 111,800 OVER
to to
$111,800(1) $234,300(3) $234,300(2)
- -------------------------------------------------------------------------------------------
Single
<S> <C> <C> <C>
$ 0 - $ 4,666 15.85%
4,666 - 11,059 16.70
11,059 - 17,453 18.40
17,453 - 22,750 20.10
22,750 - 24,228 32.32
24,228 - 30,620 33.76
30,620 - 55,100 34.70
55,100 - 106,190 37.42 38.81%
106,190 - 115,000 37.90 39.28
115,000 - 212,380 42.40 44.01
212,380 - 250,000 43.04 44.63 44.00
250,000 + 46.24 47.30
- -------------------------------------------------------------------------------------------
<FN>
*Gross income with certain adjustments before taking itemized deductions and
personal exemptions.
**Amount subject to federal income tax after itemized deduction and personal
exemptions.
***This rate is applicable only in the limited case where your adjusted gross
income is less than $290,200 and your taxable income exceeds $250,000.

(1) No Phase-out -- Assumes no phase-out of itemized deductions or personal
exemptions.
(2) Itemized Deductions Phase-out -- Assumes a single taxpayer has one personal
exemption and joint taxpayers have two personal exemptions.
(3) Itemized Deductions and Personal Exemption Phase-outs -- Assumes a single
taxpayer has one personal exemption, joint taxpayers have two personal
exemptions and itemized deductions continue to phase-out.
</TABLE>

Federal taxes are not deductible on the California state tax
return.

The combined federal/California tax brackets are based on state tax
rates in effect on Dec. 31, 1993. These rates may change if
California tax rates change in 1994. If state tax rates change
equivalent rates may be higher than those shown.

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

<PAGE>

STEP 2: DETERMINING YOUR COMBINED FEDERAL AND CALIFORNIA STATE
TAXABLE YIELD EQUIVALENTS.

Using 38.26 percent, you may determine that a tax-exempt yield of 4
percent is equivalent to earning a taxable 6.48 percent yield.

<TABLE>
<CAPTION>
For these Tax-Exempt Rates:
___________________________________________________________________________
4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50%
___________________________________________________________________________

Marginal Tax Rates Equal the Taxable Rates shown below:
________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
15.85% 4.75 5.35 5.94 6.54 7.13 7.72 8.32 8.91
16.70% 4.80 5.40 6.00 6.60 7.20 7.80 8.40 9.00
18.40% 4.90 5.51 6.13 6.74 7.35 7.97 8.58 9.19
20.10% 5.01 5.63 6.26 6.88 7.51 8.14 8.76 9.39
32.32% 5.91 6.65 7.39 8.13 8.87 9.60 10.34 11.08
33.76% 6.04 6.79 7.55 8.30 9.06 9.81 10.57 11.32
34.70% 6.13 6.89 7.66 8.42 9.19 9.95 10.72 11.49
37.42% 6.39 7.19 7.99 8.79 9.59 10.39 11.19 11.98
37.90% 6.44 7.25 8.05 8.86 9.66 10.47 11.27 12.08
38.26% 6.48 7.29 8.10 8.91 9.72 10.53 11.34 12.15
38.74% 6.53 7.35 8.16 8.98 9.79 10.61 11.43 12.24
38.81% 6.54 7.35 8.17 8.99 9.81 10.62 11.44 12.26
39.28% 6.59 7.41 8.23 9.06 9.88 10.70 11.53 12.35
41.95% 6.89 7.75 8.61 9.47 10.34 11.20 12.06 12.92
42.40% 6.94 7.81 8.68 9.55 10.42 11.28 12.15 13.02
42.93% 7.01 7.89 8.76 9.64 10.51 11.39 12.27 13.14
43.04% 7.02 7.90 8.78 9.66 10.53 11.41 12.29 13.17
43.37% 7.06 7.95 8.83 9.71 10.60 11.48 12.36 13.24
44.00% 7.14 8.04 8.93 9.82 10.71 11.61 12.50 13.39
44.01% 7.14 8.04 8.93 9.82 10.71 11.61 12.50 13.39
44.21% 7.17 8.07 8.96 9.86 10.75 11.65 12.55 13.44
44.63% 7.22 8.13 9.03 9.93 10.84 11.74 12.64 13.55
44.64% 7.23 8.13 9.03 9.93 10.84 11.74 12.64 13.55
45.64% 7.36 8.28 9.20 10.12 11.04 11.96 12.88 13.80
46.24% 7.44 8.37 9.30 10.23 11.16 12.09 13.02 13.95
46.71% 7.51 8.44 9.38 10.32 11.26 12.20 13.14 14.07
47.30% 7.59 8.54 9.49 10.44 11.39 12.33 13.28 14.23
47.99% 7.69 8.65 9.61 10.57 11.54 12.50 13.46 14.42
48.11% 7.71 8.67 9.64 10.60 11.56 12.53 13.49 14.45
48.68% 7.71 8.67 9.64 10.60 11.56 12.53 13.49 14.45
________________________________________________________________________________________________________
</TABLE>

<PAGE>

APPENDIX A
1994 Massachusetts Tax-Exempt and Taxable Equivalent Yield
Calculation

These tables will help you determine your combined federal and
state taxable yields equivalents for given rates of tax-exempt
income.

STEP 1: CALCULATING YOUR MARGINAL TAX RATES.
Using your Taxable Income and Adjusted Gross Income figures as
guides you can locate your Marginal Tax Rate in the table below.

Under Taxable Income married filing jointly status, $138,000 is in
the $91,850-$140,000 range. Under Adjusted Gross Income, $175,000
is in the $167,700 to $290,200 column. The Taxable Income line and
Adjusted Gross Income column meet at 40.10 percent. This is the
rate you'll use in Step 2.

<TABLE>
<CAPTION>
ADJUSTED GROSS INCOME*
________________________________________________________

TAXABLE INCOME** $ 0 $ 111,800 $ 167,700 OVER
to to to
$111,800(1) $167,700(2) $290,200(3) $290,200(2)
___________________________________________________________________________________________
<S> <C> <C> <C> <C>
Married Filing Jointly

$ 12,000 - $ 38,000 25.20%
38,000 - 91,850 36.64 36.64%
91,850 - 140,000 39.28 40.10 40.10%
140,000 - 250,000 43.68 44.63 45.87
250,000 + 46.85 49.26*** 47.89%
___________________________________________________________________________________________

$ 0 $ 111,800 OVER
to to
$111,800(1) $234,300(3) $234,300(2)
___________________________________________________________________________________________
Single

$ 8,000 - $ 22,750 25.20%
22,750 - 55,100 36.64
55,100 - 115,000 39.28 40.63%
115,000 - 250,000 43.68 45.25 44.63%
250,000 + 46.85 47.89
__________________________________________________________________________________________
<FN>
*Gross income with certain adjustments before taking itemized deductions and
personal exemptions.
**Amount subject to federal income tax after itemized deduction and personal
exemptions.
***This rate is applicable only in the limited case where your adjusted gross
income is less than $290,200 and your taxable income exceeds $250,000.

(1) No Phase-out -- Assumes no phase-out of itemized deductions or personal
exemptions.
(2) Itemized Deductions Phase-out -- Assumes a single taxpayer has one
personal exemption and joint taxpayers have two personal exemptions.
(3) Itemized Deductions and Personal Exemption Phase-outs -- Assumes a single
taxpayer has one personal exemption, joint taxpayers have two personal
exemptions and itemized deductions continue to phase-out.
</TABLE>

<PAGE>

Federal taxes are not deductible on the Massachusetts state tax
return.

The combined federal/Massachusetts tax brackets are based on state
tax rates in effect on Jan. 1, 1994. These rates may change if
Massachusetts tax rates change in 1994. If state tax rates change
equivalent rates may be higher than those shown.

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

STEP 2: DETERMINING YOUR COMBINED FEDERAL AND MASSACHUSETTS STATE
TAXABLE YIELD EQUIVALENTS.

Using 40.10 percent, you may determine that a tax-exempt yield of 4
percent is equivalent to earning a taxable 6.68 percent yield.

<TABLE>
<CAPTION>
For these Tax-Exempt Rates:
___________________________________________________________________________

4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50%
___________________________________________________________________________

Marginal Tax Rates Equal the Taxable Rates shown below:
________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
25.20% 5.35 6.02 6.68 7.35 8.02 8.69 9.36 10.03
36.64% 6.31 7.10 7.89 8.68 9.47 10.26 11.05 11.84
39.28% 6.59 7.41 8.23 9.06 9.88 10.70 11.53 12.35
40.10% 6.68 7.51 8.35 9.18 10.02 10.85 11.69 12.52
40.63% 6.74 7.58 8.42 9.26 10.11 10.95 11.79 12.63
43.68% 7.10 7.99 8.88 9.77 10.65 11.54 12.43 13.32
44.63% 7.22 8.13 9.03 9.93 10.84 11.74 12.64 13.55
45.25% 7.31 8.22 9.13 10.05 10.96 11.87 12.79 13.70
45.87% 7.39 8.31 9.24 10.16 11.08 12.01 12.93 13.86
46.85% 7.53 8.47 9.41 10.35 11.29 12.23 13.17 14.11
47.89% 7.68 8.64 9.60 10.55 11.51 12.47 13.43 14.39
48.58% 7.78 8.75 9.72 10.70 11.67 12.64 13.61 14.59
49.26% 7.88 8.87 9.85 10.84 11.82 12.81 13.80 14.78
________________________________________________________________________________________________________
</TABLE>

<PAGE>

APPENDIX A
1994 Michigan Tax-Exempt and Taxable Equivalent Yield Calculation

These tables will help you determine your combined federal and
state taxable yields equivalents for given rates of tax-exempt
income.

STEP 1: CALCULATING YOUR MARGINAL TAX RATES.
Using your Taxable Income and Adjusted Gross Income figures as
guides you can locate your Marginal Tax Rate in the table below.

Under Taxable Income married filing jointly status, $138,000 is in
the $91,850-$140,000 range. Under Adjusted Gross Income, $175,000
is in the $167,700 to $290,200 column. The Taxable Income line and
Adjusted Gross Income column meet at 34.93 percent. This is the
rate you'll use in Step 2.

<TABLE>
<CAPTION>
ADJUSTED GROSS INCOME*
________________________________________________________

$ 0 - $ 38,000 18.74%
38,000 - 91,850 31.17 31.17%
91,850 - 140,000 34.04 34.93 34.93%
140,000 - 250,000 38.82 39.85 41.20
250,000 + 42.26 44.88*** 43.39%
___________________________________________________________________________________________

$ 0 $ 111,800 OVER
to to
$111,800(1) $234,300(3) $234,300(2)
___________________________________________________________________________________________
Single

$ 0 - $ 22,750 18.74%
22,750 - 55,100 31.17
55,100 - 115,000 34.04 35.51%
115,000 - 250,000 38.82 40.52 39.85%
250,000 + 42.26 43.39
___________________________________________________________________________________________

<FN>
*Gross income with certain adjustments before taking itemized deductions and
personal exemptions.
**Amount subject to federal income tax after itemized deduction and personal
exemptions.
***This rate is applicable only in the limited case where your adjusted gross
income is less than $290,200 and your taxable income exceeds $250,000.

<PAGE>

Federal taxes are not deductible on the Michigan state tax return.

The combined federal/Michigan tax brackets are based on state tax
rates in effect on May 1, 1994. These rates may change if Michigan
tax rates change in 1994. If state tax rates change equivalent
rates may be higher than those shown.

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

STEP 2: DETERMINING YOUR COMBINED FEDERAL AND MICHIGAN STATE
TAXABLE YIELD EQUIVALENTS.

Using 34.93 percent, you may determine that a tax-exempt yield of 4
percent is equivalent to earning a taxable 6.15 percent yield.

<TABLE>
<CAPTION>
For these Tax-Exempt Rates:
___________________________________________________________________________

4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50%
___________________________________________________________________________

Marginal Tax Rates Equal the Taxable Rates shown below:
________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
18.74% 4.92 5.54 6.15 6.77 7.38 8.00 8.61 9.23
31.17% 5.81 6.54 7.26 7.99 8.72 9.44 10.17 10.90
34.04% 6.06 6.82 7.58 8.34 9.10 9.85 10.61 11.37
34.93% 6.15 6.92 7.68 8.45 9.22 9.99 10.76 11.53
35.51% 6.20 6.98 7.75 8.53 9.30 10.08 10.85 11.63
38.82% 6.54 7.36 8.17 8.99 9.81 10.62 11.44 12.26
39.85% 6.65 7.48 8.31 9.14 9.98 10.81 11.64 12.47
40.52% 6.72 7.57 8.41 9.25 10.09 10.93 11.77 12.61
41.20% 6.80 7.65 8.50 9.35 10.20 11.05 11.90 12.76
42.26% 6.93 7.79 8.66 9.53 10.39 11.26 12.12 12.99
43.39% 7.07 7.95 8.83 9.72 10.60 11.48 12.37 13.25
44.14% 7.16 8.06 8.95 9.85 10.74 11.64 12.53 13.43
44.88% 7.26 8.16 9.07 9.98 10.89 11.79 12.70 13.61
________________________________________________________________________________________________________
</TABLE>

<PAGE>

APPENDIX A
1994 Minnesota Tax-Exempt and Taxable Equivalent Yield Calculation

These tables will help you determine your combined federal and
state taxable yields equivalents for given rates of tax-exempt
income.

STEP 1: CALCULATING YOUR MARGINAL TAX RATES.
Using your Taxable Income and Adjusted Gross Income figures as
guides you can locate your Marginal Tax Rate in the table below.

Under Taxable Income married filing jointly status, $138,000 is in
the $91,850-$140,000 range. Under Adjusted Gross Income, $175,000
is in the $167,700 to $290,200 column. The Taxable Income line and
Adjusted Gross Income column meet at 37.72 percent. This is the
rate you'll use in Step 2.

<TABLE>
<CAPTION>
ADJUSTED GROSS INCOME*
________________________________________________________

$ 0 - $ 22,260 20.10%
22,260 - 38,000 21.80
38,000 - 88,460 33.76 33.76%
88,460 - 91,850 34.12 34.12 34.12%
91,850 - 140,000 36.87 37.72 37.72
140,000 - 250,000 41.44 42.43 43.72
250,000 + 44.73 47.24*** 45.82%
___________________________________________________________________________________________

$ 0 $ 111,800 OVER
to to
$111,800(1) $234,300(3) $234,300(2)
___________________________________________________________________________________________
Single

$ 0 - $ 15,230 20.10%
15,230 - 22,750 21.80
22,750 - 50,030 33.76
50,030 - 55,100 34.12
55,100 - 115,000 36.87 38.27%
115,000 - 250,000 41.44 43.07 42.43%
250,000 + 44.73 45.82
- -------------------------------------------------------------------------------------------

<PAGE>

Federal taxes are not deductible on the Minnesota state tax return.

The combined federal/Minnesota tax brackets are based on state tax
rates in effect on Jan. 1, 1994. These rates may change if
Minnesota tax rates change in 1994. If state tax rates change
equivalent rates may be higher than those shown.

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

STEP 2: DETERMINING YOUR COMBINED FEDERAL AND MINNESOTA STATE
TAXABLE YIELD EQUIVALENTS.

Using 37.72 percent, you may determine that a tax-exempt yield of 4
percent is equivalent to earning a taxable 6.42 percent yield.

Marginal Tax Rates Equal the Taxable Rates shown below:
________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
20.10% 5.01 5.63 6.26 6.88 7.51 8.14 8.76 9.39
21.80% 5.12 5.75 6.39 7.03 7.67 8.31 8.95 9.59
33.76% 6.04 6.79 7.55 8.30 9.06 9.81 10.57 11.32
34.12% 6.07 6.83 7.59 8.35 9.11 9.87 10.63 11.38
36.87% 6.34 7.13 7.92 8.71 9.50 10.30 11.09 11.88
37.72% 6.42 7.23 8.03 8.83 9.63 10.44 11.24 12.04
38.27% 6.48 7.29 8.10 8.91 9.72 10.53 11.34 12.15
41.44% 6.83 7.68 8.54 9.39 10.25 11.10 11.95 12.81
42.43% 6.95 7.82 8.69 9.55 10.42 11.29 12.16 13.03
43.07% 7.03 7.90 8.78 9.66 10.54 11.42 12.30 13.17
43.72% 7.11 8.00 8.88 9.77 10.66 11.55 12.44 13.33
44.73% 7.24 8.14 9.05 9.95 10.86 11.76 12.67 13.57
45.82% 7.38 8.31 9.23 10.15 11.07 12.00 12.92 13.84
46.53% 7.48 8.42 9.35 10.29 11.22 12.16 13.09 14.03
47.24% 7.58 8.53 9.48 10.42 11.37 12.32 13.27 14.22
________________________________________________________________________________________________________
</TABLE>

<PAGE>

APPENDIX A
1994 New York State Tax-Exempt and Taxable Equivalent Yield
Calculation

These tables will help you determine your combined federal and
state taxable yields equivalents for given rates of tax-exempt
income.

STEP 1: CALCULATING YOUR MARGINAL TAX RATES.
Using your Taxable Income and Adjusted Gross Income figures as
guides you can locate your Marginal Tax Rate in the table below.

Under Taxable Income married filing jointly status, $138,000 is in
the $91,850-$140,000 range. Under Adjusted Gross Income, $175,000
is in the $167,700 to $290,200 column. The Taxable Income line and
Adjusted Gross Income column meet at 38.22 percent. This is the
rate you'll use in Step 2.

<TABLE>
<CAPTION>
ADJUSTED GROSS INCOME*
______________________________________________________________________

TAXABLE INCOME** $ 0 $ 111,800 $ 150,000 $ 167,700 OVER
to to to to
$111,800(1) $150,000(2) $167,700(3) $290,200(4) $290,200(3)
_________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Married Filing Jointly

$ 0 - $ 13,000 18.87%
13,000 - 19,000 19.72
19,000 - 25,000 20.57
25,000 - 38,000 21.45
38,000 - 91,850 33.47
91,850 - 140,000 36.24 38.08% 37.10% 38.22%
140,000 - 250,000 40.86 42.76 41.86 43.16
250,000 + 44.19 46.72*** 47.55%
_________________________________________________________________________________________________________

$ 0 $ 111,800 $ 150,000 OVER
to to to
$111,800(1) $150,000(5) $234,300(4) $234,300(3)
_________________________________________________________________________________________________________
Single

$ 0 - $ 6,500 18.87%
6,500 - 9,500 19.72
9,500 - 12,500 20.57
12,500 - 22,750 21.45
22,750 - 55,100 33.47
55,100 - 115,000 36.24 37.59%
115,000 - 250,000 40.86 42.31 42.51% 42.96%
250,000 + 44.19 46.42
_________________________________________________________________________________________________________

<PAGE>

(1) No Phase-out or recapture of personal income tax -- Assumes no phase-out of
itemized deductions or personal
exemptions and does not reflect the state recapture of personal income tax.
(2) Itemized Deductions Phase-out and Recapture of Personal Income Tax --
Assumes a single taxpayer has one personal
exemption, joint taxpayers have two personal exemptions and reflects the
state AGI recapture of personal income tax beginning at $100,000 ending
at $150,000.
(3) Itemized Deductions Phase-out -- Assumes a single taxpayer has one personal
exemption and joint taxpayers have two
personal exemptions.
(4) Deductions and Personal Exemption Phase-outs -- Assumes a single taxpayer
has one personal exemption, joint taxpayers
have two personal exemptions and itemized deductions continue to phase-out.
(5) Deductions and Personal Exemption Phase-outs and Recapture of Personal
Income Tax -- Assumes a single taxpayer has one
personal exemption, joint taxpayers have two personal exemptions, itemized
deductions continue to phase-out and reflects the
state AGI recapture of personal income tax beginning at $100,000 ending at
$150,000.
</TABLE>

Federal taxes are not deductible on the New York state tax return.

The combined federal/New York state tax brackets are based on state
tax rates in effect on Jan. 1, 1994. These rates may change if New
York state tax rates change in 1994. If state tax rates change
equivalent rates may be higher than those shown.

This table does not refelect the state itemized deduction
adjustment.

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

STEP 2: DETERMINING YOUR COMBINED FEDERAL AND NEW YORK STATE
TAXABLE YIELD EQUIVALENTS.

Using 38.22 percent, you may determine that a tax-exempt yield of 4
percent is equivalent to earning a taxable 6.47 percent yield.

<TABLE>
<CAPTION>
For these Tax-Exempt Rates:
---------------------------------------------------------------------------
4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50%
---------------------------------------------------------------------------
Marginal Tax Rates Equal the Taxable Rates shown below:
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
18.87% 4.93 5.55 6.16 6.78 7.40 8.01 8.63 9.24
19.72% 4.98 5.61 6.23 6.85 7.47 8.10 8.72 9.34
20.57% 5.04 5.67 6.29 6.92 7.55 8.18 8.81 9.44
21.45% 5.09 5.73 6.37 7.00 7.64 8.27 8.91 9.55
31.93% 5.88 6.61 7.35 8.08 8.81 9.55 10.28 11.02
32.54% 5.93 6.67 7.41 8.15 8.89 9.64 10.38 11.12
33.15% 5.98 6.73 7.48 8.23 8.98 9.72 10.47 11.22
33.47% 6.01 6.76 7.52 8.27 9.02 9.77 10.52 11.27
36.24% 6.27 7.06 7.84 8.63 9.41 10.19 10.98 11.76
37.10% 6.36 7.15 7.95 8.74 9.54 10.33 11.13 11.92
37.59% 6.41 7.21 8.01 8.81 9.61 10.41 11.22 12.02
37.66% 6.42 7.22 8.02 8.82 9.62 10.43 11.23 12.03
38.08% 6.46 7.27 8.07 8.88 9.69 10.50 11.30 12.11
38.14% 6.47 7.27 8.08 8.89 9.70 10.51 11.32 12.12
38.22% 6.47 7.28 8.09 8.90 9.71 10.52 11.33 12.14
39.18% 6.58 7.40 8.22 9.04 9.87 10.69 11.51 12.33
40.86% 6.76 7.61 8.45 9.30 10.15 10.99 11.84 12.68
41.86% 6.88 7.74 8.60 9.46 10.32 11.18 12.04 12.90
42.31% 6.93 7.80 8.67 9.53 10.40 11.27 12.13 13.00
42.51% 6.96 7.83 8.70 9.57 10.44 11.31 12.18 13.05
42.76% 6.99 7.86 8.74 9.61 10.48 11.36 12.23 13.10
42.96% 7.01 7.89 8.77 9.64 10.52 11.40 12.27 13.15
43.16% 7.04 7.92 8.80 9.68 10.56 11.44 12.32 13.19
44.04% 7.15 8.04 8.93 9.83 10.72 11.62 12.51 13.40
44.19% 7.17 8.06 8.96 9.85 10.75 11.65 12.54 13.44
45.28% 7.31 8.22 9.14 10.05 10.96 11.88 12.79 13.71
45.71% 7.37 8.29 9.21 10.13 11.05 11.97 12.89 13.81
46.00% 7.41 8.33 9.26 10.19 11.11 12.04 12.96 13.89
46.13% 7.43 8.35 9.28 10.21 11.14 12.07 12.99 13.92
46.42% 7.47 8.40 9.33 10.27 11.20 12.13 13.06 14.00
46.72% 7.51 8.45 9.38 10.32 11.26 12.20 13.14 14.08
47.55% 7.63 8.58 9.53 10.49 11.44 12.39 13.35 14.30
- ---------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

APPENDIX A
1994 New York State and New York City Tax-Exempt and Taxable
Equivalent Yield Calculation

These tables will help you determine your combined federal and
state taxable yields equivalents for given rates of tax-exempt
income.

STEP 1: CALCULATING YOUR MARGINAL TAX RATES.
Using your Taxable Income and Adjusted Gross Income figures as
guides you can locate your Marginal Tax Rate in the table below.

Under Taxable Income married filing jointly status, $138,000 is in
the $108,000-$140,000 range. Under Adjusted Gross Income, $175,000
is in the $167,700 to $290,200 column. The Taxable Income line and
Adjusted Gross Income column meet at 40.13 percent. This is the
rate you'll use in Step 2.

<TABLE>
<CAPTION>
ADJUSTED GROSS INCOME*
______________________________________________________________________
TAXABLE INCOME** $ 0 $ 111,800 $ 150,000 $ 167,700 OVER
to to to to
$111,800(1) $150,000(2) $167,700(3) $290,200(4) $290,200(3)
_________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Married Filing Jointly
$ 0 - $ 13,000 21.05%
13,000 - 14,400 21.90
14,400 - 19,000 22.97
19,000 - 25,000 23.82
25,000 - 27,000 24.71
27,000 - 38,000 25.19
38,000 - 45,000 36.63
45,000 - 91,850 36.64
91,850 - 108,000 39.28
108,000 - 140,000 39.32 41.11% 40.13% 40.13%
140,000 - 250,000 43.71 45.57 44.66 45.90
250,000 + 46.88 49.29*** 50.12%
_________________________________________________________________________________________________________

$ 0 $ 111,800 $ 150,000 OVER
to to to
$111,800(1) $150,000(5) $234,300(4) $234,300(3)
_________________________________________________________________________________________________________
Single
$ 0 - $ 6,500 21.05%
6,500 - 8,400 21.90
8,400 - 9,500 22.97
9,500 - 12,500 23.82
12,500 - 15,000 24.71
15,000 - 22,750 25.19
22,750 - 25,000 36.63
25,000 - 55,100 36.64
55,100 - 60,000 39.28
60,000 - 115,000 39.32 41.15%
115,000 - 250,000 43.71 45.73 45.28% 44.66%
250,000 + 46.88 47.92
_________________________________________________________________________________________________________

<PAGE>

(1) No Phase-out -- Assumes no phase-out of itemized deductions or personal
exemptions.
(2) Itemized Deductions Phase-out and Recapture of Personal Income Tax --
Assumes a single taxpayer has one personal exemption, joint taxpayers
have two personal exemptions and reflects the state AGI recapture of
personal income tax beginning at $100,000 ending at $150,000.
(3) Itemized Deductions Phase-out -- Assumes a single taxpayer has one personal
exemption and joint taxpayers have two personal exemptions.
(4) Deductions and Personal Exemption Phase-outs -- Assumes a single taxpayer
has one personal exemption, joint taxpayers have two personal exemptions
and itemized deductions continue to phase-out.
(5) Deductions and Personal Exemption Phase-outs and Recapture of Personal
Income Tax -- Assumes a single taxpayer has one personal exemption, joint
taxpayers have two personal exemptions, itemized deductions continue to
phase-out and reflects the state AGI recapture of personal income tax
beginning at $100,000 ending at $150,000.
</TABLE>

Federal taxes are not deductible on the New York state tax return.

The combined federal/New York state and city tax brackets are based
on state and city tax rates in effect on Jan. 1, 1994. These rates
may change if New York state or city tax rates change in 1994. If
state or city tax rates change equivalent rates may be higher than
those shown.

This table does not reflect the state itemized deduction
adjustment.

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

<PAGE>

STEP 2: DETERMINING YOUR COMBINED FEDERAL, NEW YORK STATE AND NEW
YORK CITY TAXABLE YIELD EQUIVALENTS.

Using 39.32 percent, you may determine that a tax-exempt yield of 4
percent is equivalent to earning a taxable 6.59 percent yield.

<TABLE>
<CAPTION>
For these Tax-Exempt Rates:
----------------------------------------------------------------------------
4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50%
----------------------------------------------------------------------------

Marginal Tax Rates Equal the Taxable Rates shown below:
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
21.05% 5.07 5.70 6.33 6.97 7.60 8.23 8.87 9.50
21.90% 5.12 5.76 6.40 7.04 7.68 8.32 8.96 9.60
22.97% 5.19 5.84 6.49 7.14 7.79 8.44 9.09 9.74
23.82% 5.25 5.91 6.56 7.22 7.88 8.53 9.19 9.85
24.71% 5.31 5.98 6.64 7.31 7.97 8.63 9.30 9.96
25.19% 5.35 6.02 6.68 7.35 8.02 8.69 9.36 10.03
36.63% 6.31 7.10 7.89 8.68 9.47 10.26 11.05 11.84
36.64% 6.31 7.10 7.89 8.68 9.47 10.26 11.05 11.84
39.28% 6.59 7.41 8.23 9.06 9.88 10.70 11.53 12.35
39.32% 6.59 7.42 8.24 9.06 9.89 10.71 11.54 12.36
40.09% 6.68 7.51 8.35 9.18 10.02 10.85 11.68 12.52
40.13% 6.68 7.52 8.35 9.19 10.02 10.86 11.69 12.53
40.62% 6.74 7.58 8.42 9.26 10.10 10.95 11.79 12.63
40.67% 6.74 7.58 8.43 9.27 10.11 10.96 11.80 12.64
41.11% 6.79 7.64 8.49 9.34 10.19 11.04 11.89 12.74
41.15% 6.80 7.65 8.50 9.35 10.20 11.05 11.89 12.74
43.71% 7.11 7.99 8.88 9.77 10.66 11.55 12.44 13.32
44.66% 7.23 8.13 9.04 9.94 10.84 11.75 12.65 13.55
45.11% 7.29 8.20 9.11 10.02 10.93 11.84 12.75 13.66
45.28% 7.31 8.22 9.14 10.05 10.96 11.88 12.79 13.71
45.57% 7.35 8.27 9.19 10.10 11.02 11.94 12.86 13.78
45.73% 7.37 8.29 9.21 10.13 11.06 11.98 12.90 13.82
45.90% 7.39 8.32 9.24 10.17 11.09 12.01 12.94 13.86
46.79% 7.52 8.46 9.40 10.34 11.28 12.22 13.16 14.10
46.88% 7.53 8.47 9.41 10.35 11.30 12.24 13.18 14.12
47.92% 7.68 8.64 9.60 10.56 11.52 12.48 13.44 14.40
48.35% 7.74 8.71 9.68 10.65 11.62 12.58 13.55 14.52
48.61% 7.78 8.76 9.73 10.70 11.68 12.65 13.62 14.59
48.77% 7.81 8.78 9.76 10.74 11.71 12.69 13.66 14.64
49.03% 7.85 8.83 9.81 10.79 11.77 12.75 13.73 14.71
49.29% 7.89 8.87 9.86 10.85 11.83 12.82 13.80 14.79
50.12% 8.02 9.02 10.02 11.03 12.03 13.03 14.03 15.04
- ---------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

APPENDIX A
1994 Ohio Tax-Exempt and Taxable Equivalent Yield Calculation

These tables will help you determine your combined federal and
state taxable yields equivalents for given rates of tax-exempt
income.

STEP 1: CALCULATING YOUR MARGINAL TAX RATES.
Using your Taxable Income and Adjusted Gross Income figures as
guides you can locate your Marginal Tax Rate in the table below.

Under Taxable Income married filing jointly status, $138,000 is in
the $100,000-$140,000 range. Under Adjusted Gross Income, $175,000
is in the $167,700 to $290,200 column. The Taxable Income line and
Adjusted Gross Income column meet at 42.74 percent. This is the
rate you'll use in Step 2.

<TABLE>
<CAPTION>
ADJUSTED GROSS INCOME*
________________________________________________________

$ 0 - $ 5,000 15.63%
5,000 - 10,000 16.27
10,000 - 15,000 17.52
15,000 - 20,000 18.16
20,000 - 38,000 18.79
38,000 - 40,000 31.21
40,000 - 80,000 31.74 31.74%
80,000 - 91,850 32.28 32.28
91,850 - 100,000 35.10 35.10
100,000 - 140,000 35.76 36.63 42.74%
140,000 - 200,000 40.42 41.42 43.10
200,000 - 250,000 40.80 46.66*** 41.80%
250,000 + 44.13 45.23
- -------------------------------------------------------------------------------------------
$ 0 $ 111,800 OVER
to to
$111,800(1) $234,300(3) $234,300(2)
___________________________________________________________________________________________
Single

$ 0 - $ 5,000 15.63%
5,000 - 10,000 16.27
10,000 - 15,000 17.52
15,000 - 20,000 18.16
20,200 - 22,750 18.79
22,750 - 40,000 31.21
40,000 - 55,100 31.74
55,100 - 80,000 34.59
80,000 - 100,000 35.10
100,000 - 115,000 35.76 37.19%
115,000 - 200,000 40.42 42.08 41.42%
200,000 - 250,000 40.80 42.45 41.80
250,000 + 44.13 45.23
- -------------------------------------------------------------------------------------------

<PAGE>

(1) No Phase-out -- Assumes no phase-out of itemized deductions or personal
exemptions.
(2) Itemized Deductions Phase-out -- Assumes a single taxpayer has one personal
exemption and joint taxpayers have two
personal exemptions.
(3) Itemized Deductions and Personal Exemption Phase-outs -- Assumes a single
taxpayer has one personal exemption, joint taxpayers have two personal
exemptions and the itemized deductions continue to phase-out.
</TABLE>

Federal taxes are not deductible on the Ohio state tax return.

The combined federal/Ohio tax brackets are based on state tax rates
in effect on Dec. 31, 1993. These rates may change if Ohio tax
rates change in 1994. If state tax rates change equivalent rates
may be higher than those shown.

This table does not reflect the state joint filing credit

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

STEP 2: DETERMINING YOUR COMBINED FEDERAL AND OHIO STATE TAXABLE
YIELD EQUIVALENTS.

Using 42.74 percent, you may determine that a tax-exempt yield of 4
percent is equivalent to earning a taxable 6.99 percent yield.

<TABLE>
<CAPTION>
For these Tax-Exempt Rates:
___________________________________________________________________________

4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50%
___________________________________________________________________________

Marginal Tax Rates Equal the Taxable Rates shown below:
________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
15.63% 4.74 5.33 5.93 6.52 7.11 7.70 8.30 8.89
16.26% 4.78 5.37 5.97 6.57 7.17 7.76 8.36 8.96
17.53% 4.85 5.46 6.06 6.67 7.28 7.88 8.49 9.09
18.16% 4.89 5.50 6.11 6.72 7.33 7.94 8.55 9.16
18.79% 4.93 5.54 6.16 6.77 7.39 8.00 8.62 9.24
31.21% 5.81 6.54 7.27 8.00 8.72 9.45 10.18 10.90
31.74% 5.86 6.59 7.32 8.06 8.79 9.52 10.25 10.99
32.28% 5.91 6.65 7.38 8.12 8.86 9.60 10.34 11.08
34.59% 6.12 6.88 7.64 8.41 9.17 9.94 10.70 11.47
35.10% 6.16 6.93 7.70 8.47 9.24 10.02 10.79 11.56
35.76% 6.23 7.00 7.78 8.56 9.34 10.12 10.90 11.67
36.63% 6.31 7.10 7.89 8.68 9.47 10.26 11.05 11.84
37.19% 6.37 7.16 7.96 8.76 9.55 10.35 11.14 11.94
40.42% 6.71 7.55 8.39 9.23 10.07 10.91 11.75 12.59
40.80% 6.76 7.60 8.45 9.29 10.14 10.98 11.82 12.67
41.42% 6.83 7.68 8.54 9.39 10.24 11.10 11.95 12.80
41.80% 6.87 7.73 8.59 9.45 10.31 11.17 12.03 12.89
42.08% 6.91 7.77 8.63 9.50 10.36 11.22 12.09 12.95
42.45% 6.95 7.82 8.69 9.56 10.43 11.29 12.16 13.03
42.74% 6.99 7.86 8.73 9.61 10.48 11.35 12.22 13.10
43.10% 7.03 7.91 8.79 9.67 10.54 11.42 12.30 13.18
44.13% 7.16 8.05 8.95 9.84 10.74 11.63 12.53 13.42
45.23% 7.30 8.22 9.13 10.04 10.95 11.87 12.78 13.69
45.95% 7.40 8.33 9.25 10.18 11.10 12.03 12.95 13.88
46.66% 7.50 8.44 9.37 10.31 11.25 12.19 13.12 14.06
________________________________________________________________________________________________________
</TABLE>

<PAGE>

APPENDIX B
DESCRIPTION OF CORPORATE BOND RATINGS

Bond 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 rating
may change which could affect its price. Ratings by Moody's Investors Service,
Inc. are Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D. Ratings by Standard & Poor's
Corporation are AAA, AA, A, BBB, BB, B, CCC, CC, C and D.

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 the 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.

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.

B-1
<PAGE>
IDS INSURED TAX-EXEMPT FUND

PROSPECTUS

AUG. 29, 1994 AS REVISED MARCH 3, 1995

The goals of IDS Insured Tax-Exempt Fund, a part of IDS Special Tax-Exempt
Series Trust, are to provide a high level of income generally exempt from
federal income tax and preservation of shareholders' capital. The fund invests
primarily in securities that are insured as to their scheduled payment of
principal and interest for at least as long as the securities are held in the
fund. Insured securities fluctuate in market value as interest rates change.

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. The SAI, dated Aug.
29, 1994 as revised March 3, 1995, is incorporated here by reference. For a free
copy, contact American Express Shareholder Service.

SHARES IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.

American Express Shareholder Service
P.O. Box 534
Minneapolis, MN
55440-0534
612-671-3733
TTY: 800-846-4852

1
<PAGE>

<TABLE>
<S> <C>
TABLE OF CONTENTS

THE FUND IN BRIEF
Goals......................................................
Types of fund investments..................................
Manager and distributor....................................
Portfolio manager..........................................
Alternative sales arrangements.............................
SALES CHARGE AND FUND EXPENSES
Sales charge...............................................
Operating expenses.........................................
PERFORMANCE
Financial highlights.......................................
Total returns..............................................
Yield......................................................
Key terms..................................................
INVESTMENT POLICIES AND RISKS
Facts about investments and their risks....................
Alternative investment option..............................
Valuing assets.............................................
HOW TO BUY, EXCHANGE OR SELL SHARES
Alternative sales arrangements.............................
How to buy shares..........................................
How to exchange shares.....................................
How to sell shares.........................................
Reductions of the sales charge.............................
Waivers of the sales charge................................
SPECIAL SHAREHOLDER SERVICES
Services...................................................
Quick telephone reference..................................
DISTRIBUTIONS AND TAXES
Dividend and capital gain distributions....................
Reinvestments..............................................
Taxes......................................................
HOW THE FUND IS ORGANIZED
Shares.....................................................
Voting rights..............................................
Shareholder meetings.......................................
Trustees and officers......................................
Investment manager and transfer agent......................
Distributor................................................
ABOUT AEFC
General information........................................
APPENDIX A: Tax-exempt vs. taxable income....................
</TABLE>

2
<PAGE>
THE FUND IN BRIEF

GOALS

IDS Insured Tax-Exempt Fund seeks to provide shareholders with a high level of
income generally exempt from federal income tax and preservation of
shareholders' capital. Because any investment involves risk, achieving these
goals cannot be guaranteed. Only shareholders can change the goals.

TYPES OF FUND INVESTMENTS

The fund is a diversified mutual fund that invests primarily in a diversified
portfolio of securities exempt from federal income tax, with principal and
interest either fully insured by private insurers or guaranteed by an agency or
instrumentality of the U.S. government. At least 65% of the fund's total assets
will be privately insured. The fund may hold short-term tax-exempt securities
that are not insured. A portion of the assets may be invested in bonds subject
to the alternative minimum tax computation.

Shares of the fund held by an investor are not insured or guaranteed and their
net asset value fluctuates as the value of the portfolio securities changes.

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 $38 billion
in assets for the IDS MUTUAL FUND GROUP. Shares of the fund are sold through
American Express Financial Advisors Inc., a wholly owned subsidiary of AEFC.

PORTFOLIO MANAGER

Paul B. Hylle joined AEFC in 1993 and serves as portfolio manager. He also is
portfolio manager of IDS California Tax-Exempt Fund, IDS Massachusetts
Tax-Exempt Fund, IDS Michigan Tax-Exempt Fund, IDS Minnesota Tax-Exempt Fund,
IDS New York Tax-Exempt Fund and IDS Ohio Tax-Exempt Fund. Prior to joining
AEFC, he had been a portfolio manager at Lutheran Brotherhood, a Minnesota based
fraternal benefit society offering financial services to Lutherans.

ALTERNATIVE SALES 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 6 years of purchase and
an annual distribution (12b-1) fee. Class Y shares are sold without a sales
charge to qualifying institutional investors. Other differences between the
classes include the fees paid by each class. The fund offers these alternatives
so you may choose the method of purchasing shares that is most beneficial given
the amount of purchase, length of time you expect to hold the shares and other
circumstances.

SALES CHARGE AND FUND EXPENSES

SALES CHARGE

3
<PAGE>

shares may be subject to a CDSC on redemptions made within 6 years and are
subject to annual distribution (12b-1) fees. Class Y shares are sold without a
sales charge to qualifying institutional investors.

SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<CAPTION>
Class A Class B Class Y
------------- ------------- -------------
<S> <C> <C> <C>
Maximum sales charge on purchases (as a percentage of
offering price).................................... 5% 0% 0%
Maximum deferred sales charge imposed on redemptions
(as a percent of original purchase price).......... 0% 5% 0%
</TABLE>

OPERATING EXPENSES

The fund pays certain expenses out of its assets for each class of shares. The
expenses are reflected in the fund's daily share price and dividends, and are
not charged directly to shareholder accounts. The following chart gives a
projection of these expenses -- based on historical expenses.

ANNUAL FUND OPERATING EXPENSES
(% of average daily net assets):

<TABLE>
<CAPTION>
Class A Class B Class Y
----------- ----------- -----------
<S> <C> <C> <C>
Management fee...................................... 0.00% 0.00% 0.00%
12b-1 fee........................................... 0.00% 0.00% 0.00%
Other expenses...................................... 0.00% 0.00% 0.00%
Total............................................... 0.00% 0.00% 0.00%
</TABLE>

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:

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.

4
<PAGE>

PERFORMANCE

FINANCIAL HIGHLIGHTS

IDS Insured Tax-Exempt Fund

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $5.63 $ 5.33 $ 5.04 $4.96 $5.00 $4.86 $4.73 $ 5.07 $5.00
Income from investment operations:
Net investment income................... .30 .30 .31 .32 .31 .16 .31 .32 .11
Net gains (losses) on securities (both
realized and unrealized)............... (.28) .30 .29 .08 (.04) .14 .14 (.34) .07
Total from investment operations........ .02 .60 .60 .40 .27 .30 .45 (.02) .18
Less distributions:
Dividends from net investment income.... (.30) (.30) (.31) (.32) (.31) (.16) (.32) (.32) (.11)
Net asset value, end of period.......... $5.35 $ 5.63 $ 5.33 $5.04 $4.96 $5.00 $4.86 $ 4.73 $5.07

<CAPTION>
Ratios/supplemental data
----------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989** 1988 1987 1986+
------ ------ ------ ------ ------ ---------- ------ ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net assets, end of period (in
millions).............................. $ 525 $ 464 $ 308 $ 195 $ 133 $ 79 $ 55 $ 37 $ 25
Ratio of expenses to average daily net
assets................................. .65% .65% .67% .67% .69% .72%*** .77% .88% .75%***++
Ratio of net income to average daily net
assets................................. 5.32% 5.53% 6.06% 6.36% 6.44% 6.60%*** 6.55% 6.77% 6.52%***++
Portfolio turnover rate (excluding
short-term securities)................. 37% 5% 11% 8% 24% 19% 33% 29% 0%
Total return+++......................... 0.3% 11.7% 12.3% 8.1% 5.6% 6.4%++++ 9.7% (0.2)% 3.5%++++
<FN>
*For a share outstanding throughout the period. Rounded to the nearest cent.
**The fund's fiscal year-end was changed from Dec. 31 to June 30, effective
1989.
***Adjusted to an annual basis.
+Commencement of operations. Period from Aug. 18, 1986 to Dec. 31, 1986.
++During the period from Aug. 18, 1986 to Dec. 31, 1986, IDS voluntarily
reimbursed the fund for expenses in excess of 0.75% of its average daily net
assets, on an annual basis. Had IDS not done so, the ratio of expenses and
ratio of net investment income would have been 1.05% and 6.22%,
respectively.
+++Total return does not reflect payment of a sales charge.
++++For the fiscal period ended Dec. 31, 1986 and June 31, 1989, the annualized
total return is 9.5% and 13.3%, respectively.
</TABLE>

5
<PAGE>

The information in this table 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. Information on Class B and Class Y shares is not included because no
shares of those classes were outstanding for the periods shown.

TOTAL RETURNS

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF June 30, 1994
- ---------------------------------------------------------------------------------------
Purchase made 1 year ago 5 years ago Since inception*
- --------------------------------------- ------------ ------------- -----------------
<S> <C> <C> <C>
Insured Tax-Exempt:
Class A.............................. -4.7% +6.4% +6.5%
Lehman Brothers Municipal Bond Index... +0.2% +7.9% +7.8%
<FN>
*Aug. 18, 1986
</TABLE>

<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURNS as of June 30, 1994
- ------------------------------------------------------------------------------------
Since
Purchase made 1 year ago 5 years ago inception*
- --------------------------------------- ------------ ------------ ---------------
<S> <C> <C> <C>
Insured Tax-Exempt:
Class A.............................. -4.7% +36.6% +64.6%
Lehman Brothers Municipal Bond Index... +0.2% +46.5% +80.6%
<FN>
*Aug. 18, 1986
</TABLE>

These examples show total returns from hypothetical investments in Class A
shares of the fund. No shares for Class B and Class Y were outstanding during
the periods presented. These returns are compared to those of a popular index
for the same periods.

For purposes of calculation, information about the fund assumes:

- - a sales charge of 5% for Class A shares

- - no adjustments for taxes an investor may have paid on the reinvested income
and capital gains

- - a period of widely fluctuating securities prices. Returns shown should not be
considered a representation of the fund's future performance.

The fund invests primarily in debt securities that may be different from those
in the index. The index reflects reinvestment of all distributions and changes
in market prices, but excludes brokerage commissions or other fees.

Lehman Brothers Municipal Bond Index is made up of a representative list of
general obligation, revenue, insured and pre-refunded bonds. The index is
frequently used as a general measure of tax-exempt bond market performance.
However, the securities used to create the index may not be representative of
the bonds held in the fund.

YIELD

The fund's SEC standardized yield for the 30-day period ended June 30, 1994, was
4.91%.

The fund calculates this 30-day SEC standardized yield by dividing:

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

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

- - converting the result to a yearly equivalent figure.

6
<PAGE>

The fund's non-standardized (distribution) yield was 5.23% for the same 30-day
period ended June 30, 1994.

The fund computes distribution yield by dividing:

- - the total dividends paid over the 30-day period by

- - the sum of each day's public offering price for that period, and

- - 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.

KEY TERMS

NET ASSET VALUE (NAV)

Value of a single fund share. For each class, it is the total market value of
all of a fund's investments and other assets attributable to that class, less
any liabilities attributable to that class, divided by the number of shares of
that class outstanding.

When you buy shares, you pay the NAV plus any applicable sales charge. When you
sell shares, the price you receive is the NAV minus any applicable sales charge.
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.

PUBLIC OFFERING PRICE

Price at which you buy shares. It is the NAV plus the sales charge for Class A.
It is the NAV for Class B and Class Y. NAVs and public offering prices of IDS
funds are listed each day in major newspapers and financial publications.

INVESTMENT INCOME

Dividends and interest earned on securities held by the fund.

CAPITAL GAINS OR LOSSES

Increase or decrease in value of the securities the fund holds. Gains or losses
are realized when securities that have increased or decreased in value are sold.
A fund also may have unrealized gains or losses when securities increase or
decrease in value but are not sold.

DISTRIBUTIONS

Payments to shareholders of two types: investment income (dividends) and
realized net long-term capital gains (capital gains distributions).

7
<PAGE>

TOTAL RETURN

AVERAGE ANNUAL TOTAL RETURN

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

YIELD

Net investment income earned per share for a specified time period, divided by
the offering price at the end of the period.

INVESTMENT POLICIES AND RISKS

Under normal market conditions, the fund will invest at least 80% of its net
assets in 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. Under normal market conditions, at least 65% of the fund's total
assets will be invested in securities that are insured and have a maturity of
more than one year.

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

FACTS ABOUT INVESTMENTS AND THEIR RISKS

BONDS AND OTHER DEBT SECURITIES EXEMPT FROM FEDERAL INCOME TAXES: The price of
a bond fluctuates as interest rates change or if its credit rating is upgraded
or downgraded. The fund may purchase securities rated Aaa by Moody's Investors
Service, Inc. (Moody's) or AAA by Standard & Poor's Corporation (S&P). In
addition, the fund may purchase securities rated lower than Aaa by Moody's or
AAA by S&P without regard to their rating, provided the securities are insured.
These securities generally provide a higher yield than securities with the
highest ratings. The increased yield will be offset to a certain extent by the
premium paid to insure the securities. In purchasing these securities the fund
hopes to achieve a higher yield while at the same time providing the same level
of safety available by the purchase of AAA rated securities.

CONCENTRATION: The fund may invest more than 25% of its total assets in a
particular segment of the municipal securities market, such as electric revenue
bonds, hospital revenue bonds, housing agency bonds, industrial development
bonds, airport bonds, or in securities the interest upon which is paid from
revenues of a similar type of project. In such circumstances, economic,
business, political or other changes affecting one bond (such as proposed
legislation affecting the financing of a project, shortages or price increases
of needed materials, or declining market or needs of the projects) might also
affect other bonds in the same segment. This could increase market risk.

8
<PAGE>
The fund 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.

TAXABLE INVESTMENTS: If, in the opinion of the investment manager, appropriate
tax-exempt securities are not available, the fund may invest up to 20% of its
net assets, or more on a temporary defensive basis, in taxable investments as
described more fully in the SAI.

DERIVATIVE INSTRUMENTS: The portfolio 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 portfolio 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. For further
information, see the options and futures appendix in the SAI.

INVERSE FLOATERS: Inverse floaters are derivatives created by underwriters
using the interest payments on securities. A portion of the interest received is
paid to holders of instruments based on current interest rates for short-term
securities. What is left over, less a servicing fee, is paid to holders of the
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. No more than 10% of the
fund's assets will be held in inverse floaters.

9
<PAGE>

buyers when determining whether a security is illiquid. No more than 10% of the
fund's net assets will be held in securities and derivative instruments that are
illiquid.

TAX-EXEMPT MONEY MARKET INSTRUMENTS: Pending investment in municipal securities
maturing in more than one year, or as a temporary defensive position, the fund
may hold up to 35% of its net assets in short-term tax-exempt instruments that
are not insured or guaranteed. The fund will purchase these instruments only if
they are rated MIG-1 by Moody's or SP-1 or better by S&P or if the long-term
debt of such issuers is rated Aaa by Moody's or AAA by S&P.

INSURANCE ON TAX-EXEMPT SECURITIES: Payment of principal and interest on
tax-exempt securities which have a maturity of more than one year will be either
fully insured by private insurers or guaranteed by an agency or instrumentality
of the U.S. government. These agencies include the Federal National Mortgage
Association and the Federal Housing Administration. Insurance or guarantee
features minimize the risks to the fund and its shareholders associated with
defaults in the securities owned by the fund. Insurance or guarantees do not
guarantee the market value of the municipal securities or the value of the
shares of the fund. Insurance premiums are paid from the assets of the fund and
will reduce the fund's current yield.

Except for securities guaranteed by the U.S. government, or an agency thereof,
and the short-term securities described above, each tax-exempt security
purchased by the fund will be insured either by a New Issue Insurance Policy or
by a Portfolio Insurance Policy issued by Financial Guaranty Insurance Company
or a comparable insurer as long as that insurer is rated Aaa by Moody's or AAA
by S&P. The dollar amount of premium paid was .0001% of the fund's assets for
the fiscal year ended June 30, 1994.

Except for the investment policies concerning the type and amount of tax-exempt
investments, the investment policies described above may be changed by the
trustees.

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 shareholders 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 investment
portfolio would be managed by another investment company with the same goal as
the fund, rather than investing directly in a portfolio of securities.

VALUING ASSETS

- - Bonds and assets without readily available market values are valued at fair
value according to methods selected in good faith by the board of trustees.

- - Securities maturing in 60 days or less are valued at amortized cost.

- - Securities (except bonds) and assets with available market values are valued
on that basis.

10
<PAGE>
HOW TO BUY, EXCHANGE OR SELL SHARES

HOW TO BUY SHARES -- ALTERNATIVE SALES 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 Service fee
distribution (12b-1) (as a % of average
fee daily net assets) Other information
----------------------- -------------------- -----------------------
<S> <C> <C> <C>
Class A Maximum initial sales Service fee of Initial sales charge
charge of 5% 0.175% waived or reduced for
certain purchases

Class B No initial sales Service fee of Shares convert to Class
charge; distribution 0.175% A after 8 years; CDSC
fee of 0.75% of daily waived in certain
net assets; maximum circumstances
CDSC of 5% declines to
0% after 6 years
Class Y None None Available only to
certain 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.

- - You will be able to take advantage - No reductions of the sales charge
of reductions in the sales charge. are available for large purchases.
If your investments in IDS funds
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>

11
<PAGE>

<TABLE>
<S> <C>
- - The sales charges and distribution fee are structured so that you will have
approximately the same total return at the end of 8 years regardless of which
class you chose.
<CAPTION>
ONGOING EXPENSES
<S> <C>
- - Your shares will have a lower - The distribution and transfer agent
expense ratio than Class B shares fees for Class B will cause your
because Class A does not pay a shares to have a higher expense
distribution fee and the transfer ratio and to pay lower dividends
agent fee for Class A is lower than than Class A shares. After 8 years,
the fee for Class B. As a result, Class B shares will convert to Class
Class A shares will pay higher A shares and will no longer be
dividends than Class B shares. subject to higher fees.
</TABLE>

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 either a service fee or a distribution fee. The following investors
are eligible to purchase Class Y shares:

- 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.

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

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

Financial advisors may receive different compensation for selling Class A, Class
B and Class Y shares.

12
<PAGE>
HOW TO BUY SHARES

If you're investing in this fund for the first time, you'll 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 AEFC with your correct
Taxpayer Identification Number (Social Security or Employer Identification
number). See "Distributions and taxes."

When you buy 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:

- - 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.

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

- - Wire orders can be accepted only on days when your bank, AEFC the fund and
Norwest Bank Minneapolis are open for business.

- - Wire purchases are completed when wired payment is received and the fund
accepts the purchase.

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

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

- - The fund reserves the right to reject any application for any reason.

- - If your application does not specify which class of share you are purchasing,
it will be assumed that you are investing in Class A shares.

THREE WAYS TO INVEST

<TABLE>
<S> <C> <C>
1 Send your check and application MINIMUM AMOUNTS
BY REGULAR (or your name and account number Initial investment: $2,000
ACCOUNT if you have an established Additional investments: $100
account) to: Account balances: $300*
American Express Financial
Advisors Inc.
P.O. Box 74
Minneapolis, MN 55440-0074
Your financial advisor will help
you with this process.
</TABLE>

13
<PAGE>

<TABLE>
<S> <C> <C>
2 Contact your financial advisor MINIMUM AMOUNTS
BY SCHEDULED to set up one of the following Initial investment: $100
INVESTMENT scheduled plans: Additional investments: $100/mo
PLAN - automatic payroll deduction Account balances: none
- bank authorization (on active plans of monthly
- direct deposit of payments)
Social Security check
- other plan approved by the
fund

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

<FN>

*If your account balance falls below $300, AEFC will ask you in writing to bring
it up to $300 or establish a scheduled investment plan. If you don't do so
within 30 days, your shares can be redeemed and the proceeds mailed to you.
</TABLE>

HOW TO EXCHANGE SHARES

For tax purposes, an exchange represents a sale and purchase and may result in a
gain or loss. However, you cannot create 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 SELL SHARES

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

When you sell 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 fund's net asset value when you
sell shares is more or less than the cost of your shares, you will have a gain
or loss, which can affect your tax liability.

14
<PAGE>
TWO WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES

2 - The fund and AEFC will honor any telephone
BY PHONE exchange or redemption request believed to be
American Express Telephone authentic and will use reasonable procedures to
Transaction Service: confirm that they are. This includes asking
800-437-3133 or identifying questions and tape recording calls.
612-671-3800 So long as reasonable procedures are followed,
neither the fund nor AEFC will be liable for any
loss resulting from fraudulent requests.
- 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.
- 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.
- Phone privileges may be modified or discontinued
at any time.
MINIMUM AMOUNT
Redemption: $100
MAXIMUM AMOUNT
Redemption: $50,000
</TABLE>

EXCHANGE POLICIES:

- - 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.

- - Exchanges must be made into the same class in the new fund.

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

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

15
<PAGE>
- - Shares of the new fund may not be used on the same day for another exchange.

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

- - 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:

- - 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 buy new shares in the
same account at the net asset value, rather than the offering price on the
date of a new purchase. If you reinvest in this manner, any CDSC you paid on
the amount you are reinvesting also will be reinvested in the fund. 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.

- - 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. Please expect a minimum of 10 days from the date of purchase before
AEFC mails a check to you. (A check may be mailed earlier if your bank provides
evidence satisfactory to the fund and AEFC that your check has cleared.)

THREE WAYS TO RECEIVE PAYMENT WHEN YOU SELL SHARES

<TABLE>
<S> <C> <C>
1 - Mailed to the address on record.
BY REGULAR OR EXPRESS MAIL - Payable to names listed on the account.
NOTE: The express mail delivery charges you pay
will vary depending on the courier you
select.

2 - Minimum wire redemption: $1,000.
BY WIRE - Request that money be wired to your bank.
- 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 - Minimum payment: $50.
BY SCHEDULED PAYOUT PLAN - 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.
- Buying new shares while under a payout plan may
be disadvantageous because of the sales charges.
</TABLE>

16
<PAGE>

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:

<TABLE>
<CAPTION>
Sales charge as a percent
of:*
---------------------------
Public
offering Net amount
Total investment price invested
- ------------------------ ------------- ------------
<S> <C> <C>
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
More than $1,000,000 0.0 0.00
<FN>
*To calculate the actual sales charge on an investment greater than $50,000,
amounts for each applicable increment must be totaled. See the SAI.
</TABLE>

REDUCTIONS OF THE SALES CHARGE ON CLASS A SHARES

Your sales charge may be reduced, depending on the totals of:

- - the amount you are investing in this fund now,

- - the amount of your existing investment in this fund, if any, and

- - the amount you and your immediate family (spouse or unmarried children under
21) are investing or have in other funds in the IDS MUTUAL FUND GROUP that
carry a sales charge.

Other policies that affect your sales charge:

- - 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.

- - 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.

For more details, see the SAI.

WAIVERS OF THE SALES CHARGE FOR CLASS A SHARES

Sales charges do not apply to:

- - Current or retired trustees, directors, officers or employees of the fund or
AEFC or its subsidiaries, their spouses and unmarried children under 21.

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

- - 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.)

- - 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.

17
<PAGE>

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

-- of a product distributed by American Express Financial Advisors in a
qualified plan subject to a deferred sales charge or

-- a qualified plan where American Express Trust Company acts as trustee or
recordkeeper.

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

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

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

CLASS B -- CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE

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.

18
<PAGE>

WAIVERS OF THE SALES CHARGE FOR CLASS B SHARES

The CDSC on Class B shares will be waived on redemptions of shares:

- - In the event of the shareholder's death,

- - Purchased by any trustee, director, officer or employee of a fund or AEFC or
its subsidiaries,

- - Purchased by any American Express financial advisor,

- - Held in a trusteed employee benefit plan,

- - Held in IRAs or certain qualified plans for which AEFC 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

-- 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

AMERICAN EXPRESS SHAREHOLDER SERVICE
Fund performance, objectives and account inquiries
612-671-3733

TTY SERVICE
For the hearing impaired
800-846-4852

AMERICAN EXPRESS INFOLINE
Automated account information (TouchTone-R- phones only), including

19
<PAGE>
current fund prices and performance, account values and recent account
transactions
National/Minnesota: 800-272-4445
Mpls./St. Paul area: 671-1630

DISTRIBUTIONS AND TAXES

The fund distributes to shareholders investment income and net capital gains. It
does so to qualify as a regulated investment company and to avoid paying
corporate income and excise taxes. Dividend and capital gains distributions will
have tax consequences you should know about.

DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS

The fund distributes its net investment income (dividends and interest earned on
securities held by the fund, less operating expenses) to shareholders of record
monthly. Short-term capital gains distributed are included in net investment
income. Net realized capital gains, if any, from selling securities are
distributed at the end of the calendar year. Before they're distributed, net
capital gains are included in the value of each share. After they're
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 paid by each class will be calculated at the same time, in the same
manner and in the same amount, except the expenses attributable solely to Class
A, Class B and Class Y will be paid exclusively by that class. Class B
shareholders will receive lower per share dividends than Class A and Class Y
shareholders because expenses for Class B are higher than for Class A or Class
Y. Class A shareholders will receive lower per share dividends than Class Y
shareholders because expenses for Class A are higher than for Class Y.

REINVESTMENTS

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

- - you request the fund in writing or by phone to pay distributions to you in
cash, or

- - you direct the fund to invest your distributions in any publicly available IDS
fund for which you've previously opened an account. You pay no sales charge on
shares purchased through reinvestment from this fund into any IDS fund.

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.

TAXES

Dividends distributed from interest earned on tax-exempt securities
(exempt-interest dividends) are exempt from federal income taxes but may

20
<PAGE>
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 pays 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 a 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, AEFC sends you a statement showing the kinds and total amount of
all distributions you received during the previous year. You must report all
distributions on your tax returns, even if they are reinvested in additional
shares.

"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 either short-term (for shares held for one year or less) or long-term (for
shares held for more than one year).

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 at AEFC.

If you don't provide the TIN to AEFC, 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:

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

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

- - 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.

21
<PAGE>
HOW TO DETERMINE THE CORRECT TIN

<TABLE>
<CAPTION>
Use the Social Security or Employer
For this type of account: Identification number of:
- --------------------------------------- ---------------------------------------

<S> <C>
Individual or joint account The individual or first person 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, pension trust or The legal entity (not the personal
estate representative or trustee, unless no
legal entity is designated in the
account title)

Sole proprietorship or partnership The owner or partnership

Corporate The corporation

Association, club or tax-exempt The organization
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 Special Tax-Exempt Series Trust, of which IDS Insured Tax-Exempt Fund is a
part, is an open-end management company, as defined in the Investment Company
Act of 1940. It was organized as a Massachusetts business trust on April 7,
1986. The fund headquarters are at 901 S. Marquette Ave., Suite 2810,
Minneapolis, MN 55402-3268.

IDS Special Tax-Exempt Series Trust currently is composed of six funds, each
issuing its own series of capital stock. 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 bears different expenses. Each class
represents interests in the assets of the fund. Par value is 1 cent per share.
Both full and fractional shares can be issued.

The trustees may from time to time issue other funds of the Trust, the assets
and liabilities of which will likewise be separate and distinct from this fund.

The fund no longer issues stock certificates.

VOTING RIGHTS

22
<PAGE>
SHAREHOLDER MEETINGS

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

TRUSTEES AND OFFICERS

Shareholders elect the trustees 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. The trustees
also serve on the boards of all of the other funds in the IDS MUTUAL FUND GROUP,
except for Mr. Dudley, who is a director of all publicly offered funds.

TRUSTEES AND OFFICERS OF THE FUND

PRESIDENT AND INTERESTED TRUSTEE

WILLIAM R. PEARCE
President of all funds in the IDS MUTUAL FUND GROUP.

INDEPENDENT TRUSTEES

LYNNE V. CHENEY
Distinguished fellow, American Enterprise Institute for Public Policy Research.

ROBERT F. FROEHLKE
Former president of all funds in the IDS MUTUAL FUND GROUP.

HEINZ F. HUTTER

Former president and chief operating officer, Cargill, Inc.

ANNE P. JONES

Attorney and telecommunications consultant.

DONALD M. KENDALL
Former chairman and chief executive officer, PepsiCo, Inc.

MELVIN R. LAIRD
Senior counsellor for national and international affairs, The Reader's Digest
Association, Inc.

LEWIS W. LEHR
Former chairman and chief executive officer, Minnesota Mining and Manufacturing
Company (3M).

EDSON W. SPENCER
Former chairman and chief executive officer, Honeywell, Inc.

WHEELOCK WHITNEY
Chairman, Whitney Management Company.

C. ANGUS WURTELE

Chairman of the board and chief executive officer, The Valspar Corporation.

INTERESTED TRUSTEES WHO ARE OFFICERS AND/OR EMPLOYEES OF AEFC

WILLIAM H. DUDLEY

Executive vice president, AEFC.

23
<PAGE>
DAVID R. HUBERS

President and chief executive officer, AEFC.

JOHN R. THOMAS

Senior vice president, AEFC.

OTHER OFFICER

LESLIE L. OGG
Vice president of all funds in the IDS MUTUAL FUND GROUP and general counsel and
treasurer of the publicly offered funds.

Refer to the SAI for the trustees' and officers' biographies.

INVESTMENT MANAGER AND TRANSFER AGENT

The fund pays AEFC for managing its portfolio, providing administrative services
and serving as transfer agent (handling shareholder accounts).

Under its Investment Management Services Agreement, AEFC determines which
securities will be purchased, held or sold (subject to the direction and control
of the fund's trustees). Effective March 3, 1995, the fund pays AEFC a fee for
these services based on the average daily net assets of the fund, as follows:

<TABLE>
<CAPTION>
Assets Annual rate
(billions) at each asset level
- -------------------- -------------------
<S> <C> <C>
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
</TABLE>

For the fiscal year ended June 30, 1994, under a prior agreement, the fund paid
AEFC a total investment management fee of 0.53% of its average daily net assets.
Under the Agreement, the fund also pays taxes, brokerage commissions and
nonadvisory expenses.

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.

In addition, under a separate Transfer Agency Agreement, AEFC maintains
shareholder accounts and records. The fund pays AEFC an annual fee per
shareholder account for this service as follows:

- Class A $15.50

- Class B $16.50

- Class Y $15.50

DISTRIBUTOR

The fund sells shares through American Express Financial Advisors, a wholly
owned subsidiary of AEFC, under a Distribution Agreement. Financial advisors
representing American Express Financial Advisors provide information to
investors about individual investment programs, the fund and its operations, new
account applications, exchange and redemption requests. The cost of these
services is paid partially by the fund's sales charge.

24
<PAGE>
Portions of sales charges may be paid to securities dealers who have sold the
fund's shares, or to banks and other financial institutions. The proceeds paid
to others range from 0.8% to 4% of the fund's offering price depending on the
monthly sales volume.

For Class B shares, to help defray costs not covered by sales charges, including
costs for marketing, sales administration, training, overhead, direct marketing
programs, advertising and related functions, the fund pays American Express
Financial Advisors a distribution fee, also known as a 12b-1 fee. This fee is
paid under a Plan and Agreement of Distribution that follows the terms of Rule
12b-1 of the Investment Company Act of 1940. Under this Agreement, 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. The
total 12b-1 fee paid by the fund under a prior agreement for the fiscal year
ended June 30, 1994 was 0.02% of its average daily net assets. This fee will not
cover all of the costs incurred by American Express Financial Advisors.

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 the fund's average daily net assets
attributable to Class A and Class B shares.

Total expenses paid by the fund in the fiscal year ended June 30, 1994 were
0.65% of its average daily net assets.

Total fees and expenses (excluding taxes and brokerage commissions) cannot
exceed the most restrictive applicable state expense limitation.

ABOUT AEFC

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 publicly offered 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 June 30, 1994 were more than $100 billion.

American Express Financial Advisors serves individuals and businesses through
its nationwide network of more than 175 offices and more than 7,800 advisors.

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

25
<PAGE>

APPENDIX A

TAX-EXEMPT VS. TAXABLE INCOME
1994 FEDERAL TAX-EXEMPT AND TAXABLE EQUIVALENT YIELD CALCULATION

These tables will help you determine your federal taxable yields 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 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
$91,850-$140,000 range. Under Adjusted Gross Income, $175,000 is in the $167,700
to $290,200 column. The Taxable Income line and Adjusted Gross Income column
meet at 33.15 percent. This is the rate you'll use in Step 2.

<TABLE>
<CAPTION>
Adjusted Gross Income*
-----------------------------------------------------------
$0 to $111,800 to $167,700 to Over
Taxable Income** $111,800(1) $167,700(2) $290,200(3) $290,200(2)
- ----------------------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Married Filing Jointly
$0 - $38,000 15.00%
38,000 - 91,850 28.00 28.84%
91,850 - 140,000 31.00 31.93 33.15
140,000 - 250,000 36.00 37.08 38.49 37.08%
250,000+ 39.60 42.34*** 40.79
</TABLE>

<TABLE>
<CAPTION>
$0 to $111,800 to $111,800 to Over
Taxable Income** $111,800(1) $167,700(2) $234,300(3) $234,300(2)
- ----------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Single
$0 - $22,750 15.00%
22,750 - 55,100 28.00
55,100 - 115,000 31.00 32.54%
115,000 - 250,000 36.00 37.79 37.08%
250,000+ 39.60 40.79
<FN>
- ------------------------
* Gross income with certain adjustments before taking itemized deductions and
personal exemptions.
** Amount subject to federal income tax after itemized deductions and personal
exemptions.
*** This rate is applicable only in the limited case where your adjusted gross
income is less than $290,200 and your taxable income exceeds $250,000.
(1) No Phase-out -- Assumes no phase-out of itemized deductions or personal
exemptions.
(2) Itemized Deductions Phase-out -- Assumes a single taxpayer has one personal
exemption and joint taxpayers have two personal exemptions.
</TABLE>

A-1
<PAGE>

<TABLE>
<S> <C>
(3) Itemized Deductions and Personal Exemption Phase-outs -- Assumes a single
taxpayer has one personal exemption, joint taxpayers have two personal
exemptions and itemized deductions continue to phase-out.
</TABLE>

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 33.15 percent, you may determine that a tax-exempt yield of 4 percent is
equivalent to earning a taxable 5.98 percent yield.

<TABLE>
<CAPTION>
For these Tax-Exempt Rates:
------------------------------------------------------------------------
4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50%
<S> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------
Marginal Tax Rates Equal the Taxable Rates shown below:
- ------------------------------------------------------------------------------------------------------
15.00% 4.71 5.29 5.88 6.47 7.06 7.65 8.24 8.82
28.00% 5.56 6.25 6.94 7.64 8.33 9.03 9.72 10.42
28.84% 5.62 6.32 7.03 7.73 8.43 9.13 9.84 10.54
31.00% 5.80 6.52 7.25 7.97 8.70 9.42 10.14 10.87
31.93% 5.88 6.61 7.35 8.08 8.81 9.55 10.28 11.02
32.54% 5.93 6.67 7.41 8.15 8.89 9.64 10.38 11.12
33.15% 5.98 6.73 7.48 8.23 8.98 9.72 10.47 11.22
36.00% 6.25 7.03 7.81 8.59 9.38 10.16 10.94 11.72
37.08% 6.36 7.15 7.95 8.74 9.54 10.33 11.13 11.92
37.79% 6.43 7.23 8.04 8.84 9.64 10.45 11.25 12.06
38.49% 6.50 7.32 8.13 8.94 9.75 10.57 11.38 12.19
39.60% 6.62 7.45 8.28 9.11 9.93 10.76 11.59 12.42
40.79% 6.76 7.60 8.44 9.29 10.13 10.98 11.82 12.67
41.56% 6.84 7.70 8.56 9.41 10.27 11.12 11.98 12.83
42.34% 6.94 7.80 8.67 9.54 10.41 11.27 12.14 13.01
</TABLE>

A-2
<PAGE>

IDS SPECIAL TAX-EXEMPT SERIES TRUST
IDS CALIFORNIA TAX-EXEMPT TRUST

STATEMENT OF ADDITIONAL INFORMATION

FOR

IDS CALIFORNIA TAX-EXEMPT FUND
IDS MASSACHUSETTS TAX-EXEMPT FUND
IDS MICHIGAN TAX-EXEMPT FUND
IDS MINNESOTA TAX-EXEMPT FUND
IDS NEW YORK TAX-EXEMPT FUND
IDS OHIO TAX-EXEMPT FUND

Aug. 29, 1994 as revised March 3, 1995

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 Aug. 29, 1994 as revised March 3, 1995, and it is
to be used with the prospectus dated Aug. 29, 1994 as revised March 3,
1995, and the Annual Report for the fiscal year ended June 30,
1994.

-1-
<PAGE>

TABLE OF CONTENTS

Goals and Investment Policies........................See Prospectus

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

Portfolio Transactions........................................p.

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

Valuing Each Fund's Shares....................................p.

Investing in a Fund...........................................p.

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

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

Exchanges.....................................................p.

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

Taxes.........................................................p.

Agreements....................................................p.

Trustees and Officers.........................................p.

The Trusts....................................................p.

Custodian.....................................................p.

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

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

Prospectus....................................................p.

Appendix A: Description of Ratings of Tax-Exempt Securities
and Short-Term Securities........................p.

Appendix B: Options and Interest Rate Futures Contracts......p.

Appendix C: State Risk Factors...............................p.

Appendix D: Dollar-Cost Averaging............................p.

-2-
<PAGE>

ADDITIONAL INVESTMENT POLICIES

These are investment policies in addition to those presented in the
prospectus. Unless holders of a majority of the outstanding shares
agree to make the change each fund will not:

'Act as an underwriter (sell securities for others). However,
under the securities laws, a 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. No fund has borrowed in the past and has any
present intention to borrow.

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

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

'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.

'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.

'Make a loan of any part of its assets to American Express
Financial Corporation (AEFC), to the directors and officers of AEFC
or to its own trustees and officers.

'Purchase securities of an issuer if the trustees and officers of
the fund or the directors and officers of American Express
Financial Corporation (AEFC) hold more than a certain percentage of
the issuer's outstanding securities. The rule is this: the
holdings of all trustees and officers of a fund and the holding of
all directors and officers 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.

'Lend portfolio securities in excess of 30% of its net assets, at
market value. This policy may not be changed without shareholders
approval. The current policy of each fund's trustees is to make
these loans, either long- or short-term, to broker-dealers. In
making such loans the fund gets the market price in cash,

-3-
<PAGE>

U.S.government securities, letters of credit or such other
collateral as may be permitted by regulatory agencies and approved
by the trustees. If the fund receives cash as collateral, a fund
will invest the cash collateral in short-term debt securities. A
fund reviews the market value of the loaned securities daily and
will get additional collateral if this value goes up. The risks
are that the borrower may not provide additional collateral when
required or return the securities when due.

Unless changed by the trustees, each fund will not:

'Buy on margin or sell short, but it may enter into interest rate
futures contracts.

'Pledge or mortgage its assets beyond 15% of the cost of its total
assets. If a fund were ever to do so, valuation of the pledged or
mortgaged assets would be based on market values. For purposes of
this restriction, collateral arrangements for margin deposits on
interest rate futures contracts are not deemed to be a pledge of
assets.

'Invest more than 5% of its total assets, at cost, in securities
whose issuer or guarantor of principal and interest, including any
predecessors, 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
programs.

'Invest more than 5% of its net assets in warrants. Under one
state's law no more than 2% of the fund's net assets may be
invested in warrants not listed on an Exchange.

'Invest more than 10% of its 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 trustees, 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 obligation.

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 trustees, 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.

Each 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

-4-
<PAGE>

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. Each fund may
purchase short-term corporate notes and obligations rated in the
top two classifications by Moody's or 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.

Each fund may purchase 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 a fund. Payment and
interest terms, however, are fixed at the time the purchaser enters
into a commitment. Under normal market conditions, each fund does
not intend to commit more than 5% of its total assets to these
practices. A 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 they
may affect a fund's total assets the same as owned securities.

Each fund relies both on ratings assigned by credit agencies and on
the investment manager's credit analysis because credit agencies
may fail to reflect subsequent events on a timely basis and because
credit ratings do not evaluate market risk. With lower rated
securities, the achievement of each fund's investment objective may
be more dependent upon the investment manager's credit analysis
than is the case for higher quality securities.

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.

For a description of ratings of tax-exempt securities and short-
term securities, see Appendix A. For a discussion on options and
interest rate futures contracts, see Appendix B. For a discussion
of state risk factors, see Appendix C.

PORTFOLIO TRANSACTIONS

Subject to policies set by the board of trustees (the "trustees"),
AEFC is authorized to determine, consistent with each 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 the most favorable execution

-5-
<PAGE>

except where otherwise authorized by the trustees. Normally, each
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.

Each investment decision made for each 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 AEFC subsidiary.
When a 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 a
fund, the fund hopes to gain an overall advantage in execution.

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 of Trustees 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 to the funds
in the IDS MUTUAL FUND GROUP and other funds for which it acts as
investment advisor.

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.

For the fiscal years ending June 30, each fund paid the following
brokerage commissions on financial futures contracts.

-6-
<PAGE>

Each fund acquired no securities of their 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
during the fiscal year ended June 30, 1994.

The portfolio turnover rates for the fiscal years ended June 30
were as follows:

PERFORMANCE INFORMATION

Each fund may quote various performance figures to illustrate past
performance. Average annual total return and current yield
quotations used by a 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

Each 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)

AGGREGATE TOTAL RETURN

Each 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)

-7-
<PAGE>

ANNUALIZED YIELD

Each 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 following table gives an annualized yield quotation for each of
the funds:

30-Day Period
Fund Ended June 30, 1994 Yield
- -------------------------------------------------------------------
California 4.97%
Massachusetts 5.03
Michigan 4.73
Minnesota 5.10
New York 4.77
Ohio 5.04
- -------------------------------------------------------------------

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 tax equivalent yield, based on federal but not state tax
rates, for the funds listed:

Marginal
Income Tax Tax-Equivalent Yield
Bracket for 30-Day Period Ended June 30,1994
- ------------------------------------------------------------------------

California Massachusetts Michigan Minnesota New York Ohio
---------- ------------- -------- --------- -------- ----

In its sales material and other communications, each 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

-8-
<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, 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 is determined by using the net
asset value before shareholder transactions for the day. On July 1,
1994, the first business day following the end of the year, the
computation looked like this:

Net assets before Shares outstanding Net asset value
Fund shareholder transactions at end of previous day of one share
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A*
California $255,560,404 divided by 49,714,953 equals $5.13
Massachusetts 72,071,218 13,749,968 5.24
Michigan 76,682,318 14,320,277 5.36
Minnesota 408,801,729 79,123,225 5.16
New York 120,156,154 23,481,717 5.12
Ohio 71,835,655 13,661,035 5.26

<FN>
*Shares of Class B and Class Y were not outstanding on that date.
</TABLE>

In determining net assets before shareholder transactions, each
fund's portfolio securities are valued as follows as of the close
of business of the New York Stock Exchange:

'Securities, except bonds, other than convertibles 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 other than convertibles 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 exists, 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 their
last-quoted sales price on their primary exchange.

-9-
<PAGE>

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 systematically reducing the carrying value if acquired
at a premium, so that the carrying value is equal to the maturity
value on maturity date.

The New York Stock Exchange, AEFC and each of the funds will be
closed on the following holidays: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.

INVESTING IN A 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 plus
a sales charge if applicable. 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 July 1, 1994, was determined
as follows:

Fund Net asset value Divided by (1.00 Public offering
of one share -0.05) for a price
sales charge
<S> <C> <C> <C>
California 5.13 / 0.95 = $5.40
Massachusetts 5.24 / 0.95 = 5.52
Michigan 5.36 / 0.95 = 5.64
Minnesota 5.16 / 0.95 = 5.43
New York 5.12 / 0.95 = 5.39
Ohio 5.26 / 0.95 = 5.53
</TABLE>

The sales charge is paid to American Express Financial Advisors by
the person buying the shares.

-10-
<PAGE>

Class A - Calculation of the Sales Charge

Sales charges are determined as follows:

<TABLE>
<CAPTION>
Within each increment,
sales charge as a
percentage of:
----------------------------------------
Public Net
Amount of Investment Offering Price Amount Invested
-------------------- -------------- ---------------
<S> <C> <C>
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
More than 1,000,000 0.00 0.00
</TABLE>

Sales charges on an investment greater than $50,000 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.

<TABLE>
<CAPTION>
On total investment, sales
charge as a percentage of
- ------------------------------------------------------------------------------
Public Net
Offering Price Amount Invested
-------------- ---------------
Amount of Investment ranges from:
- -------------------- -------------------------------------------
<S> <C> <C>
First $ 50,000 5.00% 5.26%
More than 50,000 to 100,000 5.00-4.50 5.26-4.71
More than 100,000 to 500,000 4.50-3.75 4.71-3.90
More than 500,000 to 1,000,000 3.75-2.00 3.90-2.04
More than 1,000,000 0.00 0.00
</TABLE>

Class A - Reducing the Sales Charge

Sales charges are based on the total amount of your investments in
any of these funds. The amount of all prior investments plus any
new purchase is referred to as your "total amount invested." For

-11-
<PAGE>

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 to $100,000.

The total amount invested includes any shares held in any of these
funds in the name of a member of your immediate family (spouse and
unmarried children under 21). 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 trustees, directors,
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 a direct
investment of $25,000 in IDS Stock Fund and $5,000 in one of these
funds (IDS California Tax-Exempt Fund, IDS Massachusetts Tax-Exempt
Fund, IDS Michigan Tax-Exempt Fund, IDS Minnesota Tax-Exempt Fund,
IDS New York Tax-Exempt Fund or IDS Ohio Tax-Exempt Fund). If you
invest $40,000 more in one of these funds, 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

You can reduce the sales charges in Class A by filing a letter-of-
intent stating that you intend to invest $1 million over a period
of 13 months. 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,
the sales charges previously paid will be reversed. 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 letter-of-
intent is not an option (absolute right) to buy shares.

Here's an example. You file a letter-of-intent 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. What sales
charge do you pay? AEFC makes an adjustment on your last purchase
so that there's no sales charge on the total $1 million investment,
just as if you had invested $1 million all at once.

Systematic Investment Programs

After you make your investment of $2,000 or more in a fund, you can
arrange to make additional payments of $100 or more in that fund on
a regular basis. These minimums do not apply to all systematic

-12-
<PAGE>

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. A 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 D.

Automatic Directed Dividends

Dividend and 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 any of these
funds without paying a sales charge. Dividends may be directed to
existing accounts only. Dividends declared by a fund are exchanged
to one of these funds the following day. Dividends can be
exchanged into one fund but cannot be split to make purchases in
two or more funds. Automatic directed dividends are available
between accounts of any ownership EXCEPT:

'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.

-13-
<PAGE>

Each fund has a different investment goal described in its
prospectus along with other information, including fees and expense
ratios. Before exchanging dividends into another fund, you should
read its 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 of trustees (the "trustees") can
suspend the computation of net asset value, stop accepting payments
for purchase of shares or suspend the duty of a fund to redeem
shares for more than seven days. Such emergency situations would
occur if:

'The New York Stock Exchange (the "Exchange") closes for reasons
other than the usual weekend and holiday closings or trading on the
Exchange is restricted, or

'Disposal of a fund's securities is not reasonably practicable or
it is not reasonably practicable for that 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, declares a period of emergency to exist.

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

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.

-14-
<PAGE>

$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. Each fund reserves
the right to change or stop any pay-out plan and to stop making
such plans available.

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.

EXCHANGES

If you buy shares in one of the funds and then exchange into
another fund, it is considered a sale 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.

CAPITAL LOSS CARRYOVER

For federal income tax purposes, IDS California, Massachusetts,
Michigan, Minnesota, New York and Ohio Tax-Exempt Fund's had total
capital loss carryovers of $3,420,653, $199,063, $156,952,

-15-
<PAGE>

$2,753,600, $1,267,843, and $185,465, respectively, at June 30,
1994, that if not offset by subsequent capital gains will expire as
set-out below:

Fund 1996 1997 1998 1999
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California $311,803 $29,089
Massachusetts $133,727
Michigan
Minnesota $764,634
New York $284,215
Ohio $106,387

Fund 2000 2001 2002
- -------------------------------------------------------------------------------
California $3,079,761
Massachusetts $ 6,932 $ 25,326 33,078
Michigan 156,952
Minnesota 361,841 1,627,125
New York 32,265 22,639 822,337
Ohio 185,465
</TABLE>

It is unlikely that the board of trustees 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

For the fiscal year ended June 30, 1994, 100% of the income
distributions for California, Massachusetts, Michigan, Minnesota,
New York and Ohio were designated as exempt from federal income
tax. In addition, 100% of exempt interest distributions were
derived from interest on municipal securities for California,
Massachusetts, Minnesota, New York and Ohio, whereas Michigan had
99% of exempt interest distributed on municipal securities.

State law determines whether interest income on a particular
municipal bond is tax-exempt for state tax purposes. Each fund
will tell you the percentage of interest income from municipal
bonds it received during the year.

Each shareholder should consult a tax advisor about reporting
income for local tax purposes.

Capital gain distributions received by individual and corporate
shareholders should be treated as long-term capital gains
regardless of how long they owned their shares. 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.

-16-
<PAGE>

Interest on private activity bonds generally issued after August
1986 is a preference item for purposes on 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. Each fund reports the
percentage of income earned from these bonds to shareholders with
their other tax information.

Under federal tax law, and an election made by each fund under
federal tax rules, by the end of a calendar year each 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 Oct. 31 of that calendar
year. Each 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. Each 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 the application of federal, state and local
income tax laws to fund distributions.

AGREEMENTS

Investment Management Services Agreement

Each 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
- ---------- ----------------
<S> <C>
First $0.25 0.470%
Next 0.25 0.445
Next 0.25 0.420
Next 0.25 0.405
Over 1.0 0.380
</TABLE>

On March 3, 1995, the daily rate applied to the funds' assets is
expected to be approximately 0.__% 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. The table below shows the
total amount paid by each fund over the past three fiscal years.

-17-
<PAGE>

<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
-----------------------------------------------
Fund 1994 1993 1992
- -----------------------------------------------------------------
<S> <C> <C> <C>
California $1,418,804 $1,292,626 $1,114,190
Massachusetts 377,077 288,822 189,795
Michigan 405,578 334,048 258,584
Minnesota 2,227,969 1,913,496 1,478,887
New York 648,514 567,263 472,912
Ohio 381,106 294,453 215,667
</TABLE>

Under the current Agreement, each fund also pays taxes, brokerage
commissions and nonadvisory expenses that include custodian fees;
audit and certain legal fees; cost of prospectuses, proxies and
reports sent to shareholders; fidelity bond premiums; registration
fees for shares; fund office expenses; consultants' fees;
compensation of trustees, officers and employees; corporate filing
fees; organizational expenses; expenses incurred in connection with
lending portfolio securities of each fund; and expenses properly
payable by each fund, approved by the board of trustees. Under a
prior agreement, each fund paid nonadvisory expenses. The table
below shows the expenses paid over the past three fiscal years.

<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
---------------------------------------------
Fund 1994 1993 1992
- ---------------------------------------------------------------
<S> <C> <C> <C>
California $82,545 $87,327 $97,528
Massachusetts 52,628 45,673 33,042
Michigan 40,366 43,191 26,931
Minnesota 229,572 172,869 91,681
New York 51,629 46,905 36,400
Ohio 40,747 30,732 32,498
</TABLE>

Administrative Services Agreement

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

Assets Annual rate
(billions) each asset level
---------- ----------------
<S> <C>
First $0.25 0.040%
Next 0.25 0.035
Next 0.25 0.030
Next 0.25 0.025
Over $1 0.020
</TABLE>

Transfer Agency Agreement

Each fund has a Transfer Agency Agreement with AEFC. This
agreement governs AEFC'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 each fund's shares. Under the agreement, AEFC will earn a fee
from each fund determined by multiplying the number of shareholder
accounts at the end of the day by a rate determined for each class and

-18-
<PAGE>

dividing by the number of days in the year. The rate for class A
and for Class Y is $15.50 per year. The rate for Class B
is $16.50 per year. The fees &ppaid to AEFC may be changed from
time to time upon agreement of the parties without shareholder
approval. Each fund paid the following fees for the fiscal year
ended June 30, 1994:

<TABLE>

<S> <C>
California $104,864
Massachusetts 47,474
Michigan 41,235
Minnesota 248,181
New York 72,277
Ohio 40,107
</TABLE>

Distribution Agreement

Under a Distribution Agreement, sales charges deducted for
distributing fund shares are paid to American Express Financial
Advisors daily. Line one of the following table shows total sales
charges collected. Line two shows the amounts retained by American
Express Financial Advisors for the past three fiscal years ending
June 30.

Year California Massachusetts Michigan Minnesota New York Ohio
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1992 (1) $1,453,718 $672,533 $493,246 $2,096,844 $638,700 $450,254
(2) 513,760 233,749 173,551 1,023,870 227,161 158,439

1993 (1) 1,429,331 915,161 610,586 3,248,432 820,465 620,667
(2) 501,684 328,492 213,345 1,145,154 283,310 214,778

1994 (1) 1,177,341 867,225 560,739 2,458,058 728,241 593,137
(2) 414,319 271,784 194,612 863,376 260,045 205,291
</TABLE>

Additional information about commissions and compensation for the
fiscal year ended June 30, 1994, is contained in the following
table:

<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Compensation
Name of Underwriting on Redemption
Principal Discounts and and Brokerage Other
Fund Underwriter Commissions Repurchases Commissions Compensation*
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
California American Express
Financial
Advisors $1,177,341 None None $41,568

Massachusetts American Express
Financial
Advisors $ 867,225 None None 18,719

Michigan American Express
Financial
Advisors $ 560,739 None None 16,271

Minnesota American Express
Financial
Advisors $2,458,058 None None 97,718

New York American Express
Financial
Advisors $ 728,241 None None 29,229

Ohio American Express
Financial
Advisors $ 593,137 None None 15,702
- ---------------------------------------------------------------------------------------------

<FN>
*Distribution fees paid pursuant to the Plan and Supplemental
Agreement of Distribution.
</TABLE>

-19-
<PAGE>

Shareholder Service Agreement

Each 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 each fund's average daily net
assets attributable to Class A and Class B shares.

Plan and Agreement of Distribution

For Class B shares, to help American Express Financial Advisors
defray the cost of distribution and servicing, not covered by sales
charges received under the Distribution Agreement, each fund and
American Express Financial Advisors entered into a Plan and
Agreement of Distribution (Plan). These costs relate to most
aspects of distributing each fund's shares including American
Express Financial Advisors' overhead expenses. These costs do not
include 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, American Express Financial
Advisors is paid a fee at an annual rate of 0.75% of each fund's
average daily net assets attributable to Class B shares.

The Plan must be approved annually by the board of trustees (the
"trustees"), including a majority of the disinterested trustees, if
it is to continue for more than a year. At least quarterly, the
trustees 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 the trustees
who are not interested persons of the Trusts 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 each fund or by American Express
Financial Advisors. The Plan (or any agreement related to it) will
terminate in the event of its assignment as that term is defined in
the Investment Company Act of 1940, as amended. The Plan may not
be amended to increase the amount to be spent for distribution
without shareholders' approval, and all material amendments to the
Plan must be approved by a majority of the trustees, including a
majority of the trustees who are not interested persons of the
Trusts 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 trustees is the responsibility of
disinterested trustees. No interested person of the Trusts, and no
trustee who is not an interested person, has any direct or indirect
financial interest in the operation of the Plan or any related
agreement.

`Total fees and nonadvisory expenses cannot exceed the most
restrictive applicable state limitation. Currently, the most
restrictive applicable state expense limitation, subject to
exclusion of certain expenses, is 2.5% of the first $30 million of
the fund's average daily net assets, 2% of the next $70 million and
1.5% of average daily net assets over $100 million, on an annual
basis. At the end of each month, if the fees and expenses of the
fund exceed this limitation for the fund's fiscal year in progress,
AEFC will assume all expenses in excess of the limitation. AEFC

-20-
<PAGE>

then may bill the fund for such expenses in subsequent months up to
the end of that fiscal year, but not after that date. No interest
charges are assessed by AEFC for expenses it assumes.

TRUSTEES AND OFFICERS

The following is a list of the fund's trustees who, except for Mr.
Dudley, also are directors of all other funds in the IDS MUTUAL
FUND GROUP. Mr. Dudley is a director of all publicly offered
funds. All shares have cumulative voting rights when voting on the
election of trustees.

LYNNE V. CHENEY+'
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 Corp., and the Interpublic Group of Companies, Inc.
(advertising).

WILLIAM H. DUDLEY+**
2900 IDS Tower
Minneapolis, MN

Executive vice president and director of AEFC.

ROBERT F. FROEHLKE+
1201 Yale Place
Minneapolis, MN

Former president of all funds in the IDS MUTUAL FUND GROUP.
Director, the ICI Mutual Insurance Co., Institute for Defense
Analyses, Marshall Erdman and Associates, Inc. (architectural
engineering) and Public Oversight Board of the American Institute
of Certified Public Accountants.

DAVID R. HUBERS**
2900 IDS Tower
Minneapolis, MN

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

HEINZ F. HUTTER+
P.O. Box 5724
Minneapolis, MN

President and chief operating officer, Cargill, Incorporated
(commodity merchants and processors) from February 1991 to
September 1994. Executive vice president from 1981 to February
1991.

-21-
<PAGE>

ANNE P. JONES+
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.

DONALD M. KENDALL'
PepsiCo, Inc.
Purchase, NY

Former chairman and chief executive officer, PepsiCo, Inc.

MELVIN R. LAIRD+
Reader's Digest Association, Inc.
1730 Rhode Island Ave., N.W.
Washington, D.C.

Senior counsellor for national and international affairs, The
Reader's Digest Association, Inc. Chairman of the board, COMSAT
Corporation, former nine-term congressman, secretary of defense and
presidential counsellor. Director, Martin Marietta Corp.,
Metropolitan Life Insurance Co., The Reader's Digest Association,
Inc., Science Applications International Corp., Wallace Reader's
Digest Funds and Public Oversight Board (SEC Practice Section,
American Institute of Certified Public Accountants).

LEWIS W. LEHR'
3050 Minnesota World Trade Center
30 E. Seventh St.
St. Paul, MN

Former chairman of the board and chief executive officer, Minnesota
Mining and Manufacturing Company (3M). Director, Jack Eckerd
Corporation (drugstores). Advisory Director, Peregrine Inc.
(microelectronics).

WILLIAM R. PEARCE+*
901 S. Marquette Ave.
Minneapolis, MN

President of all funds in the IDS MUTUAL FUND GROUP since June
1993. Former vice chairman of the board, Cargill, Incorporated
(commodity merchants and processors).

EDSON W. SPENCER
4900 IDS Center
80 S. 8th St.
Minneapolis, MN

President, Spencer Associates Inc. (consulting). Chairman of the
board, Mayo Foundation (healthcare). Former chairman of the board
and chief executive officer, Honeywell Inc. Director, Boise
Cascade Corporation (forest products) and CBS Inc. Member of
International Advisory Councils, Robert Bosch (Germany) and NEC
(Japan).

-22-
<PAGE>

JOHN R. THOMAS**
2900 IDS Tower
Minneapolis, MN

Senior vice president and director of AEFC.

WHEELOCK WHITNEY+
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN

Chairman, Whitney Management Company (manages family assets).

C. ANGUS WURTELE
1101 S. 3rd St.
Minneapolis, MN

Chairman of the board and 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, director,
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.

Besides Mr. Pearce, who is president, the fund's other officer is:

LESLIE L. OGG
901 S. Marquette Ave.
Minneapolis, MN

Vice president of all funds in the IDS MUTUAL FUND GROUP and
general counsel and treasurer of the publicly offered funds.

During the fiscal year that ended June 30, 1994, the members of the
board, for attending up to 51 meetings, received the following
compensation, in total, from all funds in the IDS MUTUAL FUND
GROUP.

-23-
<PAGE>

<TABLE>
<CAPTION>
Board compensation

Aggregate Retirement Estimated Total Cash
compensation benefits annual compensation
from the accrued as benefit on from the IDS
Board member fund fund expenses retirement MUTUAL FUND GROUP
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lynne V. Cheney $1,551 $ --- $1,125 $25,600
(part of year)
Robert F. Froehlke 4,734 2,709 1,125 77,400
Anne P. Jones 3,864 693 1,125 71,300
Donald M. Kendall 3,390 3,088 1,070 68,000
Melvin R. Laird 3,834 2,397 1,125 71,000
Lewis W. Lehr 3,894 3,217 1,061 71,500
William R. Pearce --- 1,036 1,125 ---
(part of year)
Edson W. Spencer 3,852 1,578 601 71,200
Wheelock Whitney 4,224 1,451 1,125 73,800
</TABLE>

On June 30, 1994, the fund's trustees and officers as a group owed
less than 1% of the outstanding shares of each fund. During the
fiscal year ended June 30, 1994, no trustee or officer earned more
than $60,000 from the California, Massachusetts, Michigan,
Minnesota, New York and Ohio funds, respectively. Column A
illustrates the amount all trustees and officers as a group earned
from each fund; Column B details their retirement plan expenses.

<TABLE>
<CAPTION>
A B
- -
<S> <C> <C>
California $ 8,683 $2,243
Massachusetts 4,288 1,640
Michigan 6,427 1,800
Minnesota 13,711 3,928
New York 7,262 1,800
Ohio 6,902 1,800
</TABLE>

THE TRUSTS

The Trusts are entities of the type commonly known as Massachusetts
business trusts. Under Massachusetts law, shareholders of such a
trust may, under certain circumstances, be held personally liable
as partners for its obligations. However, the risk of a
shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Trust itself is
unable to meet its obligations.

CUSTODIAN

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.

INDEPENDENT AUDITORS

The financial statements contained in the Annual Report to
shareholders, for the fiscal year ended June 30, 1994, 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.

-24-
<PAGE>

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 1994 Annual Report to
shareholders, pursuant to Section 30(d) of the Investment Company
Act of 1940, as amended, are hereby incorporated in this SAI by
reference. No other portion of the Annual Report however, is
incorporated by reference.

PROSPECTUS

The prospectuses for IDS California Tax Exempt Fund, IDS
Massachusetts Tax-Exempt Fund, IDS Michigan Tax-Exempt Fund, IDS
Minnesota Tax-Exempt Fund, IDS New York Tax-Exempt Fund, and IDS
Ohio Tax-Exempt Fund dated Aug. 29, 1994 as revised March 3, 1995,
are hereby incorporated in this SAI by reference.

-25-
<PAGE>

APPENDIX A

DESCRIPTION OF RATINGS OF TAX-EXEMPT SECURITIES AND SHORT-TERM
SECURITIES

TAX-EXEMPT SECURITIES

Tax-exempt securities are used to raise money for various public
purposes, such as constructing public facilities and making loans
to public institutions. Certain types of tax-exempt bonds are
issued to obtain funding for privately operated facilities. There
are two principal classifications of municipal securities: notes
and bonds. Notes are used generally to provide for short-term
capital needs and generally have a maturity of up to one year.
These include tax anticipation notes, revenue anticipation notes,
bond anticipation notes, construction loan notes, variable rate
demand notes and tax-exempt commercial paper (also known as
municipal paper). Bonds, which meet longer-term capital needs,
generally have maturities of more than one year and fall into one
of two categories. General obligation bonds are backed by the
taxing power of the issuing municipality and are considered the
safest type of municipal bond. Revenue bonds are payable only from
the revenues of a particular project or facility and are generally
dependent solely on a specific revenue source. Industrial
development bonds are a specific type of revenue bond backed by the
credit and security of a private user.

The ratings concern the quality of the issuer. 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. (Moody's) are Aaa, Aa,
A, Baa, Ba, B, Caa, Ca, C and D. Standard & Poor's Corporation
(S&P) ratings are AAA, AA, A, BBB, BB, B, CCC, CC, C and D.

Securities rated Aaa and AAA are judged to be of the best quality.
Capacity to pay interest and repay principal is extremely strong.
Prices are responsive only to interest rate fluctuations.

Securities rated Aa and AA also are 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. Long-term risk
may appear greater than the Aaa or AAA group. Prices are primarily
responsive to interest rate fluctuations.

Securities rated A are considered upper-medium grade. Protection
for interest and principal are deemed adequate but susceptible to
future impairment. The market prices of such obligations move
primarily with interest rate fluctuations but also with changing
economic or trade conditions.

Securities rated Baa and BBB are considered upper-medium-grade
obligations. Protection for interest and principal is adequate
over the short term; however, these obligations have certain
speculative characteristics. They are susceptible to changing
economic conditions and require constant review. Such bonds are
more responsive to business and trade conditions than to interest
rate fluctuations.

-26-
<PAGE>

Securities rated Ba and BB are considered to have speculative
elements. Their future cannot be considered well assured. The
protection of interest and principal payments may be very moderate
and not well safeguarded during future good and bad times.
Uncertainty of position characterizes these bonds.

Securities rated B or lower lack characteristics of more desirable
investments. There may be small assurance over any long period of
time of the payment of interest and principal or of the maintenance
of other contract terms. Some of these bonds are of poor standing
and may be in default or have other marked shortcomings.

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

Bonds rated Ca and CC represent obligations that are highly
speculative. Such issues are often in default or have other marked
shortcomings.

Bonds rated C are obligations with a higher degree of speculation.
These securities have major risk exposures to default.

Bonds rated D are in payment default. The D rating is used when
interest payments or principal payments are not made on the due
date.

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

SHORT-TERM TAX-EXEMPT SECURITIES

A portion of each 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.

-27-
<PAGE>

(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) 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 municipal bonds and notes are rated by Moody's and by
S&P. The ratings reflect the liquidity concerns and market access
risks unique to notes.

Moody's MIG 1/VMIG 1 indicates the best quality. There is present
strong protection by established cash flows, superior liquidity
support or demonstrated broad-based access to the market for
refinancing.

Moody's MIG 2/VMIG 2 indicates high quality. Margins of protection
are ample although not so large as in the preceding group.

Moody's MIG 3/VMIG 3 indicates favorable quality. All security
elements are accounted for but there is lacking the undeniable
strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is
likely to be less well established.

Moody's MIG 4/VMIG 4 indicates adequate quality. Protection
commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is
specific risk.

Standard & Poor's rating SP-1 indicates very strong or strong
capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics will be given a plus
(+) designation.

Standard & Poor's rating SP-2 indicates satisfactory capacity to
pay principal and interest.

Standard & Poor's rating SP-3 indicates speculative capacity to pay
principal and interest.

SHORT-TERM TAXABLE SECURITIES AND REPURCHASE AGREEMENTS

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

-28-
<PAGE>

(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;

(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 Moody's
or S&P. 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 earning trends;

Moody's rating Prime-1 (P-1) and Standard & Poor's rating A-1
indicate that the degree of safety regarding timely payment of
short-term promissory obligations is either overwhelming or very
strong.

Moody's rating Prime-2 (P-2) and Standard & Poor's rating A-2
indicate that capacity for timely payment of short-term promissory
obligations with this designation is strong.

(7) Repurchase agreements involving acquisition of securities by
a 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, a fund
receives a fixed rate of return that is insulated from market rate
changes while it holds the security.

-29-
<PAGE>

APPENDIX B

OPTIONS AND INTEREST RATE FUTURES CONTRACTS

Each fund may buy or write options traded on any U.S. exchange or
in the over-the-counter market. Each fund may enter into interest
rate futures contracts traded on any U.S. exchange. Each fund also
may buy or write put and call options on these futures. Bond
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, a fund could be
required to buy or sell securities at disadvantageous prices,
thereby incurring losses. Under normal market conditions, each fund
will invest no more than __% of its net assets in derivatives.

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 stock
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 less than the 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
the 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
reasons. The use of options and futures contracts may benefit a
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. They also may be used for investment. Options
are used as a trading technique to take advantage of any disparity
between the price of the underlying security in the security market
and its price on the options market. It is anticipated the trading
technique will be utilized only to effect a security transaction
when the price of the security plus the option price will be as

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good or better than the price at which the stock could be bought or
sold directly. When the option is purchased, a 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 a fund for investment
purposes. Options permit a fund to experience the change in the
value of a security with a relatively small initial cash
investment. The risk a fund assumes when it buys an option is the
loss of the premium. To be beneficial to a 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. Each 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 that fund's
goal.

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

'Each fund will write options only as permitted under federal or
state laws or regulations, such as those that limit the amount of
total assets subject to the options. While no limit has been set
by the funds, it will conform to the requirements of those states.
For example, California limits the writing of options to 50% of the
assets of a fund. Some regulations also affect the Custodian.

Net premiums on call options closed or premiums on expired call
options are treated as short-term capital gains. Since each fund
is taxed as a regulated investment company under the Internal
Revenue Code, any gains on options and other securities held less
than three months must be limited to less than 30% of its annual
gross income.

If a covered call option is exercised, the security is sold by that
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 a
fund writes listed options, it will follow the rules of the options
exchange. Options are valued at the close of the New York Stock

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Exchange. An option listed on a national exchange 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.

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 each 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, that 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 a 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 a fund
owns. If interest rates did increase, the value of the debt
securities in the portfolio would decline, but the value of a
fund's futures contracts would increase at approximately the same
rate, thereby keeping the net asset value of a fund from declining
as much as it otherwise would have. If, on the other hand, a fund

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held cash reserves and interest rates were expected to decline, it
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 a fund's earnings. Even if short-
term rates were not higher, a 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, a 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 a fund's cash reserves could then be used to buy
long-term bonds on the cash market. A 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, a fund would have been better off had it not entered
into futures contracts.

In addition to the requirement that futures contracts be offset by
assets of a fund and not used for speculation, the Trustees have
adopted two restrictions on the use of futures contracts. The
first is that each fund may not commit more than 5% of its total
assets to initial margin deposits. The second restriction is that
the aggregate market value of the futures contracts the fund holds
may not exceed 30% of the market value of its total assets.
Neither of the restrictions would be changed by the Trustees
without considering the concerns of the various federal and state
regulatory agencies.

OPTIONS ON FUTURES CONTRACTS. Options 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 that fund.

RISKS. There are risks in engaging in each of the management tools
described above. The risk each 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.

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The risk involved in writing options on futures contracts a 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. A 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 a
fund's obligation, however, might be more or less than the premium
received when it originally wrote the option. Furthermore, a 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 that fund's portfolio 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 a 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 a fund sold futures contracts for the sale of
securities in anticipation of an increase in interest rates, and
interest rates declined instead, it would lose money on the sale.

TAX TREATMENT. As permitted under federal income tax laws, each
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 a 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 is currently unclear,
although each fund's tax adviser currently believes marking to
market is not required. Depending on developments, and although no
assurance is given, a fund may seek Internal Revenue Service (IRS)
rulings clarifying questions concerning such treatment. Certain
provisions of the Internal Revenue Code may also limit a fund's
ability to engage in futures contracts and related options
transactions. For example, at the close of each quarter of a
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. Less than 30% of
its gross income must be derived from sales of securities held less
than three months.

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

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option, for purposes of the diversification requirements. In order
to avoid realizing a gain within a three-month period, a fund may
be required to defer closing out a contract beyond the time when it
might otherwise be advantageous to do so. Each fund also may be
restricted in purchasing put options for the purpose of hedging
underlying securities because of applying the short sale holding
period rules with respect to such underlying securities.

Accounting for futures contracts will be according to generally
accepted accounting principles. Initial margin deposits will be
recognized as assets due from a broker (a 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.

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APPENDIX C

STATE RISK FACTORS

Each fund's ability to achieve its investment objective is
dependent upon the ability of the issuers of state tax-exempt bonds
to meet their continuing obligation for the payment of principal
and interest.

The following information highlights certain legal, financial,
political and economic affairs for California, Massachusetts,
Michigan, Minnesota, New York and Ohio and their political
subdivisions and is based on official statements and public
information. No fund has acquired direct knowledge of this
information, however, the funds are not aware of any facts which
would render the information inaccurate. The matters discussed
below constitute only a brief summary of financial information and
do not purport to be a complete description.

Although revenue obligations of any state or its political
subdivisions may be payable from a specific project or source,
there can be no assurance that past, current or future economic
difficulties, and the resulting impact on state and local
governmental finances will not adversely affect the market value of
municipal obligations held in a fund or the ability of the
respective issuers to make required payments on the obligations.

FACTORS AFFECTING CALIFORNIA

Financial stability continues to elude California's administration.
Current budget difficulty is attributed to reduction of the
aerospace and defense industries, closing of military bases and the
federal government's failure to follow through on a promise of
disaster funds.

Several years of economic stress have strained both revenues and
expenses. This has caused state general fund operating results to
fall significantly under budget. Past budgets thought to have been
balanced had unrealistic economic expectations.

California's 1994 budget makes progress toward balancing its budget
with recurring revenues and expenditures. Governor Wilson's
January budget for fiscal year 1995 projects a $2.5 billion
operating surplus and a pay down of the accumulated budgetary basis
deficit by the end of fiscal year 1995. The deficit will be funded
through short-term borrowing.

Current credit agency ratings on general obligation debt is in the
A+ to AA range. These ratings reflect continuing significant
economic stress, moderate growth and the accumulation of a deficit.

Certain California constitutional amendments, legislative measures,
executive orders, civil actions and voter initiatives could
adversely affect the ability of issuers of California state and
municipal securities to obtain sufficient revenue to pay their bond
obligations. Prior to 1977, revenues of the state government
experienced significant growth primarily as a result of inflation
and continuous expansion of the tax base of the state. In 1978,

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California voters approved an amendment to the California
constitution known as Proposition 13, which added Article XIIIA to
the state Constitution. Article XIIIA reduced ad valorem
(according to value) taxes on real property, and restricted the
ability of taxing entities to increase real property tax revenues.
In addition, Article XIIIA provides that additional taxes may be
levied by cities, counties and special districts only upon approval
of not less than a two-thirds vote of the "qualified electors" of
such district and requires not less than a two-thirds vote of each
of the two houses of the state legislature to enact any changes in
state taxes for purposes of increasing revenues, whether by
increased rate or changes in methods of computation.

In 1986 Proposition 62, an initiative statute enacted in
California, placed further limits on the ability of local
governments to levy taxes other than ad valorem property taxes,
except with voter approval. Legislation enacted subsequent to
Article XIIIA provided for the redistribution of California's
general fund surplus to local agencies, the reallocation of certain
state revenues to local agencies and the assumption of certain
local obligations by the state so as to help California municipal
issuers raise revenues to pay their bond obligations.

Primarily as a result of the reductions in local property tax
revenues received by local governments following the passage of
Proposition 13, the legislature undertook to provide assistance to
such governments by substantially increasing expenditures from the
general fund for that purpose beginning in the 1978-1979 fiscal
year. In past years, in addition to such increased expenditures,
the indexing of personal income tax rates (to adjust such rates for
the effects of inflation), the elimination of certain inheritance
and gift taxes, and the increase of exemption levels for certain
other such taxes had a moderating impact on the growth in state
revenues. In addition, the state has increased expenditures by
providing a variety of tax credits, senior citizens' credits and
energy credits.

In 1979, the voters of California passed an initiative adding
Article XIIIB to the California Constitution. Article XIIIB
prohibits the state from spending "appropriations subject to
limitation" in excess of the appropriations limit imposed.
"Appropriations subject to limitations" are authorizations to spend
"proceeds of taxes" which consist of tax revenues and certain other
funds. One of the exclusions from these limitations is "debt
service" (defined as "appropriations required to pay the cost of
interest and redemption charges, including the funding of any
reserve or sinking fund required in connection therewith, on
indebtedness on existing or legally authorized as of Jan. 1, 1979,
or on bonded indebtedness thereafter approved" by voters). In
addition, appropriations required to comply with mandates of courts
or the Federal government are not included as appropriations
subject to limitation.

The state's appropriations limit is adjusted annually to reflect
change in cost of living and population and transfer of financial
responsibility from one governmental unit to another. Revenues in
any fiscal year which exceed the amount which may be appropriated

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in compliance with Article XIIIB must be returned to taxpayers by a
revision of tax rates or fee schedules within the two subsequent
fiscal years.

In November 1988, voters approved an initiative call Proposition 98
which substantially modified Article XIIIB, by providing that a
substantial amount (up to $600 million per year currently) of any
excess state revenues would, instead of being returned to
taxpayers, be paid to public schools and community college
districts.

In the years immediately after enactment of Article XIIIB, very few
California government entities neared their appropriations limits.
To the extent the state remains constrained by its appropriations
limit, the absolute level, or the rate of growth, of assistance to
local governments may be reduced.

Because of the complex nature of Articles XIIIA and XIIIB, the
ambiguities and possible inconsistencies in their terms and the
applicability of their exemptions and exceptions and impossibility
of predicting future appropriations or changes in population and
cost of living, it is not currently possible to determine the
impact of Article XIIIA or Article XIIIB or any related legislation
on the securities held in the Fund or the ability of state or local
governments to pay interest on or repay the principal of such
securities. With a limited exception, to date the California
courts have either upheld the constitutionality of Article XIIIA
and its implementing and related legislation or have interpreted
them in such a manner as to avoid the necessity for direct
determination of constitutional issues. Article XIIIA and XIIIB
and their respective implementing and related legislation will most
probably be subject to continuing or future legal challenges. It
is not presently possible to predict the outcome of any such
legislation with respect to the ultimate scope, impact or
constitutionality of either Article XIIIA or Article XIIIB, or
their respective related legislation; or the impact of any
determinations upon state agencies or local government, or upon the
abilities of such entities to pay the interest on, or repay the
principal of, the securities held by the Fund.

FACTORS AFFECTING MASSACHUSETTS

Massachusetts administration continues to demonstrate spending
discipline, reduce reliance on short-term borrowing and non-
recurring revenues, and balance general fund operations and make
reasonable budget projections. Continuing success is primarily
attributed to a better working relationship between the legislative
and executive branches of government. The government collected $7
million more in taxes at June 30 fiscal year end than anticipated.

The commonwealth's finances continue to stabilize. Following
several years in which revenue fell short of estimates and resulted
in two deficits, the general fund closed two fiscal years in
balance and more revenue than anticipated. The governor's proposed
1994-1995 budget contemplates eliminating a personal income tax
cut, $10 million reduction in state fees, overhaul of the welfare
system and $125 million in revenue from gambling venues.

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The Massachusetts constitution requires that a balanced budget be
provided for each year. In addition, the commonwealth adopted
certain budgetary and fiscal controls to eliminate the
possibilities of expenditures exceeding available revenues and
funds. The general fund, the local aid fund and the highway fund
are the three principal operating funds of the commonwealth and the
condition of these funds is generally regarded as the principal
indicator of whether the commonwealth's operating revenues and
expenses are balanced.

The commonwealth had and may continue to have unfunded general
liabilities of its retirement systems and a program to fund these
liabilities. In 1978, the commonwealth began assuming full
financial responsibility for all costs of the administration of
justice within the state, and Medicaid expenditures which have
increased each year. It also raised aggregate aid to cities,
towns schools and other districts and transit authorities. In the
past the commonwealth signed constant decrees to improve mental
health care and programs for the mentally retarded to meet federal
standards including those governing federal reimbursements under
various programs.

All of the 351 cities and towns in Massachusetts have achieved a
property tax level of no more than 2.5% of full property values.
Legislation that effected this leveling is Proposition 2 1/2.
Under Proposition 2 1/2, cities and towns may increase the property
tax levy annually. In most cases property taxes can increase by
2.5% of the prior year's tax levy plus 2.5% of the value of new
properties and of significant improvements to property.

The reductions in local revenues and reductions in local personnel
and services resulting from Proposition 2 1/2 created a strong
demand for substantial increases in state-funded
local aid, with increases in fiscal years 1982 through 1987. The
effect of this increase in local aid was to shift a major part of
the impact of Proposition 2 1/2 to the commonwealth. Legislation
had been enacted providing for certain local option taxes.

Efforts to limit and reduce the levels of taxation in Massachusetts
have been underway for several years. Chapter 62F of the
Massachusetts General Laws establishes a state tax revenue growth
limit and does not exclude principal and interest payments on
commonwealth debt obligations from the scope of the limit.

Lawsuits filed against the commonwealth or its authorities may
affect its future fiscal condition. Among the more significant of
these suits are suits regarding the clean up of pollution in Boston
Harbor, services to be provided at state schools for the retarded
and at a state mental hospital, the governor's authority to reduce
allotments of appropriated funds and Medicaid reimbursement levels.
There have also been actions filed in which recipients of human
service benefits seek expanded levels of services and benefits and
in which providers of such services or benefits challenge the rate
at which they are reimbursed by the commonwealth. Any lawsuits
that result in judgments requiring the commonwealth to provide
expanded services or benefits, to pay increased rates or to take
other remedial measures, operating capital expenditures might be
needed to implement such judgements.

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FACTORS AFFECTING MICHIGAN

Michigan continues to recover from the effect of the national
recession problems it faced in the early 1980's and weak economic
performance in fiscal years 1991 and 1992. The current challenge
is rebuilding the general and budget stabilization reserves which
had been depleted. The state had managed to balance its general
fund operations through the use of reserves, changes in accounting
practices, severe cuts in public assistance, and a state employee
wage freeze. As of February 1994 Michigan's general obligation
debt rated AA.

Michigan's low debt position helped it to weather recent difficult
economic times. Financial operations remained solvent through
budget adjustments, spending cuts and use of non-recurring items.
Previous budget problems arose from revenue estimates falling below
expectation and increased spending levels. This caused deficits in
the general fund budget for fiscal years ended 1990 and 1991.

The principal sectors of Michigan's economy are manufacturing of
durable goods (including automobiles and office equipment), tourism
and agriculture. As of August 1987, manufacturing represented
25.8% of total employment in the state. Income derived from
manufacturing exceeded 35% of total state income from all
employment sectors. Because of the emphasis on durable goods,
however, economic activity in the state has tended to be more
cyclical than in the nation as a whole. Moreover, this domination
left the state's economy more susceptible to upward and downward
cycles. The manufacturer sector has benefitted from significant
private investment and improved international competitiveness. The
current low interest rate environment should continue to help
strengthen business investment.

The state's economy has improved over the years, primarily due to
diversification of the economic base, yet it remains vulnerable.
Service industry employment continues to replace manufacturing as
primary employment.

The declining trend of personal income has placed a strain on the
state as income taxes are a primary source of income. Other
factors that could strain the state's budget are property tax-
relief proposals (which are expected to reduce assessments by 30
percent over five years), and a requirement that the state
government appropriate 42% of its expenditures to local government
to insulate them from decreased state aid.

Budget pressure could occur if voters pass any property tax reform
legislation. Such reform will cause the state administration to
have to aid school districts affected by loss of property tax
revenue.

FACTORS AFFECTING MINNESOTA

The governor's 1994-1995 biennium budget is based on conservative
economic forecasts and a restraint on spending. The governor's
supplemental budget carried a recommendation to bring the state's

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budget reserve to $680 million by June 1995. The recommendation is
founded on a forecast of slower economic growth in the next
biennium.

Economic weakness has tested Minnesota's historically strong
financial management. The rainy day fund established in the mid-
1980's totaled $550 million as of fiscal 1990. To address budget
gaps in 1991 and the 1992-1993 biennium, the reserve was drawn down
to $240 million as of June, 1992. The state operates on a cash
basis in its accounting general fund and ended fiscal year 1991
with a $555 million fund balance, including the budgetary reserve
and $42 million reserved for appropriations carried forward to
fiscal 1992.

Because most Minnesota tax-exempt bonds are revenue or general
obligations of local governments or authorities, rather than
general obligations of the state of Minnesota itself, ratings on
Minnesota tax-exempt bonds in the Trust's portfolio may be
different from the ratings given to the general obligation bonds of
the state.

The unemployment rate, growth rates and income trends in Minnesota
compare favorably with national averages, but the economy is
cyclically sensitive. Minnesota's employment and population are
forecasted to continue to grow at rates near the national average.
Total employment in the state is expected to grow at an average
annual rate of 1.3% a year through 2005, slightly below the
projected national growth rate of 1.5% annually. During the
recessionary period from 1980 to 1983, economic conditions in the
agricultural and iron mining industries, which are two of the
leading sectors of Minnesota's economy, were poor. However, mining
is a less significant factor in the state economy than it once was
while the manufacture of durable and non-durable goods is
relatively more important to the economy. The state relies heavily
on a progressive individual income tax for revenue, which results
in a fiscal system unusually sensitive to economic conditions.
There can be no assurances, however, that Minnesota's economy and
fiscal situation will continue to improve or that further
difficulties will not occur.

FACTORS AFFECTING NEW YORK

The financial health of New York state showed more signs of
improvement. Over the past few years, the state's administration
has: adopted accurate and conservative economic assumptions,
balanced operations, eliminated its operating deficit and closed
the past two years with an operating surplus. The 1994-1995 budget
may continue the trend.

The state used the past two year's general fund operating surpluses
to eliminate leftover deficit notes cover tax refunds.

As of March 1994 New York's general obligation debt carried an
agency rating of A-.

The state has historically been one of the wealthiest in the
nation. For decades, however, the state economy has grown more
slowly than that of the nation as a whole, resulting in a gradual

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erosion of its relative economic affluence. The causes of this
decline are varied and complex, in many cases involving national
and international developments beyond the state's control. Part of
the reason for the long-term relative decline in the state economy
has been attributed to the combined state and local tax burden,
which is among the highest in the nation. The existence of this
tax burden limits the state's ability to impose higher taxes in the
event of future financial difficulties.

The financial condition of the state may be affected by various
financial, social, economic and political factors. Those factors
can be very complex, may vary from fiscal year to fiscal year, and
are frequently the result of actions taken not only by the state
and its authorities and municipalities but also entities that are
not under control by the state. The fiscal stability of the state
is related to the fiscal stability of New York City and the
authorities (which generally finance, construct and operate
revenue-producing public benefit facilities). The state's
experience has been that if New York City or any of the authorities
suffer serious financial difficulties, the ability of the state,
New York City, the state's political subdivisions and the
authorities to obtain financing in the public credit markets is
adversely affected. This results in part from the expectation that
to the extent that any authority or local government experiences
financial difficulty, it will seek and receive state financial
assistance. Moreover, New York City accounts for approximately 40%
of the state's population and tax receipts, so New York City's
financial integrity affects the state directly. Accordingly, if
there should be a default by New York City or any of the
authorities, the market value and marketability of all New York
tax-exempt securities could be adversely affected.

Since the enactment of the Federal Tax Reform Act of 1986, the
state has found it difficult to accurately estimate tax receipts.
In the 1988-89 fiscal year, the state overestimated tax receipts of
$1.9 billion. After implementing various deficit-reduction
measures, the state completed its 1988-89 fiscal year with a cash-
basis operating deficit of $529 million. The state faced a
potential budget gap for the 1989-90 fiscal year of approximately
$2.8 billion, but took measures to close that gap through a
combination of tax and fee increases and spending cuts, including a
reduction of financial aid to localities.

New York state adopted a balanced 1992-1993 budget based on
realistic economic assumptions. Quick adoption of the budget also
afforded administrators more time to implement their plan and be
proactive instead of reactive to economic changes. The budget
maintained essential revenue-raising features including a deferral
of any cut in state's personal income tax rate, increases in energy
taxes and deferral of a scheduled reduction in business taxes.

Past fiscal problems have left the state's economy in a weak
position. Issues that affect the state's budget are: freezing
personal and business tax rates, escalating social service costs,
and costs associated with civil service employee collective
bargaining.

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While principal and interest payments on outstanding authority
obligations are normally paid from revenues generated by the
projects of the authorities, in recent years New York has had to
appropriate large amounts to enable certain authorities to meet
their financial obligations and in some cases to prevent default.
Further assistance may be required in the future. In particular,
the New York State Urban Development Corporation (UDC), the New
York State Housing Finance Agency (HFA), and the Metropolitan
Transportation Authority (MTA) may require substantial amounts of
assistance from the state.

The HFA provides financing for multifamily housing, state
university construction, hospital and nursing home development and
other programs. HFA depends upon mortgagors in each of its
programs to generate sufficient funds from rental income, subsidies
and other payments to meet their respective mortgage repayment
obligations to HFA as well as to meet the operating and maintenance
costs of the project. On several occasions in the past, in
fulfillment of its moral obligation commitment, New York
appropriated funds on behalf of HFA to replenish its debt service
reserve funds. There can be no assurance that the state will not
be called upon to provide further assistance in the future. Any
litigation decided against HFA also may have an adverse effect on
the financial condition of HFA mortgages.

The MTA oversees the operations of the city's bus and subway system
by the New York City Transit Authority and the Manhattan and Bronx
Surface Operating Authority (collectively, the TA) and, through
subsidiaries, operates certain commuter rail lines. The MTA has
depended and will continue to depend upon federal, state and local
government support to operate the transit system because fare
revenues are insufficient.

The TA and New York City had damage claims filed against it from
deaths and injuries sustained during a Dec. 1990 subway fire and an
Aug. 1991 train derailment. Law suits could have an adverse
financial impact on TA.

Beginning in 1975 (in part as a result of the New York City and UDC
financial crises), various localities of New York began
experiencing difficulty in marketing their securities. As a
result, certain localities, in addition to New York City, have
experienced financial problems leading to requests for state
assistance. If future financial problems cause agencies or
localities to seek special state assistance, this could adversely
affect New York's ability to pay its obligations. Similarly, if
financial difficulties of the state result in the inability to meet
its regular aid commitments or to provide further emergency
financing, issuers may default on their outstanding obligations,
which would affect the marketability of debt obligations of the
state, its agencies and municipalities, such as the New York tax-
exempt bonds in the Fund's portfolio.

Reductions in federal spending could materially and adversely
affect the financial condition and budget projections of New York's
localities. Should localities be adversely affected by federal

-43-
<PAGE>

cutbacks, they may seek additional assistance from the state that
might, in turn, have an adverse impact on New York's ability to
maintain a balanced budget.

The Long Island Lighting Company (LILCO) is the investor-owned
utility which supplies gas service and substantially all electric
service in Nassau and Suffolk Counties and a small portion of
Queens County and New York City. In early 1984, LILCO reported
that it faced serious cash-flow and other financial difficulties
that were attributable to, among other things, construction
problems on its 809-megawatt Shoreham Nuclear Power Facility.
LILCO is the largest single real property taxpayer in both Suffolk
and Nassau Counties and if its financial problems continue, there
could be severe financial difficulties for the affected localities,
particularly in Suffolk County. State legislation was enacted in
1986 creating the Long Island Power Authority (LIPA), a public
benefit corporation that has the power to acquire LILCO if it
determines that to do so would result in lower electric rates for
LILCO customers. The legislation requires that, with certain
exceptions, if LILCO property is acquired by LIPA and is therefore
removed from the tax rolls, LIPA is to make payments in lieu of
most state and local taxes that would otherwise have been paid by
LILCO. LIPA made and subsequently amended an offer to the Board of
Directors of LILCO for a negotiated acquisition of LILCO by LIPA.
The New York State comptroller recently reached a preliminary
conclusion that the issuance of tax-exempt bonds by LIPA to acquire
LILCO may create a temporary oversupply in the market for new and
outstanding issues of New York tax-exempt bonds.

In February 1989, the Governor and LILCO reached an agreement
pursuant to which LILCO would sell Shorham to the New York Power
Authority for $1 (which would then decommission Shoreham) in return
for a schedule of rate increases which have since been approved by
the State Public Service Commission (the PSC). The agreement has
been approved by the New York Power Authority and LIPA. The
agreement and PSC rate increases have enabled LILCO to reenter the
public credit markets. It is difficult to predict the ultimate
fiscal and economic impact on the state or on local governments on
Long Island of any litigation to which LILCO is or may become a
party, or of any bankruptcy by or takeover of LILCO.

NEW YORK CITY AND MUNICIPAL ASSISTANCE CORPORATION. In 1975, New
York City encountered severe financial difficulties that impaired
the borrowing ability of the city, the state and the authorities.
As a result, New York City lost access to public credit markets and
was not able to sell debt to the public until 1979. MAC was
organized in 1975 to provide financing assistance for New York City
and to exercise certain oversight and review functions with respect
to the city's financing. Prior to 1985, MAC had the authority to
issue bonds and notes and to pay or lend the proceeds to the city.
Since 1985, MAC has been authorized to issue bonds and notes only
to refund its outstanding bonds and notes. MAC also has the
authority to exchange its obligations for New York City
obligations. MAC bonds are payable from appropriations of certain
state sales and use taxes imposed by New York City, the state stock
transfer tax and per capita state aid to New York City. The state
is not, however, obligated to continue these taxes, to continue to
appropriate revenue from these taxes or to continue the

-44-
<PAGE>

appropriation of per capita state aid to pay MAC obligations. MAC
does not have taxing powers and its bonds are not obligations
enforceable against either New York City or New York.

New York City has maintained a balanced budget for several fiscal
years and has retired all of its federally guaranteed debt. As a
result, certain restrictions imposed on New York City by the New
York State Financial Control Board (the Control Board), which was
created in response to New York City's 1975 fiscal crisis, have
been suspended. Those restrictions, including the Control Board's
power to approve or disapprove certain contracts, long-term and
short-term borrowings and the four-year financial plan of the City,
will remain suspended unless and until, among other things, there
is a substantial threat of or an actual failure by the City to pay
debt service on its notes and bonds or to keep its annual operating
deficits below $100 million. The City's four-year financial plan
for fiscal years 1989 through 1992 was submitted to the Control
Board on July 5, 1988, and had been subsequently modified by the
City. As modified it projects a balanced budget for the 1989
fiscal year, and budget gaps of $661 million, $945 million and $818
million for the 1990, 1991, and 1992 fiscal years, respectively,
before implementation of gap closing programs.

The ability of New York City to balance its future budgets as
provided in its financial plans depend on various actions the City
expects will be taken but are not within its control. If expected
federal and state aid is not forthcoming, if economic conditions
significantly further reduce revenue derived from economically
sensitive taxes or increase expenditure for public assistance, or
if other uncertainties materialize which reduce expected revenues
or increase projected expenditures, then, to avoid operating
deficits, it is likely that New York City would make demands upon
the state for substantial additional financial assistance.

LITIGATION. Certain litigation pending against the state, its
subdivisions and their officers and employees could have a
substantial and long-term adverse effect on state finances. In
addition, New York City is a defendant in a significant number of
lawsuits pertaining to material matters, including those claims
asserted that are incidental to performing routine governmental and
other functions.

FACTORS AFFECTING OHIO

Ohio's general obligation bonds had AA ratings as of February 1994.
Ohio's financial operations continue to demonstrate significant
improvements in recent years. Increased employment opportunities
led by services and trade sectors has helped diversify the state's
economy and give greater stability through the current recession.
As with other states, Ohio has experienced economic weakness in
some revenue areas. This and other factors, led to budget short-
falls in 1991-1992. However, these short-falls were effectively
managed through a draw-down on the state's budget stabilization
fund and an executive order to reduce state spending by $196
million.

-45-
<PAGE>

In the early 1980s, Ohio's financial operations continued a trend
of vulnerability to economic cycles. Spending reductions coupled
with tax increases were implemented as a method of maintaining
control during recessionary periods. Ohio may face similar
scenarios in future years. However, the effects of economic cycles
should be less severe because the state's economic base is more
diversified than it has been in the two previous decades.
Constitutional and statutory provisions require the state to close
each fiscal year with a positive general fund balance, in
conjunction with Ohio's advantageous current budgetary practice
should help future financial performance.

Ohio benefits from a diversified revenue structure and a relatively
low tax burden. The state carries out most of its operations
through the general revenue fund which receives general state
revenues not otherwise dedicated. General fund revenues are
derived mainly from personal income, sales, corporate and franchise
taxes. General fund operations historically have paralleled
economic trends, as evidenced by the performance in recent
recessionary periods.

While diversifying more into the service area, Ohio's economy
continues to rely in part on durable-goods and manufacturing. This
reliance is largely concentrated in motor vehicles and equipment,
steel, rubber products and household appliances. As a result,
economic activity in Ohio, as in many other industrially developed
states, tends to be more cyclical than in some other states and in
the nation as a whole. However, the manufacturing industry is
stronger after downsizing and restructuring in the 1980's and has
performed reasonably well through the current recession. The
state's export activity also has been stabilizing during the
current recession. Agriculture also is an important segment of the
economy. The state has instituted several programs to provide
financial assistance to farmers.

A number of local Ohio communities and school districts have faced
significant financial problems. The state has established
procedures for municipal fiscal emergencies, under which joint
state and local commissions are established to monitor the fiscal
affairs of a financially troubled municipality the municipality
must develop a financial plan to eliminate deficits and cure any
defaults. Since their adoption in 1979, these procedures have been
applied to approximately twenty cities and villages, including the
City of Cleveland; in a majority of these communities, the fiscal
situation has been resolved and the procedures terminated.

Local school districts in Ohio receive a major portion of their
operational funds from state subsidies, but are dependent upon
local taxes for significant portions of their budgets. Local
school districts are authorized to submit for voter approval an
income tax on the district income of individuals and estates. A
small number of local school districts have required emergency
advances from the state in order to prevent year-end deficits. The
number of districts applying for aid has fluctuated over the years.
Legislation (with enhanced provision for individual district
borrowing) has replaced the emergency advance loan program.
Ohio's current economic recovery reflects both a turnaround in the
manufacturing sector and economic restructuring that has shifted

-46-
<PAGE>

employment from manufacturing to the wholesale and retail trade and
services sectors. Manufacturing employment in 1990 accounted for
22.7% of total employment, down from 28.9% in 1980. Despite its
decreasing prominence, manufacturing remains Ohio's major
employment and earnings sector. Services and trade follow closely
as second and third largest employment sectors. Since 1980, Ohio
has experienced an unemployment rate generally higher than the
United States average. Income levels are slightly below the
national average, but show a stable to positive trend.

-47-
<PAGE>

APPENDIX D

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 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 through changing market
conditions to accumulate shares in a fund to meet long term goals.

DOLLAR-COST AVERAGING

<TABLE>
<CAPTION>
- -------------------------------------------------------------------
REGULAR MARKET PRICE SHARES
INVESTMENT OF A SHARE ACQUIRED
<S> <C> <C>
$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
</TABLE>

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).

-48-
<PAGE>

IDS SPECIAL TAX-EXEMPT SERIES TRUST

STATEMENT OF ADDITIONAL INFORMATION

FOR

IDS INSURED TAX-EXEMPT FUND

Aug. 29, 1994 as revised March 3, 1995

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 Aug. 29, 1994 as revised March 3, 1995, and it is to be used
with the prospectus dated Aug. 29, 1994 as revised March 3, 1995, and the Annual
Report for the fiscal year ended June 30, 1994.

<PAGE>

TABLE OF CONTENTS

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

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

Portfolio Transactions........................................p.

Brokerage Commissions Paid to Brokers Affiliated with AEFC....p.

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

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

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

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

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

Exchanges.....................................................p.

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

Taxes.........................................................p.

Agreements....................................................p.

Trustees and Officers.........................................p.

The Trust.....................................................p.

Custodian.....................................................p.

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

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

Prospectus....................................................p.

Appendix A: Description of Ratings of Tax-Exempt Securities
and Short-Term Securities........................p.

Appendix B: Options and Interest Rate Futures Contracts and
Additional Information on Investment Policies....p.

Appendix C: Insured Fund.....................................p.

Appendix D: Dollar-Cost Averaging............................p.

-2-

<PAGE>

ADDITIONAL INVESTMENT POLICIES

These are investment policies in addition to those presented in the prospectus.
Unless holders of a majority of the outstanding shares 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, at market value, 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 limitation.

'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.

'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.

'Make a loan of any part of its assets to American Express Financial Corporation
(AEFC), to the directors and officers of AEFC or to its own directors and
officers.

'Purchase securities of an issuer if the trustees and officers of the fund or
the directors and officers of American Express Financial Corporation (AEFC) hold
more than a certain percentage of the issuer's outstanding securities. The rule
is this: the holdings of all trustees and officers of the fund and the holding
of all directors and officers 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.

'Lend portfolio securities in excess of 30% of its net assets. This is a
fundamental policy that may not be changed without shareholder approval. The
current policy of the fund's board of trustees is to make these loans, either
long- or short-term, to broker-dealers. In making such loans, the fund receives
the market

-3-

<PAGE>

price in cash, U. S. government securities, letters of credit or such other
collateral as permitted by regulatory agencies and approved by the board of
directors. If the fund receives cash as collateral, the fund will invest the
cash collateral in short-term debt securities. The fund will receive a fee
based on the value of the loan. The fund reviews the market value of the loaned
securities daily and will get additional collateral if this value goes up. The
risks are the borrower may not provide additional collateral when required or
return the securities when due.

Unless changed by the trustees, the fund will not:

'Buy on margin or sell short, but it may enter into interest rate futures
contracts.

'Pledge or mortgage its assets beyond 15% of the cost of its 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 restriction, collateral
arrangements for margin deposits on interest rate futures contracts are not
deemed to be a pledge of assets.

'Invest more than 5% of its total assets, at cost, in securities whose issuer or
guarantor of principal and interest, including any predecessors, 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 programs.

'Invest more than 5% of its net assets in warrants. Under one state's law no
more than 2% of the fund's net assets may be invested in warrants not listed on
an Exchange.

'Invest more than 10% of the fund's 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
trustees, 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
obligation.

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 trustees, 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.

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

-4-

<PAGE>

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.

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

PORTFOLIO TRANSACTIONS

Subject to policies set by the board of directors, AEFC and IDS International,
Inc. (International) are 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 and
International have been directed to use their best efforts to obtain the best
available price and the most favorable execution except where otherwise
authorized by the board of directors. In selecting broker-dealers to execute
transactions, AEFC and International may consider the price of the security,
including commission or mark-up, the size and difficulty of the order, the
reliability, integrity, financial soundness and general operation and execution
capabilities of the broker, the broker's expertise in particular markets, and
research services provided by the broker.

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 of directors has adopted a policy authorizing AEFC and International
to do so to the extent authorized by law, if AEFC or International 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

-5-

<PAGE>

dealer, viewed either in the light of that transaction or AEFC's overall
responsibilities to the funds in the IDS MUTUAL FUND GROUP and other funds for
which it acts as investment advisor.

Research provided by brokers supplements AEFC and International's own research
activities. Such services include economic data on, and analysis of, the global
economy, specific countries, and industries within countries; 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 international 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.

When paying a commission that might not otherwise be charged or a commission in
excess of the amount another broker might charge, AEFC and International must
follow procedures authorized by the board of directors. To date, three
procedures have been authorized. One procedure permits AEFC or International 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 or International, 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 or International 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 and International have 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 and International believe it may obtain better overall execution. AEFC and
International have assured the fund 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

-6-

<PAGE>

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.

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 International, AEFC or any of its subsidiaries. When the fund buys
or sells the same security as another fund or account, AEFC or International
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 and International make 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 $7,000 for the fiscal year ended
June 30, 1994, $0 for fiscal year 1993, and $1,568 for fiscal year 1992.
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.

The fund acquired 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 during the fiscal year ended June 30, 1994.

The portfolio turnover rate was 37% in the fiscal year ended June 30, 1994, and
5% in fiscal year 1993.

BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH AEFC

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 the fund's
board of directors 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.

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

-7-

<PAGE>

PERFORMANCE INFORMATION

The fund may quote various performance figures to illustrate past performance.
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

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

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

-8-

<PAGE>

The fund's annualized yield was 4.91% for the 30-day period ended June 30, 1994.

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 5.23%, respectively, for the 30-day period
ended June 30, 1994.

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 June 30, 1994.

Marginal Income Tax-Equivalent Yield
Tax Bracket Distribution Annualized
- ----------- -------------------- ----------
<S> <C> <C>
15.0% 6.15% 5.78%
28.0% 7.26 6.82
33.0% 7.81 7.33
</TABLE>

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, 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 July 1, 1994, the
first business day following the end of the fiscal year, the computation looked
like this:

Net assets before Shares outstanding Net asset value
shareholder transactions at end of previous day of one share
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A* $525,349,319 divided by 98,163,126 equals $5.35
<FN>
*Shares of Class B and Class Y were not outstanding on that date.
</TABLE>

-9-

<PAGE>

In determining net assets before shareholder transactions, the fund's portfolio
securities are valued as follows as of the close of business of the New York
Stock Exchange:

'Securities, except bonds, other than convertibles 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 other than convertibles 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 exists, 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 their last-quoted
sales price on their primary exchange.

'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 systematically reducing the carrying value if
acquired at a premium, so that the carrying value is equal to the maturity value
on maturity date.

'Securities without a readily available market price, bonds other than
convertibles and other assets are valued at fair value, as determined in good
faith by the board of trustees (the "trustees"). The trustees are responsible
for selecting methods they believe 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. 'In valuing
securities subject to Portfolio Insurance, the Trust will use the greater of (a)
the value of the security with timely payments of principal and interest
guaranteed, less the predetermined premiums for Secondary Market Insurance, or
(b) the uninsured value of the security.

The New York Stock Exchange, AEFC and the fund will be closed on the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

-10-

<PAGE>

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 plus a sales
charge if applicable. 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 July 1,
1994, was determined by dividing the net asset value of one share, $5.35, by
0.95 (1.00-0.05 for a maximum 5% sales charge) for a public offering price of
$5.63. The sales charge is paid to American Express Financial Advisors by the
person buying the shares.

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
-------------------- -------------- ---------------
<S> <C> <C>
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
More than 1,000,000 0.00 0.00
</TABLE>

Sales charges on an investment greater than $50,000 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.

-11-

<PAGE>

On total investment, sales
charge as a percentage of
--------------------------------------------
Public Net
Offering Price Amount Invested
-------------- ----------------
Amount of Investment ranges from:
- -------------------- --------------------------------------------
<S> <C> <C>
First $ 50,000 5.00% 5.26%
More than 50,000 to 100,000 5.00-4.50 5.26-4.71
More than 100,000 to 500,000 4.50-3.75 4.71-3.90
More than 500,000 to 1,000,000 3.75-2.00 3.90-2.04
More than 1,000,000 0.00 0.00

</TABLE>

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 to
$100,000.

The total amount invested includes any shares held in the fund in the name of a
member of your immediate family (spouse and unmarried children under 21). 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 trustees, directors, 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 $25,000 in IDS Stock Fund and $5,000 in this
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

You can reduce the sales charges in Class A by filing a letter-of-intent stating
that you intend to invest $1 million over a period of 13 months. 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, the sales charges previously paid will be reversed. 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 letter-of-intent is not an option
(absolute right) to buy shares.

-12-

<PAGE>

million) one month before the 13-month period is up. What sales charge do you
pay? AEFC makes an adjustment on your last purchase so that there's no sales
charge on the total $1 million investment, just as if you had invested $1
million all at once.

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 D.

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 one fund but cannot be split to make purchases in two or more funds.
Automatic directed dividends are available between accounts of any ownership
EXCEPT:

'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

-13-

<PAGE>

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 its 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 of trustees (the "trustees") 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 New York Stock Exchange (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, declares a period of emergency to exist.

Should the fund stop selling shares, the Trustees 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.

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.

-14-

<PAGE>

To start any of these plans, please write or call American Express Shareholder
Service, P.O. Box 534, Minneapolis, MN 55440-0534, 612-671-3733. 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.

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.

EXCHANGES

If you buy shares in one of the funds and then exchange into another fund, it is
considered a sale 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.

-15-

<PAGE>

CAPITAL LOSS CARRYOVER

For federal income tax purposes, the fund had a capital loss carryover of
$2,130,102 at June 30, 1994, that will expire in 2002. It is unlikely that the
board of directors 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

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 June 30,
1994, 100% of the income distribution was designated as exempt from federal
income taxes.

Capital gain distributions received by individual and corporate shareholders
should be treated as long-term capital gains regardless of how long they owned
their shares. 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. 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.

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.

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

-16-

<PAGE>

short-term) for the 12-month period ending Dec. 31 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

- --------- ----------------
<S> <C>
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
</TABLE>

On March 3, 1995, the daily rate applied to the fund's assets is expected to be
approximately 0.___% 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 a prior agreement, the total amount
paid was $2,772,357 for the fiscal year ended June 30, 1994, $2,057,249 for
fiscal year 1993, and $1,344,880 for fiscal year 1992.

Under the current Agreement, the fund also pays taxes, brokerage commissions and
nonadvisory expenses, that include custodian fees; audit and certain legal fees;
fidelity bond premiums; registration fees for shares; fund office expenses;
consultants' fees; compensation of directors, officers and employees; corporate
filing fees; organizational expenses; expenses incurred in connection with
lending portfolio securities of the fund; and expenses properly payable by the
fund, approved by the board of directors. Under a prior agreement, the fund
paid nonadvisory expenses of $252,625 for the fiscal year ended June 30, 1994,
$155,547 for fiscal year 1993, and $149,830 for fiscal year 1992.

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:

-17-

<PAGE>

Assets Annual rate
(billions) each asset level
---------- ----------------
<S> <C>
First $1 0.040%
Next 1 0.035
Next 1 0.030
Next 3 0.025
Over 6 0.020
</TABLE>

Transfer Agency Agreement

The fund has a Transfer Agency Agreement with AEFC. This agreement governs
AEFC'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, AEFC 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 and dividing by the number of
days in the year. The rate for Class A and for Class Y is $15.50 per year. The
rate for Class B is $16.50 per year. The fees paid to AEFC may be changed from
time to time upon agreement of the parties without shareholder approval. The
fund paid fees of $261,820 for the year ended June 30, 1994.

Distribution Agreement

Under a Distribution Agreement, sales charges deducted for distributing fund
shares are paid to American Express Financial Advisors daily. These charges
amounted to $5,617,954 for the fiscal year ended June 30, 1994. After paying
commissions to personal financial planners, and other expenses, the amount
retained was $1,955,455. The amounts were $6,198,137 and $2,164,091 for the
fiscal year ended June 30, 1993, and $4,319,598 and $1,507,341 for the fiscal
year end June 30, 1992.

Additional information about commissions and compensation for the fiscal year
ended June 30, 1994, is contained in the following table:

(1) (2) (3) (4) (5)
Net Compensation
Name of Underwriting on Redemption
Principal Discounts and and Brokerage Other
Underwriter Commissions Repurchases Commissions Compensation
- ---------- ------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
American
Express
Financial
Advisors $5,617,954 None None $103,301*

<FN>
*Distribution fees paid pursuant to the Plan and Supplemental Agreement of
Distribution.
</TABLE>

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.

-18-

<PAGE>

Plan and Agreement of Distribution

For Class B shares, to help American Express Financial Advisors defray the cost
of distribution and servicing, not covered by sales charges received under the
Distribution Agreement, the fund and American Express Financial Advisors entered
into a Plan and Agreement of Distribution (Plan). These costs relate to most
aspects of distributing the fund's shares including American Express Financial
Advisors' overhead expenses. These costs do not include 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, American Express
Financial Advisors is paid a fee at an annual rate of 0.75% of the fund's
average daily net assets attributable to Class B shares.

The Plan must be approved annually by the board of trustees (the "trustees"),
including a majority of the disinterested trustees, if it is to continue for
more than a year. At least quarterly, the trustees 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 the trustees who are not
interested persons of the Trust 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 or by
American Express Financial Advisors. The Plan (or any agreement related to it)
will terminate in the event of its assignment as that term is defined in the
Investment Company Act of 1940, as amended. 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
trustees, including a majority of the trustees who are not interested persons of
the Trust 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
trustees is the responsibility of disinterested trustees. No interested person
of the Trust, and no trustee who is not an interested person, has any direct or
indirect financial interest in the operation of the Plan or any related
agreement.

`Total fees and nonadvisory expenses cannot exceed the most restrictive
applicable state limitation. Currently, the most restrictive applicable state
expense limitation, subject to exclusion of certain expenses, is 2.5% of the
first $30 million of the fund's average daily net assets, 2% of the next $70
million and 1.5% of average daily net assets over $100 million, on an annual
basis. At the end of each month, if the fees and expenses of the fund exceed
this limitation for the fund's fiscal year in progress, AEFC will assume all
expenses in excess of the limitation. AEFC then may bill the fund for such
expenses in subsequent months up to the end of that fiscal year, but not after
that date. No interest charges are assessed by AEFC for expenses it assumes.

TRUSTEES AND OFFICERS

The following is a list of the fund's trustees who, except for Mr. Dudley, also
are directors of all other funds in the IDS MUTUAL

-19-

<PAGE>

FUND GROUP. Mr. Dudley is a director of all publicly offered funds. All shares
have cumulative voting rights when voting on the election of trustees.

LYNNE V. CHENEY+'
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 Corp., and the
Interpublic Group of Companies, Inc. (advertising).

WILLIAM H. DUDLEY+**
2900 IDS Tower
Minneapolis, MN

Executive vice president and director of AEFC.

ROBERT F. FROEHLKE+
1201 Yale Place
Minneapolis, MN

Former president of all funds in the IDS MUTUAL FUND GROUP. Director, the ICI
Mutual Insurance Co., Institute for Defense Analyses, Marshall Erdman and
Associates, Inc. (architectural engineering) and Public Oversight Board of the
American Institute of Certified Public Accountants.

DAVID R. HUBERS**
2900 IDS Tower
Minneapolis, MN

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

HEINZ F. HUTTER+
P.O. Box 5724
Minneapolis, MN

President and chief operating officer, Cargill, Incorporated (commodity
merchants and processors) from February 1991 to September 1994. Executive vice
president from 1981 to February 1991.

ANNE P. JONES+
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.

-20-

<PAGE>

DONALD M. KENDALL'
PepsiCo, Inc.
Purchase, NY

Former chairman and chief executive officer, PepsiCo, Inc.

MELVIN R. LAIRD+
Reader's Digest Association, Inc.
1730 Rhode Island Ave., N.W.
Washington, D.C.

Senior counsellor for national and international affairs, The Reader's Digest
Association, Inc. Chairman of the board, COMSAT Corporation, former nine-term
congressman, secretary of defense and presidential counsellor. Director, Martin
Marietta Corp., Metropolitan Life Insurance Co., The Reader's Digest
Association, Inc., Science Applications International Corp., Wallace Reader's
Digest Funds and Public Oversight Board (SEC Practice Section, American
Institute of Certified Public Accountants).

LEWIS W. LEHR'
3050 Minnesota World Trade Center
30 E. Seventh St.
St. Paul, MN

Former chairman of the board and chief executive officer, Minnesota Mining and
Manufacturing Company (3M). Director, Jack Eckerd Corporation (drugstores).
Advisory Director, Peregrine Inc. (microelectronics).

WILLIAM R. PEARCE+*
901 S. Marquette Ave.
Minneapolis, MN

President of all funds in the IDS MUTUAL FUND GROUP since June 1993. Former
vice chairman of the board, Cargill, Incorporated (commodity merchants and
processors).

EDSON W. SPENCER
4900 IDS Center
80 S. 8th St.
Minneapolis, MN

President, Spencer Associates Inc. (consulting). Chairman of the board, Mayo
Foundation (healthcare). Former chairman of the board and chief executive
officer, Honeywell Inc. Director, Boise Cascade Corporation (forest products)
and CBS Inc. Member of International Advisory Councils, Robert Bosch (Germany)
and NEC (Japan).

JOHN R. THOMAS**
2900 IDS Tower
Minneapolis, MN

Senior vice president and director of AEFC.

-21-

<PAGE>

WHEELOCK WHITNEY+
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN

Chairman, Whitney Management Company (manages family assets).

C. ANGUS WURTELE
1101 S. 3rd St.
Minneapolis, MN

Chairman of the board and 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, director,
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.

Besides Mr. Pearce, who is president, the fund's other officer is:

LESLIE L. OGG
901 S. Marquette Ave.
Minneapolis, MN

Vice president of all funds in the IDS MUTUAL FUND GROUP and general counsel and
treasurer of the publicly offered funds.

During the fiscal year that ended June 30, 1994, the members of the board, for
attending up to 51 meetings, received the following compensation, in total, from
all funds in the IDS MUTUAL FUND GROUP.

Board compensation
------------------
Aggregate Retirement Estimated Total Cash
compensation benefits annual compensation
from the accrued as benefit on from the IDS
Board member fund fund expenses retirement MUTUAL FUND GROUP
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lynne V. Cheney $1,551 $ ___ $1,125 $25,600
(part of year)
Robert F. Froehlke 4,734 2,709 1,125 77,400
Anne P. Jones 3,864 693 1,125 71,300
Donald M. Kendall 3,390 3,088 1,070 68,000
Melvin R. Laird 3,834 2,397 1,125 71,000
Lewis W. Lehr 3,894 3,217 1,061 71,500
William R. Pearce ___ 1,036 1,125 ___
(part of year)
Edson W. Spencer 3,852 1,578 601 71,200
Wheelock Whitney 4,224 1,451 1,125 73,800
</TABLE>

On June 30, 1994, the fund's trustees and officers as a group owned less than 1%
of the outstanding shares. During the fiscal year ended June 30, 1994, no
trustee or officer earned more than $60,000 from this fund. All trustees and
officers as a group earned

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<PAGE>

$15,188, including $6,057 of retirement plan expense, from this fund.

CUSTODIAN

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.

THE TRUSTS

The Trusts are entities of the type commonly known as Massachusetts business
trusts. Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for its obligations.
However, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust itself is
unable to meet its obligations.

INDEPENDENT AUDITORS

The financial statements contained in the Annual Report to shareholders, for the
fiscal year ended June 30, 1994, 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 1994 Annual Report to shareholders, pursuant to Section 30(d)
of the Investment Company Act of 1940, as amended, 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 Insured Tax-Exempt Fund dated Aug. 29, 1994, as revised
March 3, 1995, is hereby incorporated in this SAI by reference.

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<PAGE>

APPENDIX A

DESCRIPTION OF RATINGS OF TAX-EXEMPT SECURITIES AND SHORT-TERM SECURITIES

TAX-EXEMPT SECURITIES

Tax-exempt securities are used to raise money for various public purposes, such
as constructing public facilities and making loans to public institutions.
Certain types of tax-exempt bonds are issued to obtain funding for privately
operated facilities. There are two principal classifications of municipal
securities: notes and bonds. Notes are used generally to provide for short-term
capital needs and generally have a maturity of up to one year. These include tax
anticipation notes, revenue anticipation notes, bond anticipation notes,
construction loan notes, variable rate demand notes and tax-exempt commercial
paper (also known as municipal paper). Bonds, which meet longer-term capital
needs, generally have maturities of more than one year and fall into one of two
categories. General obligation bonds are backed by the taxing power of the
issuing municipality and are considered the safest type of municipal bond.
Revenue bonds are payable only from the revenues of a particular project or
facility and are generally dependent solely on a specific revenue source.
Industrial development bonds are a specific type of revenue bond backed by the
credit and security of a private user.

The ratings concern the quality of the issuer. 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. (Moody's) are Aaa,
Aa, A, Baa, Ba, B, Caa, Ca, C and D. Standard & Poor's Corporation (S&P) ratings
are AAA, AA, A, BBB, BB, B, CCC, CC, C and D.

Securities rated Aaa and AAA are judged to be of the best quality. Capacity to
pay interest and repay principal is extremely strong. Prices are responsive only
to interest rate fluctuations.

Securities rated Aa and AA also are 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. Long-term risk may appear greater than the Aaa or AAA group.
Prices are primarily responsive to interest rate fluctuations.

Securities rated A are considered upper-medium grade. Protection for interest
and principal are deemed adequate but susceptible to future impairment. The
market prices of such obligations move primarily with interest rate fluctuations
but also with changing economic or trade conditions.

Securities rated Baa and BBB are considered upper-medium-grade obligations.
Protection for interest and principal is adequate over the short term; however,
these obligations have certain speculative characteristics. They are susceptible
to changing economic conditions and require constant review. Such bonds are more
responsive to business and trade conditions than to interest rate fluctuations.

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<PAGE>

Securities rated Ba and BB are considered to have speculative elements. Their
future cannot be considered well assured. The protection of interest and
principal payments may be very moderate and not well safeguarded during future
good and bad times. Uncertainty of position characterizes these bonds.

Securities rated B or lower lack characteristics of more desirable investments.
There may be small assurance over any long period of time of the payment of
interest and principal or of the maintenance of other contract terms. Some of
these bonds are of poor standing and may be in default or have other marked
shortcomings.

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

Bonds rated Ca and CC represent obligations that are highly speculative. Such
issues are often in default or have other marked shortcomings.

Bonds rated C are obligations with a higher degree of speculation. These
securities have major risk exposures to default.

Bonds rated D are in payment default. The D rating is used when interest
payments or principal payments are not made on the due date.

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

SHORT-TERM TAX-EXEMPT SECURITIES

A portion of each 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.

(5) Construction loan notes insured by the Federal Housing Administration
which remain outstanding until permanent financing

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<PAGE>

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) 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 municipal bonds and notes are rated by Moody's and by S&P. The
ratings reflect the liquidity concerns and market access risks unique to notes.

Moody's MIG 1/VMIG 1 indicates the best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.

Moody's MIG 2/VMIG 2 indicates high quality. Margins of protection are ample
although not so large as in the preceding group.

Moody's MIG 3/VMIG 3 indicates favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.

Moody's MIG 4/VMIG 4 indicates adequate quality. Protection commonly regarded
as required of an investment security is present and although not distinctly or
predominantly speculative, there is specific risk.

Standard & Poor's rating SP-1 indicates very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.

Standard & Poor's rating SP-2 indicates satisfactory capacity to pay principal
and interest.

Standard & Poor's rating SP-3 indicates speculative capacity to pay principal
and interest.

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<PAGE>

SHORT-TERM TAXABLE SECURITIES AND REPURCHASE AGREEMENTS

Depending on market conditions, a portion of each 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 businesses 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;

(6) Commercial paper rated in the two highest grades by Moody's or S&P.
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 earning trends;

Moody's rating Prime-1 (P-1) and Standard & Poor's rating A-1 indicate that the
degree of safety regarding timely payment of short-term promissory obligations
is either overwhelming or very strong.

Moody's rating Prime-2 (P-2) and Standard & Poor's rating A-2 indicate that
capacity for timely payment of short-term promissory obligations with this
designation is strong.

(7) Repurchase agreements involving acquisition of securities by a 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, a fund receives a fixed rate of return that is insulated from
market rate changes while it holds the security.

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<PAGE>

APPENDIX B

OPTIONS AND INTEREST RATE FUTURES CONTRACTS AND ADDITIONAL INFORMATION ON
INVESTMENT POLICIES

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. Under normal market
conditions, the fund will invest no more than ___ % of its net assets in
derivatives.

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. They also may
be used for investment. 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

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<PAGE>

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 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.

'The fund will write options only as permitted under federal or state laws or
regulations, such as those that limit the amount of total assets subject to the
options. While no limit has been set by the fund, it will conform to the
requirements of those states. For example, California limits the writing of
options to 50% of the assets of a fund.

Net premiums on call options closed or premiums on expired call options are
treated as short-term capital gains. Since the fund is taxed as a regulated
investment company under the Internal Revenue Code, any gains on options and
other securities held less than three months must be limited to less than 30% of
its annual gross income.

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.

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<PAGE>

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, 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.

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.

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<PAGE>

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 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 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.

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<PAGE>

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 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 portfolio 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 is presently unclear, although the fund's tax
advisers currently believe marking to market is not required. Depending on
developments, and although no assurance is given, the fund may seek Internal
Revenue Service (IRS) rulings clarifying questions concerning such treatment.
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. Less than 30% of
its gross income must be derived from sales of securities held less than three
months.

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<PAGE>

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. In order to avoid realizing a gain within the
three-month period, the fund may be required to defer closing out a contract
beyond the time when it might otherwise be advantageous to do so. The fund also
may be restricted in purchasing put options for the purpose of hedging
underlying securities because of applying the short sale holding period rules
with respect to such underlying securities.

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.

WHEN-ISSUED SECURITIES

The fund may purchase some securities in advance of when they are issued. Price
and rate of interest are set on the date the commitments are given but no
payment is made or interest earned until the date the securities are issued,
usually within two months, but other terms may be negotiated. The commitment
requires the fund to buy the security when it is issued so the commitment is
valued daily the same way as owning a security would be valued. The fund
designates cash or liquid high-grade debt securities to at least equal the
amount of its commitment. Under normal market conditions, the fund does not
intend to commit more than 5% of its total assets to these practices. The fund
may sell the commitment just like it can sell a security. Frequently, the fund
has the opportunity to sell the commitment back to the institution.

INVERSE FLOATERS

The Fund may invest in securities called "inverse floaters." Inverse floaters
are created by underwriters using the interest payments on securities. A portion
of the interest received is paid to holders of instruments based on current
interest rates for short-term securities. What is left over, less a servicing
fee, is paid to holders of the 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.

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<PAGE>

APPENDIX C

INSURED FUND

INSURANCE

The fund's entire portfolio of municipal obligations will at all times be fully
insured as to the scheduled payment of all installments of principal and
interest thereon, except as noted below. This insurance feature minimizes the
risks to the fund and its shareholders associated with any defaults in the
municipal obligations owned by the fund.

Each insured municipal obligation in the fund's portfolio will be covered by
either a mutual fund Portfolio Insurance Policy issued by Financial Guaranty
Insurance Company (Financial Guaranty) or a New Issue Insurance Policy obtained
by the issuer of the obligation at the time of its original issuance. If a
municipal obligation is already covered by a New Issue Insurance Policy then the
obligation is not required to be additionally insured under a Portfolio
Insurance Policy. A New Issue Insurance Policy may have been written by
Financial Guaranty or other insurers. Based upon the expected composition of the
fund's portfolio, its investment manager estimates that the annual premiums for
the Portfolio Insurance Policy will range from .059% to .508%, with an average
annual premium rate of approximately .10% to .25% of the fund's assets. Premiums
are paid from the fund's assets, and will reduce the current yield on its
portfolio by the amount thereof.

Both types of policies discussed above insure the scheduled payment of all
principal and interest on the municipal obligations as they fall due. The
insurance does not guarantee the market value of the municipal obligations nor
the value of the shares of the fund and, except as described above, has no
effect on the net asset value or redemption price of the shares of the fund. The
insurance of principal refers to the face or par value of the municipal
obligation, and is not affected by the price paid by the fund or by the market
value.

The fund may purchase municipal obligations on which the payment of interest and
principal is guaranteed by an agency or instrumentality of the U.S. government
or which are rated Aaa, MIG-1 or Prime-1 by Moody's or AAA, A-1 or SP-1 by S&P,
in either case without being required to insure the municipal obligations under
the Portfolio Insurance Policy.

NEW ISSUE INSURANCE. The New Issue Insurance Policies, if any, have been
obtained by the respective issuers or underwriters of the municipal obligations
and all premiums respecting the securities have been paid in advance by the
issuers or underwriters. The policies are noncancelable and will continue in
force so long as the municipal obligations are outstanding and the respective
insurers remain in business. Since New Issue Insurance remains in effect as long
as the insured municipal obligations are outstanding, the insurance may have an
effect on the resale value of municipal obligations so insured in the fund's
portfolio.

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<PAGE>

Therefore, New Issue Insurance may be considered to represent an element of
market value in regard to municipal obligations thus insured, but the exact
effect, if any, of this insurance on market value cannot be estimated. The fund
will acquire municipal obligations subject to New Issue Insurance Policies only
where the insurer is rated Aaa by Moody's or AAA by S&P.

PORTFOLIO INSURANCE. The Portfolio Insurance Policy to be obtained by the fund
from Financial Guaranty will be effective only so long as the fund is in
existence, Financial Guaranty is still in business, and the municipal
obligations described in the Portfolio Insurance Policy continue to be held by
the fund. In the event of a sale of any municipal obligation by the fund or
payment prior to maturity, the Portfolio Insurance Policy terminates as to that
municipal obligation.

The Portfolio Insurance Policy obtained by the fund is noncancelable except for
failure to pay the premiums. Nonpayment of premiums on the Policy also will
permit Financial Guaranty to take action against the fund to recover premium
payments due it. Premium rates for each issue of municipal obligations covered
by the Portfolio Insurance Policy are fixed for the period of time the
securities are owned by the fund. The insurance premiums are payable monthly by
the fund and are adjusted for purchases and sales of covered municipal
obligations during the month. The fund has reserved the right (a) to cancel the
Portfolio Insurance Policy upon 60 days' prior written notice to Financial
Guaranty and (b) to discontinue insuring newly-acquired municipal obligations
under the Portfolio Insurance Policy upon 30 days' prior written notice to
Financial Guaranty.

Under the provisions of the Portfolio Insurance Policy, Financial Guaranty
unconditionally and irrevocably agrees to pay to Citibank, N.A., or its
successor, as its agent (the Fiscal Agent), that portion of the principal of and
interest on the municipal obligations which shall become due for payment but
shall be unpaid by reason of nonpayment by the issuer. Financial Guaranty will
make these payments to the Fiscal Agent on the date the principal or interest
becomes due for payment or on the business day next following the day on which
Financial Guaranty receives notice of nonpayment, whichever is later. The Fiscal
Agent will disburse to the fund the face amount of principal and interest which
is then due for payment but is unpaid by reason of nonpayment by the issuer, but
only upon receipt by the Fiscal Agent of (i) evidence of the fund's right to
receive payment of the principal or interest due for payment and (ii) evidence,
including any appropriate instruments of assignment, that all of the rights to
payment of principal or interest due for payment shall thereupon vest in
Financial Guaranty. Upon disbursement, Financial Guaranty shall become the owner
of the municipal obligation, appurtenant coupon or right to payment of principal
or interest on the obligation and shall be fully subrogated to all of the fund's
rights thereunder, including the right to payment thereof.

-35-

<PAGE>

In determining whether to insure any municipal obligation, Financial Guaranty
applies its own standards, which are not necessarily the same as the criteria
used in regard to the selection of municipal obligations by the fund's
investment adviser. Financial Guaranty's decision is made prior to the fund's
purchase of the municipal obligations. Contracts to purchase municipal
obligations are not covered by the Portfolio Insurance Policy although municipal
obligations underlying the contracts are covered by this insurance upon their
physical delivery to the fund or its Custodian.

SECONDARY MARKET INSURANCE. The fund may at any time purchase from Financial
Guaranty a secondary market insurance policy (Secondary Market Policy) on any
municipal obligation currently covered by the Portfolio Insurance Policy. The
coverage and obligation to pay monthly premiums under the Portfolio Insurance
Policy would cease with the purchase by the fund of a Secondary Market Policy.

By purchasing a Secondary Market Policy, the fund would, upon payment of a
single premium, obtain insurance against nonpayment of scheduled principal and
interest for the remaining term of the municipal obligation, regardless of
whether the fund then owned the obligation. This insurance coverage would be
noncancelable and would continue in force so long as the municipal obligations
so insured are outstanding. The purpose of acquiring such a Policy would be to
enable the fund to sell a municipal obligation to a third party as a Aaa/AAA
rated insured obligation at a market price higher than what otherwise might be
obtainable if the obligation were sold without the insurance coverage. This
rating is not automatic, however, and must specifically be requested for each
obligation. Any difference between the excess of an obligation's market value as
a Aaa/AAA rated security over its market value without this rating and the
single premium payment would inure to the fund in determining the net capital
gain or loss realized by the fund upon the sale of the obligation.

Since the fund has the right to purchase a Secondary Market Policy for an
eligible municipal obligation even if the obligation is currently in default as
to any payments by the issuer, the fund would have the opportunity to sell the
obligation rather than be obligated to hold it in its portfolio in order to
continue the Portfolio Insurance Policy in force.

Because coverage under the Portfolio Insurance Policy terminates upon sale of a
municipal obligation insured thereunder, the insurance does not have an effect
on the resale value of the obligation. Therefore, it is the intention of the
fund to retain any insured municipal obligations which are in default or in
significant risk of default, and to place a value on the insurance which will be
equal to the difference between the market value of similar obligations which
are not in default. Because of this policy, the fund's investment manager may be
unable to manage the fund's portfolio to the extent that it holds defaulted
municipal obligations, which may limit its ability in certain circumstances to
purchase other municipal obligations. While a defaulted municipal obligation is
held in the fund's portfolio, the fund continues to pay the insurance premium
but also collects interest

-36-

<PAGE>

payments from the insurer and retains the right to collect the full amount of
principal from the insurer when the municipal obligation comes due. This would
not be applicable if the fund elected to purchase a Secondary Market Policy
discussed above with respect to a municipal obligation.

FINANCIAL GUARANTY INSURANCE COMPANY. Financial Guaranty is a wholly owned
subsidiary of FGIC Corporation (the Corporation) a Delaware holding company.
Financial Guaranty, domiciled in the State of New York, commenced its business
of providing insurance and financial guaranties for a variety of investment
instruments in January 1984. The Corporation is a wholly-owned subsidiary of
General Electric Capital Corporation.

In addition to providing insurance for the payment of interest on and principal
of municipal bonds and notes held in unit investment trust and mutual fund
portfolios, Financial Guaranty provides insurance for new and secondary market
issues of municipal bonds and notes and for portions of new and secondary market
issues of municipal bonds and notes. Financial Guaranty expects to provide other
forms of financial guaranties in the future. It also is authorized to write
fire, property damage liability, workmen's compensation and employer's liability
and fidelity and surety insurance. As of June 30, 1994, the total capital and
surplus of Financial Guaranty was approximately $850.5 million, as reported to
the State of New York Insurance Department. Moody's and Standard & Poor's have
rated the claims-paying ability of Financial Guaranty Aaa and AAA, respectively.

Financial Guaranty is currently licensed to provide insurance in 48 states and
the District of Columbia. It files reports with state insurance regulatory
agencies and is subject to audit and review by these authorities. Financial
Guaranty is also subject to regulation by the State of New York Insurance
Department. This regulation, however, is no guarantee that Financial Guaranty
will be able to perform on its contracts of insurance in the event a claim
should be made thereunder at some time in the future.

The information relating to Financial Guaranty contained above has been
furnished by the corporation. The financial information with respect to the
corporation is unaudited but appears in reports or other materials filed with
state insurance regulatory authorities and is subject to audit and review by
these authorities. No representation is made as to the accuracy or adequacy of
this information or as to the absence of material adverse changes in the
information subsequent to the date thereof.

The policy of insurance obtained by the fund from Financial Guaranty and the
agreement and negotiations in respect thereof represent the only relationship
between Financial Guaranty and the fund. Otherwise, neither Financial Guaranty
nor its parent, FGIC Corporation, has any significant relationship, direct or
indirect, with the fund.

-37-

<PAGE>

GOVERNMENT SECURITIES

The fund may invest in securities guaranteed by an agency or instrumentality of
the United States government. These agencies include Federal National Mortgage
Association and Federal Housing Administration (FHA). In the case of a default
on a FHA security, the outstanding balance is subject to an assignment fee and
interest payments may be delayed. This will reduce the return to the fund.

-38-

<PAGE>

APPENDIX D

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 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 through changing market conditions to accumulate shares in a fund to
meet long term goals.

DOLLAR-COST AVERAGING
- -------------------------------------------------------------------------------
REGULAR MARKET PRICE SHARES
INVESTMENT OF A SHARE ACQUIRED
- -------------------------------------------------------------------------------
<S> <C> <C>
$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

</TABLE>

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).

-39-

<PAGE>
PART C. OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

<TABLE>
<C> <C> <S>
(a) FINANCIAL STATEMENTS:
Registrant's annual report to shareholders filed electronically pursuant to Section
270.30d-1 on or about August 29, 1994 is incorporated herein by reference.

(b) EXHIBITS:
1. Declaration of Trust dated April 7, 1986, filed as Exhibit No. 1 to
Registration Statement No. 33-5102 is incorporated herein by reference.
2. Amended By-laws dated May 14, 1987, filed as Exhibit No. 2 to Registration
Statement 33-5102 is incorporated herein by reference.
3. Not Applicable.
4. Form of Certificate for shares of beneficial interest filed as Exhibit No. 4
to Pre-Effective Amendment No. 1 to Registration Statement No. 33-5102 is
incorporated herein by reference.
5. Investment Management and Services Agreement between IDS Special Tax-Exempt
Series Trust and IDS Financial Corporation, dated Nov. 14, 1991, was filed as
Exhibit 5 to Post-Effective Amendment No. 18 to Registration Statement No.
33-5102 is incorporated herein by reference.
6. Distribution Agreement between Registrant and IDS Financial Services Inc.
dated Jan. 1, 1987, is incorporated herein by reference.
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.(a) Custodian Agreement filed as Exhibit No. 8 to Registration Statement No.
33-5102 is incorporated herein by reference.
8.(b) Amendment to Custodian Agreement, dated August 5, 1987, filed as Exhibit 8 to
Post-Effective Amendment No. 69 to Registration Statement No. 2-10700, (IDS
Selective Fund, Inc.) is incorporated herein by reference.
9.(a) Insurance Agreement between IDS Insured Tax-Exempt Fund and Financial Guaranty
Insurance Company filed as Exhibit No. 9 to Pre-Effective Amendment No. 1 to
Registration Statement No. 33-5102 is incorporated herein by reference.
9.(b) Transfer Agency Agreement between IDS Special Tax-Exempt Series Trust and IDS
Financial Corporation dated Nov. 14, 1991, filed as Exhibit 9(b) to
Post-Effective Amendment No. 18 to Registration Statement No. 33-5102 is
incorporated herein by reference.
10. Opinion and Consent of Counsel filed as Exhibit No. 10 to Pre-Effective
Amendment No. 3 to Registration Statement No. 33-5102 is incorporated herein
by reference.
11. Not Applicable.
12. None.
13. Not Applicable.
14. Forms 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 on Sept. 8, 1986, are incorporated herein by reference.
15. Plan and Supplemental Agreement of Distribution, dated Jan. 1, 1987 filed as
Exhibit 15 to Post-Effective Amendment No. 11 to Registration Statement No.
33-5102 is incorporated herein by reference.
</TABLE>

II-1
<PAGE>
<TABLE>
<C> <C> <S>
16. Schedule for computation of each performance quotation provided in the
Registration Statement in response to Item 22 as Exhibit 16 to Registration
Statement No. 33-5102 is incorporated herein by reference.
17. Not Applicable.
18.(a) Trustees' Power of Attorney to sign Amendments to this Registration Statement
dated November 10, 1994, filed electronically herewith.
18.(b) Officers' Power of Attorney to sign Amendments to this Registration Statement
dated June 1, 1993, filed electronically as Exhibit 17(a) to Registration
Statement No. 33-5102 is incorporated herein by reference.
</TABLE>

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

SUBSIDIARIES OF IDS FINANCIAL CORPORATION:

IDS Financial Services Inc.; IDS Real Estate Services, Inc.; Advisory Bank &
Trust Company; IDS Securities Corporation; Investors Accumulation Plan, Inc.;
IDS Life Insurance Company; IDS Life Insurance Company of New York; IDS
Certificate Company; Investors Syndicate Development Corp.; Mankato Ventures
(Joint Venture); Lawyers Joint Law Library Associates; Peninsular Properties,
Inc.; Relco-Bo, Inc.; IDS International, Inc.; IDS Fund Management Ltd.; IDS
Insurance Agency Inc.; IDS Insurance Agency of Arkansas Inc.; IDS Insurance
Agency of Alabama Inc.; IDS Insurance Agency of New Mexico Inc.; IDS Insurance
Agency of North Carolina Inc.; IDS Insurance Agency of Massachusetts Inc.; IDS
Insurance Agency of Utah, Inc.; IDS Insurance Agency of Wyoming Inc.; IDS
Advisory Group Inc.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<S> <C>
(1) (2)

Number of
Record
Holders as of
Title of Class Dec. 5, 1994
- --------------------------------- --------------
<S> <C>
IDS Insured Tax-Exempt Fund 17,340
Shares of Beneficial Interest
$.01 par value
IDS Massachusetts Tax-Exempt Fund 3,058
Shares of Beneficial Interest
$.01 par value
IDS Michigan Tax-Exempt Fund 2,799
Shares of Beneficial Interest
$.01 par value
IDS Minnesota Tax-Exempt Fund 15,768
Shares of Beneficial Interest
$.01 par value
IDS New York Tax-Exempt Fund 4,745
Shares of Beneficial Interest
$.01 par value
IDS Ohio Tax-Exempt Fund 2,690
Share of Beneficial Interest
$.01 par value
</TABLE>

II-2
<PAGE>
ITEM 27. INDEMNIFICATION

The Declaration of Trust of the registrant provides that the Trust shall
indemnify any person who was or is a party or is threatened to be made a party,
by reason of the fact that he is or was a trustee, officer, employee or agent of
the Trust, or is or was serving at the request of the Trust as a trustee,
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 Trust may purchase liability insurance and
advance legal expenses, all to the fullest extent permitted by the laws of the
State of Massachusetts, as now existing or hereafter amended. The By-laws of the
registrant provide that present or former directors or officers of the Trust
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
Trust to the full extent authorized by the laws of the Commonwealth of
Massachusetts, 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 trustees, 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 trustee, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, 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 trustees, officers, employees or agents might
otherwise be entitled. No indemnification shall be made in violation of the
Investment Company Act of 1940.

II-3
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, IDS Special TaxExempt Series Trust 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 22nd day of December, 1994.

IDS SPECIAL TAX-EXEMPT SERIES TRUST

By /s/ WILLIAM R. PEARCE**

------------------------------------
William R. Pearce,
PRESIDENT

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 22nd day of December, 1994.

Signature Capacity
- ----------------------------------- -------------------------

/s/ WILLIAM R. PEARCE** President, Principal
- ----------------------------------- Executive Officer and
William R. Pearce Trustee

Treasurer, Principal
/s/ LESLIE L. OGG** Financial Officer and
- ----------------------------------- Principal Accounting
Leslie L. Ogg Officer

/s/ LYNNE V. CHENEY*
- ----------------------------------- Trustee
Lynn V. Cheney

/s/ WILLIAM H. DUDLEY*
- ----------------------------------- Trustee
William H. Dudley

/s/ ROBERT F. FROEHLKE*
- ----------------------------------- Trustee
Robert F. Froehlke

/s/ DAVID R. HUBERS*
- ----------------------------------- Trustee
David R. Hubers

/s/ HEINZ F. HUTTER*
- ----------------------------------- Trustee
Heinz F. Hutter

II-4
<PAGE>

Signature Capacity
- ----------------------------------- -------------------------

/s/ ANNE P. JONES*
- ----------------------------------- Trustee
Anne P. Jones

/s/ DONALD M. KENDALL*
- ----------------------------------- Trustee
Donald M. Kendall

/s/ MELVIN R. LAIRD*
- ----------------------------------- Trustee
Melvin R. Laird

/s/ LEWIS W. LEHR*
- ----------------------------------- Trustee
Lewis W. Lehr

/s/ EDSON W. SPENCER*
- ----------------------------------- Trustee
Edson W. Spencer

/s/ JOHN R. THOMAS*
- ----------------------------------- Trustee
John R. Thomas

/s/ WHEELOCK WHITNEY*
- ----------------------------------- Trustee
Wheelock Whitney

/s/ C. ANGUS WURTELE*
- ----------------------------------- Trustee
C. Angus Wurtele

*Signed pursuant to Trustees' Power of Attorney filed electronically herewith
as Exhibit 18(a) by:

/s/ LESLIE L. OGG

- -------------------------------------------
Leslie L. Ogg

**Signed pursuant to Officers' Power of Attorney filed on or about June 23, 1994
as Exhibit 17(a) to Post-Effective Amendment No. 21 to Registration Statement
No. 33-5102 by:

/s/ LESLIE L. OGG

- -------------------------------------------
Leslie L. Ogg

II-5
<PAGE>
CONTENTS OF THIS
POST-EFFECTIVE AMENDMENT NO. 23
TO REGISTRATION STATEMENT NO. 33-5102

This Post-Effective Amendment comprises the following papers and documents:

The facing sheet.

The cross-reference page.

PART A

Prospectus for IDS California, Massachusetts, Michigan, Minnesota, New York
and Ohio Tax-Exempt Funds.

Prospectus for IDS Insured Tax-Exempt Fund.

PART B

Statement of Additional Information for IDS California, Massachusetts,
Michigan, Minnesota, New York and Ohio Tax-Exempt Funds.

Statement of Additional Information for IDS Insured Tax-Exempt Fund.

PART C

Other information.

Exhibits.

The signatures.

<PAGE>
EXHIBIT INDEX

<TABLE>
<C> <C> <S> <C>
Exhibits
--------- Page
-----
18(a) Directors' Power of Attorney, dated Nov. 10, 1994
</TABLE>

<PAGE>
Exhibit 18(a)

DIRECTORS/TRUSTEES POWER OF ATTORNEY

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.

Dated the 10th day of November, 1994.

<PAGE>

/s/ Lynne V. Cheney /s/ Melvin R. Laird
- -------------------------- ----------------------------
Lynne V. Cheney Melvin R. Laird

/s/ William H. Dudley /s/ Lewis W. Lehr
- -------------------------- ----------------------------
William H. Dudley Lewis W. Lehr

/s/ Robert F. Froehlke /s/ William R. Pearce
- -------------------------- ----------------------------
Robert F. Froehlke William R. Pearce

/s/ David R. Hubers /s/ Edson W. Spencer
- -------------------------- ----------------------------
David R. Hubers Edson W. Spencer

/s/ Heinz F. Hutter /s/ John R. Thomas
- -------------------------- ----------------------------
Heinz F. Hutter John R. Thomas

/s/ Anne P. Jones /s/ Wheelock Whitney
- -------------------------- ----------------------------
Anne P. Jones Wheelock Whitney

/s/ Donald M. Kendall /s/ C. Angus Wurtele
- -------------------------- ----------------------------
Donald M. Kendall C. Angus Wurtele