<PAGE>
PAGE 1
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. 29 (File No. 33-5102) X
---- ---
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 32 (File No. 811-4647) X
---- ---
IDS SPECIAL TAX-EXEMPT SERIES TRUST
IDS Tower 10, Minneapolis, Minnesota 55440-0010
Leslie L. Ogg - 901 Marquette Avenue South, Suite 2810
Minneapolis, MN 55402-3268
(612) 330-9283
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check
appropriate box)
immediately upon filing pursuant to paragraph (b)
X on Aug. 29, 1997 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1) on (date) pursuant to
paragraph (a)(1) 75 days after filing pursuant to paragraph (a)(2) on
(date) pursuant to paragraph (a)(2) 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 of the Investment Company Act
of 1940. Registrant's Rule 24f-2 Notice for its most recent fiscal year will be
filed on or about Aug. 28, 1997.
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PAGE 2
Cross reference sheet for IDS California, Massachusetts, Michigan, Minnesota,
New York, Ohio and Insured Tax-Exempt Funds' prospectuses and Statements of
Additional Information of the information called for by the items enumerated in
Part A and Part B of Form N-1A.
PART A PART B
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Section Section in
Item No. in Prospectus Item No. Statement of Additional Information
1 Cover page of prospectus 10 Cover page of SAI
2(a) Sales charge and Fund expenses 11 Table of Contents
(b) The Fund in brief
(c) The Fund in brief 12 NA
3(a) Financial highlights 13(a) Additional Investment Policies; all
(b) NA appendices except Dollar-Cost Averaging
(c) Performance (b) Additional Investment Policies
(d) Financial highlights (c) Additional Investment Policies
(d) Security Transactions
4(a) The Fund in brief; Investment policies and
risks; How the Fund is organized 14(a) Board members and Officers of the Fund;**
(b) Investment policies and risks Board members and Officers
(c) Investment policies and risks (b) Board members and Officers
(c) Board members and Officers
5(a) Board members and officers; Board members and
officers of the Fund (listing) 15(a) NA
(b)(i) Investment manager; (b) NA
About American Express Financial (c) Board members and Officers
Corporation -- General information
(b)(ii) Investment manager 16(a)(i) How the Fund is organized; About American
(b)(iii) Investment manager Express Financial Corporation**
(c) Portfolio manager (a)(ii) Agreements: Investment Management Services
(d) Administrator and transfer agent Agreement, Plan and
(e) Administrator and transfer agent Agreement of Distribution
(f) Distributor (a)(iii) Agreements: Investment Management Services Agreement
(g) Investment manager; (b) Agreements: Investment Management Services Agreement
About American Express Financial (c) NA
Corporation -- General information (d) Agreements: Administrative Services
Agreement, Shareholder Service Agreement
5A(a) * (e) NA
(b) * (f) Agreements: Distribution Agreement
(g) NA
6(a) Shares; Voting rights (h) Custodian; Independent Auditors
(b) NA (i) Agreements: Transfer Agency Agreement; Custodian
(c) NA
(d) Voting rights 17(a) Security Transactions
(e) Cover page; Special shareholder services (b) Brokerage Commissions Paid to Brokers Affiliated
(f) Dividend and capital gain distributions; with American Express Financial Corporation
Reinvestments (c) Security Transactions
(g) Taxes (d) Security Transactions
(h) Alternative purchase arrangements (e) Security Transactions
7(a) Distributor 18(a) Shares; Voting rights**
(b) Valuing Fund shares (b) NA
(c) How to purchase, exchange or redeem shares
(d) How to purchase shares 19(a) Investing in the Fund
(e) NA (b) Valuing Fund Shares; Investing in the Fund
(f) Distributor (c) Redeeming Shares
8(a) How to redeem shares 20 Taxes
(b) NA
(c) How to purchase shares: Three ways to invest 21(a) Agreements: Distribution Agreement
(d) How to purchase, exchange or redeem shares: (b) Agreements: Distribution Agreement
Redemption policies -- "Important..." (c) NA
9 None 22(a) Performance Information (for money market
funds only)
(b) Performance Information (for all funds except
money market funds)
23 Financial Statements
*Designates information is located in annual report.
**Designates location in prospectus.
</TABLE>
<PAGE>
PAGE 3
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
August 29, 1997
The goal of each Fund 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 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 (SEC) and available for
reference, along with other related materials, on the SEC Internet web site
(http://www.sec.gov). The SAI is incorporated here by reference. For a free
copy, contact American Express Shareholder Service.
Like all mutual fund shares, these securities have not been approved or
disapproved by the Securities and Exchange Commission or any state securities
commission, nor has the Securities and Exchange Commission or any state
securities commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
Please note that the Funds:
o are not bank deposits
o are not federally insured
o are not endorsed by any bank or government agency
o are not guaranteed to achieve their goals
American Express Shareholder Service
P.O. Box 534
Minneapolis, MN
55440-0534
800-862-7919
TTY: 800-846-4852
Web site address: http://www.americanexpress.com/advisors
<PAGE>
PAGE 4
Table of contents
The Funds in brief
Goal
Investment policies and risks
Manager and distributor
Portfolio manager
Alternative purchase arrangements
Sales charge and Fund expenses
Performance
Financial highlights
Total returns
Yield
Investment policies and risks
Facts about investments and their risks
Alternative investment option
Valuing Fund shares
How to purchase, exchange or redeem shares
Alternative purchase arrangements
How to purchase shares
How to exchange shares
How to redeem shares
Reductions and waivers of the sales charge
Special shareholder services
Services
Quick telephone reference
Distributions and taxes
Dividend and capital gain distributions
Reinvestments
Taxes
How to determine the correct TIN
How the Funds are organized
Shares
Voting rights
Shareholder meetings
Board members and officers
Investment manager
Administrator and transfer agent
Distributor
About American Express Financial Corporation
General information
<PAGE>
PAGE 5
Appendices
Description of bond ratings
1997 state tax-exempt and taxable equivalent yield
calculations
Descriptions of derivative instruments
<PAGE>
PAGE 6
The Funds in brief
Goal
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 this goal cannot be
guaranteed. Only shareholders can change the goal.
Investment policies and risks
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. Other investments may include debt securities sold at a deep
discount, taxable investments and derivative instruments.
Each of the Funds may invest in lower-quality securities that tend to be more
price volatile than higher-quality securities. Additionally, non-diversified
mutual funds may have more market risk than funds that have broader
diversification. For further information, refer to the later section in the
prospectus titled "Investment policies and risks" and the SAI.
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 $65
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.
Alternative purchase arrangements
Each Fund offers its shares in two classes. Class A shares are subject to a
sales charge at the time of purchase. Class B shares are subject to a contingent
deferred sales charge (CDSC) on redemptions made within six years of purchase
and an annual distribution (12b-1) fee.
<PAGE>
PAGE 7
Sales charge and Fund expenses
Shareholder transaction expenses are incurred directly by an investor on the
purchase or redemption of Fund shares. Fund operating expenses are paid out of
Fund assets for each class of assets. Operating expenses are reflected in each
Fund's daily share price and dividends, and are not charged directly to
shareholder accounts.
Shareholder transaction expenses
Maximum sales charge on purchases (as a percentage of offering
price)*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
California Massachusetts Michigan Minnesota New York Ohio
Class A 5% 5% 5% 5% 5% 5%
Class B 0% 0% 0% 0% 0% 0%
Maximum deferred sales charge imposed on redemptions (as a percentage of original
purchase price)
California Massachusetts Michigan Minnesota New York Ohio
Class A 0% 0% 0% 0% 0% 0%
Class B 5% 5% 5% 5% 5% 5%
</TABLE>
Annual Fund operating expenses (as a percentage of average daily net assets):
California
Class A Class B
Management fee 0.47% 0.47%
12b-1 fee 0.00% 0.75%
Other expenses** 0.30% 0.30%
Total 0.77% 1.52%
Massachusetts
Class A Class B
Management fee 0.47% 0.47%
12b-1 fee 0.00% 0.75%
Other expenses** 0.37% 0.37%
Total 0.84% 1.59%
Michigan
Class A Class B
Management fee 0.47% 0.47%
12b-1 fee 0.00% 0.75%
Other expenses** 0.34% 0.34%
Total 0.81% 1.56%
*This charge may be reduced depending on your total investments in
IDS funds. See "Reductions of the sales charge."
**Other expenses include an administrative services fee, a shareholder services
fee, a transfer agency fee and other nonadvisory expenses.
<PAGE>
PAGE 8
Minnesota
Class A Class B
Management fee 0.46% 0.46%
12b-1 fee 0.00% 0.75%
Other expenses** 0.29% 0.29%
Total 0.75% 1.50%
New York
Class A Class B
Management fee 0.47% 0.47%
12b-1 fee 0.00% 0.75%
Other expenses** 0.34% 0.34%
Total 0.81% 1.56%
Ohio
Class A Class B
Management fee 0.47% 0.47%
12b-1 fee 0.00% 0.75%
Other expenses** 0.36% 0.37%
Total 0.83% 1.59%
*This charge may be reduced depending on your total investments in
IDS funds. See "Reductions of the sales charge."
**Other expenses include an administrative services fee, a shareholder services
fee, a transfer agency fee and other nonadvisory expenses.
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
1 year 3 years 5 years 10 years
Class A $ 57 $ 73 $ 91 $141
Class B $ 65 $ 88 $103 $161**
Class B* $ 15 $ 48 $ 83 $161**
*Assuming Class B shares are not redeemed at the end of the period.
**Based on conversion of Class B shares to Class A shares after
eight years.
Massachusetts
1 year 3 years 5 years 10 years
Class A $ 58 $ 75 $ 94 $149
Class B $ 66 $ 90 $107 $169**
Class B* $ 16 $ 50 $ 87 $169**
*Assuming Class B shares are not redeemed at the end of the period.
**Based on conversion of Class B shares to Class A shares after
eight years.
<PAGE>
PAGE 9
Michigan
1 year 3 years 5 years 10 years
Class A $ 58 $ 75 $ 93 $146
Class B $ 66 $ 89 $105 $166**
Class B* $ 16 $ 49 $ 85 $166**
*Assuming Class B shares are not redeemed at the end of the period.
**Based on conversion of Class B shares to Class A shares after
eight years.
Minnesota
1 year 3 years 5 years 10 years
Class A $ 57 $ 73 $ 90 $139
Class B $ 65 $ 87 $102 $159**
Class B* $ 15 $ 47 $ 82 $159**
*Assuming Class B shares are not redeemed at the end of the period.
**Based on conversion of Class B shares to Class A shares after
eight years.
New York
1 year 3 years 5 years 10 years
Class A $ 58 $ 75 $ 93 $146
Class B $ 66 $ 89 $105 $166**
Class B* $ 16 $ 49 $ 85 $166**
*Assuming Class B shares are not redeemed at the end of the period.
**Based on conversion of Class B shares to Class A shares after
eight years.
Ohio
1 year 3 years 5 years 10 years
Class A $ 58 $ 75 $ 94 $148
Class B $ 66 $ 90 $107 $169**
Class B* $ 16 $ 50 $ 87 $169**
*Assuming Class B shares are not redeemed at the end of the period.
**Based on conversion of Class B shares to Class A shares after
eight years.
This example does not represent actual expenses, past or future. Actual expenses
may be higher or lower than those shown. Because Class B pays annual
distribution (12b-1) fees, long-term shareholders of Class B may indirectly pay
an equivalent of more than a 6.25% sales charge, the maximum permitted by the
National Association of Securities Dealers.
<PAGE>
PAGE 10
Performance
Financial highlights
<TABLE>
<CAPTION>
IDS California Tax-Exempt Trust
IDS California Tax-Exempt Fund
Performance
Financial highlights
Fiscal period ended June 30,
Per share income and capital changes(a)
Class A
1997 1996 1995 1994 1993 1992 1991 1990 1989(c) 1988(b) 1987(b)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $5.15 $5.16 $5.13 $5.41 $5.18 $4.94 $4.89 $4.97 $4.82 $4.66 $5.07
beginning of period
Income from investment operations:
Net investment .29 .28 .30 .31 .30 .31 .32 .32 .16 .32 .32
income
Net gains .10 .02 .03 (.28) .23 .24 .05 (.08) .15 .16 (.41)
(losses)
(both realized
and unrealized)
Total from .39 .30 .33 .03 .53 .55 .37 .24 .31 .48 (.09)
investment
operations
Less distributions:
Dividends from (.29) (.28) (.30) (.31) (.30) (.31) (.32) (.32) (.16) (.32) (.32)
net
investment income
Distributions (.01) (.03) -- -- -- -- -- -- -- -- --
from
realized gains
Total (.30) (.31) (.30) (.31) (.30) (.31) (.32) (.32) (.16) (.32) (.32)
distributions
Net asset value, $5.24 $5.15 $5.16 $5.13 $5.41 $5.18 $4.94 $4.89 $4.97 $4.82 $4.66
end of period
Ratios/supplemental data:
Class A
1997 1996 1995 1994 1993 1992 1991 1990 1989(c) 1988(b) 1987(b)
Net assets, end $232 $234 $239 $255 $261 $222 $185 $142 $95 $63 $40
of period (in
millions)
Ratio of .77% .80% .65% .61% .63% .64% .60% .62% .64%(d) .72% .78%
expenses to
average daily net
assets(f)
Ratio of net 5.64% 5.40% 5.89% 5.67% .78% 6.16% 6.51% 6.53% 6.67%(d) 6.61% 6.74%
income to
average daily
net assets
Portfolio 14% 15% 48% 27% 5% 7% 23% 20% 6% 13% 16%
turnover rate
(excluding
short-term
securities)
Total return(e) 7.8% 6.0% 6.5% .4% 10.8% 11.4% 7.7% 5.0% 6.5% 10.5% (1.6%)
<PAGE>
PAGE 11
(a) For a share outstanding throughout the period. Rounded to the
nearest cent.
(b) Fiscal years ended Dec. 31, 1987 and Dec. 31, 1988.
(c) Six months ended June 30, 1989. The Fund's fiscal year end was
changed from Dec. 31 to June 30, effective 1989.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Effective fiscal year 1996, expense ratio is based on total expenses
of the Fund before reduction of earnings credits on cash balances.
</TABLE>
Fiscal period ended June 30,
Per share income and capital changes(a)
Class B
1997 1996 1995(b)
Net asset value, $5.15 $5.16 $5.21
beginning of
period
Income from investment operations:
Net investment .25 .24 .09
income
Net gains (losses) .10 .02 (.05)
(both realized and
unrealized)
Total from .35 .26 .04
investment operations
Less distributions:
Dividends from net (.25) (.24) (.09)
investment income
Distributions (.01) (.03) --
from
realized gains
Total (.26) (.27) (.09)
distributions
Net asset value, $5.24 $5.15 $5.16
end of period
Ratios/supplemental data:
Class B
1997 1996 1995(b)
Net assets, end of $10 $6 $2
period (in
millions)
Ratio of expenses 1.52% 1.57% 1.51%(c)
to average daily net
assets(e)
Ratio of net 4.94% 4.64% 4.87%(c)
income to
average daily net
assets
Portfolio 14% 15% 48%
turnover rate
(excluding short-term
securities)
Total return(d) 7.0% 5.2% .8%
(a) For a share outstanding throughout the period.
Rounded to the nearest cent.
(b) Inception date was March 20, 1995.
(c) Adjusted to an annual basis.
(d) Total return does not reflect payment of a sales charge.
(e) Effective fiscal year 1996, expense ratio is based on total
expenses of the Fund before reduction of earnings credits
on cash balances.
<PAGE>
PAGE 12
<TABLE>
<CAPTION>
IDS Special Tax-Exempt Series Trust
IDS Massachusetts Tax-Exempt Fund
Financial highlights
Fiscal period ended June 30,
Per share income and capital changes(a)
Class A
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $5.30 $5.27 $5.24 $5.49 $5.20 $4.96 $4.88 $5.01 $4.91 $5.00
beginning of period
Income from investment operations:
Net investment .29 .28 .30 .30 .30 .31 .32 .32 .32 .31
income
Net gains (losses) .12 .03 .03 (.25) .29 .24 .08 (.12) .12 (.06)
(both realized
and unrealized)
Total from .41 .31 .33 .05 .59 .55 .40 .20 .44 .25
investment
operations
Less distributions:
Dividends from net (.29) (.28) (.30) (.30) (.30) (.31) (.32) (.32) (.32) (.31)
investment income
Distributions from -- -- -- -- -- -- -- (.01) (.02) (.03)
realized gains
Total distributions (.29) (.28) (.30) (.30) (.30) (.31) (.32) (.33) (.34) (.34)
Net asset value, $5.42 $5.30 $5.27 $5.24 $5.49 $5.20 $4.96 $4.88 $5.01 $4.91
end of period
Ratios/supplemental data:
Class A
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
Net assets, end of $67 $68 $68 $72 $64 $44 $27 $19 $13 $4
period (in
millions)
Ratio of expenses .84% .86% .72% .69% .72% .72% .69% .70% .84% .93%(b)
to average daily net
assets(c)
Ratio of net 5.32% 5.26% 5.74% 5.40% 5.57% 6.05% 6.53% 6.59% 6.55% 6.40%(b)
income to
average daily net
assets
Portfolio turnover 8% 6% 16% 6% --% 2% 16% 36% 25% 34%
rate (excluding
short-term
securities)
Total return(d) 7.8% 6.0% 6.5% .9% 11.5% 11.4% 8.5% 4.2% 9.2% 5.3%
(a) For a share outstanding throughout the period. Rounded
to the nearest cent.
(b) Duringthe 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.
(c) Effective fiscal year 1996, expense ratio is based on total
expenses of the Fund before reduction of earnings credits on
cash balances.
(d) Total return does not reflect payment of a sales charge.
</TABLE>
<PAGE>
PAGE 13
Fiscal period ended June 30,
Per share income and capital changes(a)
Class B
1997 1996 1995(b)
Net asset value, $5.30 $5.27 $5.31
beginning of period
Income from investment operations:
Net investment .25 .24 .09
income
Net gains (losses) .12 .03 (.04)
(both realized
and unrealized)
Total from .37 .27 .05
investment
operations
Less distributions:
Dividends from net (.25) (.24) (.09)
investment income
Net asset value, $5.42 $5.30 $5.27
end of period
Ratios/supplemental data:
Class B
1997 1996 1995(b)
Net assets, $8 $6 $2
end of period (in
millions)
Ratio of expenses 1.59% 1.63% 1.59%(c)
to average daily net
assets(d)
Ratio of net 4.58% 4.51% 4.83%(c)
income to average
daily net assets
Portfolio turnover 8% 6% 16%
rate (excluding
short-term
securities)
Total return(e) 7.0% 5.2% .9%
(a) For a share outstanding throughout the period. Rounded
to the nearest cent.
(b) Inception date was March 20, 1995.
(c) Adjusted to an annual basis.
(d) Effective fiscal year 1996, expense ratio is based on total
expenses of the Fund before reduction of earnings credit on
cash balances.
(e) Total return does not reflect payment of a sales charge.
<PAGE>
PAGE 14
<TABLE>
<CAPTION>
IDS Special Tax-Exempt Series Trust
IDS Michigan Tax-Exempt Fund
Financial highlights
Fiscal period ended June 30,
Per share income and capital changes(a)
Class A
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $5.36 $5.39 $5.35 $5.60 $5.31 $5.04 $4.96 $5.08 $4.85 $5.00
beginning of period
Income from investment operations:
Net investment .29 .30 .30 .31 .31 .32 .32 .32 .32 .31
income
Net gains (losses) .08 .04 .05 (.25) .29 .27 .08 (.12) .23 (.11)
(both realized
and unrealized)
Total from .37 .34 .35 .06 .60 .59 .40 .20 .55 .20
investment
operations
Less distributions:
Dividends from net (.29) (.30) (.31) (.31) (.31) (.32) (.32) (.32) (.32) (.31)
investment income
Distributions -- (.07) -- -- -- -- -- -- -- (.04)
from realized gains
Total (.29) (.37) (.31) (.31) (.31) (.32) (.32) (.32) (.32) (.35)
distributions
Net asset value, $5.44 $5.36 $5.39 $5.35 $5.60 $5.31 $5.04 $4.96 $5.08 $4.85
end of period
Ratios/supplemental data:
Class A
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
Net assets, end of $77 $79 $78 $77 $72 $55 $41 $29 $16 $8
period (in
millions)
Ratio of expenses .81% .82% .70% .65% .68% .67% .67% .71% .81% .87%(b)
to average daily net
assets(c)
Ratio of net 5.38% 5.37% 5.71% 5.43% 5.64% 6.18% 6.45% 6.47% 6.50% 6.56%(b)
income to
average daily net
assets
Portfolio 21% 29% 48% 16% 2% --% 3% 5% 10% 14%
turnover rate
(excluding short-term
securities)
Total return(d) 7.1% 6.3% 6.6% 1.0% 11.6% 12.0% 8.3% 4.1% 11.7% 4.4%
(a) For a share outstanding throughout the period. Rounded
to the nearest cent.
(b) Duringthe 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.
(c) Effective fiscal year 1996, expense ratio is based on total
expenses of the Fund before reduction of earnings credits on
cash balances.
(d) Total return does not reflect payment of a sales charge.
</TABLE>
<PAGE>
PAGE 15
Fiscal period ended June 30,
Per share income and capital changes(a)
Class B
1997 1996 1995(b)
Net asset value, $5.36 $5.39 $5.43
beginning of
period
Income from investment operations:
Net investment .25 .25 .09
income
Net gains (losses) .08 .04 (.04)
(both realized
and unrealized)
Total from .33 .29 .05
investment
operations
Less distributions:
Dividends from net (.25) (.25) (.09)
investment income
Distributions -- (.07) --
from realized gains
Total (.25) (.32) (.09)
distributions
Net asset value, $5.44 $5.36 $5.39
end of period
Ratios/supplemental data:
Class B
1997 1996 1995(b)
Net assets, end of $4 $3 $1
period (in
millions)
Ratio of expenses 1.56% 1.59% 1.62%(c)
to average daily net
assets(d)
Ratio of net 4.65% 4.63% 4.89%(c)
income to
average daily net
assets
Portfolio 21% 29% 48%
turnover rate
(excluding short-term
securities)
Total return(e) 6.3% 5.6% .9%
(a) For a share outstanding throughout the period. Rounded
to the nearest cent.
(b) Inception date was March 20, 1995.
(c) Adjusted to an annual basis.
(d) Effective fiscal year 1996, expense ratio is based on total
expenses of the Fund before reduction of earnings credits on
cash balances.
(e) Total return does not reflect payment of a sales charge.
<PAGE>
PAGE 16
<TABLE>
<CAPTION>
IDS Special Tax-Exempt Series Trust
IDS Minnesota Tax-Exempt Fund
Financial highlights
Fiscal period ended June 30,
Per share income and capital changes(a)
Class A
1997 1996 1995 1994 1993 1992 1991 1990 1989(c) 1988(b) 1987(b)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $5.20 $5.19 $5.16 $5.44 $5.22 $5.01 $4.95 $5.05 $4.86 $4.76 $5.18
beginning of period
Income from investment operations:
Net investment .31 .30 .31 .31 .31 .33 .33 .32 .16 .33 .33
income
Net gains (losses) .10 .01 .03 (.28) .22 .21 .06 (.10) .19 .10 (.42)
(both realized
and unrealized)
Total from .41 .31 .34 .03 .53 .54 .39 .22 .35 .43 (.09)
investment
operations
Less distributions:
Dividends from net (.31) (.30) (.31) (.31) (.31) (.33) (.33) (.32) (.16) (.33) (.33)
investment income
Net asset value, $5.30 $5.20 $5.19 $5.16 $5.44 $5.22 $5.01 $4.95 $5.05 $4.86 $4.76
end of period
Ratios/supplemental data:
Class A
1997 1996 1995 1994 1993 1992 1991 1990 1989(c) 1988(b) 1987(b)
Net assets, end of $376 $393 $403 $408 $402 $313 $233 $181 $121 $82 $50
period (in millions)
Ratio of expenses .75%+ .80% .67% .66% .67% .66% .63% .64% .65%(d) .65% .78%
to average daily net
assets(f)
Ratio of net 5.81% 5.66% 6.01% 5.73% 5.91% 6.43% 6.67% 6.62% 6.84%(d) 6.73% 6.83%
income to
average daily net
assets
Portfolio 14% 13% 28% 13% 2% 7% 10% 8% --% 14% 40%
turnover rate
(excluding
short-term
securities)
Total return(e) 8.1% 5.9% 6.8% .4% 10.5% 11.0% 8.2% 4.8% 7.4% 9.3% (1.4%)
(a) For a share outstanding throughout the period. Rounded to the
nearest cent.
(b) Fiscal years ended Dec. 31, 1987 and Dec. 31, 1988.
(c) Six months ended June 30, 1989. The Fund's fiscal year end was
changed from Dec. 31 to June 30, effective 1989.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Effective fiscal year 1996, expense ratio is based on total
expenses of the Fund before reduction of earnings credit on cash balances.
</TABLE>
<PAGE>
PAGE 17
Fiscal period ended June 30,
Per share income and capital changes(a)
Class B
1997 1996 1995(b)
Net asset value, $5.20 $5.19 $5.24
beginning of period
Income from investment operations:
Net investment .27 .26 .09
income
Net gains (losses) .10 .01 (.05)
(both realized and
unrealized)
Total from .37 .27 .04
investment operations
Less distributions:
Dividends from net (.27) (.26) (.09)
investment income
Net asset value, $5.30 $5.20 $5.19
end of period
Ratios/supplemental data:
Class B
1997 1996 1995(b)
Net assets, end of $22 $16 $4
period (in millions)
Ratio of expenses 1.50% 1.57% 1.27%(c)
to average daily net
assets(e)
Ratio of net 5.05% 4.94% 5.40%(c)
income to average daily
net assets
Portfolio 14% 13% 28%
turnover rate
(excluding short-term
securities)
Total return(d) 7.2% 5.2% .8%
(a) For a share outstanding throughout the period. Rounded
to the nearest cent.
(b) Inception date was March 20, 1995.
(c) Adjusted to an annual basis.
(d) Total return does not reflect payment of a sales charge.
(e) Effective fiscal year 1996, expense ratio is based on total
expenses of the Fund before reduction of earnings credit on
cash balances.
<PAGE>
PAGE 18
<TABLE>
<CAPTION>
IDS Special Tax-Exempt Series Trust
IDS New York Tax-Exempt Fund
Financial highlights
Fiscal period ended June 30,
Per share income and capital changes(a)
Class A
1997 1996 1995 1994 1993 1992 1991 1990 1989(c) 1988(b) 1987(b)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $5.06 $5.09 $5.12 $5.41 $5.13 $4.86 $4.80 $4.87 $4.73 $4.58 $5.07
beginning of period
Income from investment operations:
Net investment .28 .29 .30 .30 .30 .31 .31 .31 .16 .31 .31
income
Net gains (losses) .09 (.03) (.03) (.29) .28 .27 .06 (.07) .14 .15 (.49)
(both realized
and unrealized)
Total from .37 .26 .27 .01 .58 .58 .37 .24 .30 .46 (.18)
investment
operations
Less distributions:
Dividends from net (.28) (.29) (.30) (.30) (.30) (.31) (.31) (.31) (.16) (.31) (.31)
investment income
Net asset value, $5.15 $5.06 $5.09 $5.12 $5.41 $5.13 $4.86 $4.80 $4.87 $4.73 $4.58
end of period
Ratios/supplemental data
Class A
1997 1996 1995 1994 1993 1992 1991 1990 1989(c) 1988(b) 1987(b)
Net assets, end of $108 $115 $120 $120 $117 $95 $79 $68 $49 $34 $21
period (in millions)
Ratio of expenses .81% .82% .70% .65% .67% .67% .65% .65% .66%(d) .71% .88%
to average daily net
assets(f)
Ratio of net 5.55% 5.51% 6.00% 5.61% 5.79% 6.26% 6.53% 6.57% 6.78%(d) 6.61% 6.79%
income to
average daily net
assets
Portfolio turnover 12% 9% 20% 10% --% 8% 17% 8% 1% 6% 20%
rate (excluding
short-term
securities)
Total return(e) 7.6% 5.2% 5.5% .1% 11.6% 12.3% 8.2% 5.0% 6.5% 10.3% (3.4%)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Fiscal years ended Dec. 31, 1987 and Dec. 31, 1988.
(c) Six months ended June 30, 1989. The Fund's fiscal year was changed from Dec. 31 to
June 30, effective 1989.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Effective fiscal year 1996, expense ratio is based on total
expense of the Fund before reduction of earnings credits on
cash balances.
</TABLE>
<PAGE>
PAGE 19
IDS Special Tax-Exempt Series Trust
IDS New York Tax-Exempt Fund
Financial highlights
Fiscal period ended June 30,
Per share income and capital changesa
Class B
1997 1996 1995(b)
Net asset value, $5.06 $5.09 $5.17
beginning of period
Income from investment operations:
Net investment income .25 .25 .09
Net gains (losses) .09 (.03) (.08)
(both realized
and unrealized
Total from investment .34 .22 .01
operations
Less distributions:
Dividends from net (.25) (.25) (.09)
investment income
Net asset value, $5.15 $5.06 $5.09
end of period
Ratios/supplemental data
Class B
1997 1996 1995(b)
Net assets, end of $8 $5 $2
period (in millions)
Ratio of expenses to 1.56% 1.59% 1.59%(d)
average daily net
assets(e)
Ratio of net income 4.81% 4.79% 5.42%(d)
to average daily net
assets
Portfolio turnover 12% 9% 20%
rate (excluding
short-term
securities)
Total return(c) 6.8% 4.4% .2%
(a) For a share outstanding thoughout the period.
Rounded to the nearest cent.
(b) Inception date was March 20, 1995.
(c) Total return does not reflect payment of a sales charge.
(d) Adjusted to an annual basis.
(e) Effective fiscal year 1996, expense ratio is based on total
expense of the Fund before
reduction of earnings credits on cash balances.
<PAGE>
PAGE 20
<TABLE>
<CAPTION>
IDS Special Tax-Exempt Series Trust
IDS Ohio Tax-Exempt Fund
Financial highlights
Fiscal period ended June 30,
Per share income and capital changes(a)
Class A
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $5.28 $5.28 $5.26 $5.58 $5.28 $5.01 $4.94 $5.04 $4.87 $5.00
beginning of period
Income from investment operations:
Net investment .29 .29 .29 .30 .30 .31 .32 .31 .31 .32
income
Net gains (losses) .10 .01 .03 (.32) .31 .27 .07 (.09) .18 (.10)
(both realized
and unrealized)
Total from .39 .30 .32 (.02) .61 .58 .39 .22 .49 .22
investment operations
Less distributions:
Dividends from net (.29) (.29) (.30) (.30) (.30) (.31) (.32) (.31) (.31) (.32)
investment income
Distributions -- (.01) -- -- (.01) -- -- (.01) (.01) (.03)
from realized gains
Total (.29) (.30) (.30) (.30) (.31) (.31) (.32) (.32) (.32) (.35)
distributions
Net asset value, $5.38 $5.28 $5.28 $5.26 $5.58 $5.28 $5.01 $4.94 $5.04 $4.87
end of period
Ratios/supplemental data:
Class A
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
Net assets, end of $67 $72 $73 $72 $65 $47 $33 $25 $16 $8
period (in
millions)
Ratio of expenses .83% .85% .71% .66% .67% .70% .68% .70% .82% .86%(b)
to average daily net
assets(d)
Ratio of net 5.46% 5.35% 5.65% 5.44% 5.65% 6.14% 6.41% 6.43% 6.40% 6.64%(b)
income to average daily
net assets
Portfolio 9% 24% 45% 11% --% 5% 2% 6% 10% --%
turnover rate
(excluding short-term
securities)
Total return(c) 7.4% 5.7% 6.2% (.5%) 12.1% 11.9% 8.1% 4.6% 10.5% 4.7%
(a) For a share outstanding throughout the period. Rounded
to the nearest cent.
(b) 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.
(c) Total return does not reflect payment of a sales charge.
(d) Effective fiscal year 1996, expense ratio is based on total expense of the
Fund before reduction of earnings credits on cash
balances.
</TABLE>
<PAGE>
PAGE 21
Fiscal period ended June 30,
Per share income and capital changes(a)
Class B
1997 1996 1995(b)
Net asset value, $5.28 $5.28 $5.34
beginning of period
Income from investment operations:
Net investment .25 .24 .09
income
Net gains (losses) .10 .01 (.06)
(both realized and
unrealized)
Total from .35 .25 .03
investment operations
Less distributions:
Dividends from net (.25) (.24) (.09)
investment income
Distributions -- (.01) --
from realized gains
Total (.25) (.25) (.09)
distributions
Net asset value, $5.38 $5.28 $5.28
end of period
Ratios/supplemental data:
Class B
1997 1996 1995(b)
Net assets, end of $4 $2 $1
period (in millions)
Ratio of expenses 1.59% 1.59% 1.66%(c)
to average daily net
assets(e)
Ratio of net 4.74% 4.63% 4.58%(c)
income to
average daily net
assets
Portfolio 9% 24% 45%
turnover rate
(excluding short-term
securities)
Total return(d) 6.6% 5.0% .6%
(a) For a share outstanding throughout the period. Rounded
to the nearest cent.
(b) Inception date was March 20, 1995.
(c) Adjusted to an annual basis.
(d) Total return does not reflect payment of a sales charge.
(e) Effective fiscal year 1996, expense ratio is based on total
expenses of the Fund before
reduction of earnings credits on cash balances.
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.
<PAGE>
PAGE 22
Total returns
Total return is the sum of all of your returns for a given period, assuming you
reinvest all distributions. It is calculated by taking the total value of shares
you own at the end of the period (including shares acquired by reinvestment),
less the price of shares you purchased at the beginning of the period.
Average annual total return is the annually compounded rate of return over a
given time period (usually two or more years). It is the total return for the
period converted to an equivalent annual figure.
Average annual total returns as of June 30, 1997
Purchase 1 year Since 5 years 10 years
made ago inception ago ago
California
Fund:
Class A +2.38% --% +5.15% +6.99%
Class B +2.95% +3.94%* --% --%
Massachusetts Fund:
Class A +2.42% --% +5.37% +6.52%
Class B +3.00% +4.05%* --% --%
Michigan Fund:
Class A +1.77% --% +5.39% +6.71%
Class B +2.32% +3.85%* --% --%
Minnesota Fund:
Class A +2.65% --% +5.20% +6.97%
Class B +3.23% +4.19%* --% --%
New York Fund:
Class A +2.22% --% +4.85% +7.01%
Class B +2.80% +3.37%* --% --%
Ohio Fund:
Class A +2.05% --% +5.03% +6.47%
Class B +2.62% +3.61%* --% --%
Lehman Brothers
Total Return
Municipal Bond
Index +8.25% +7.72%** +7.10% +8.17%
*Inception date was March 20, 1995.
**Measurement period started April 1, 1995.
<PAGE>
PAGE 23
Cumulative total returns as of June 30, 1997
Purchase 1 year Since 5 years 10 years
made ago inception ago ago
California
Fund:
Class A +2.38% --% +28.54% +96.70%
Class B +2.95% +9.21%* --% --%
Massachusetts Fund:
Class A +2.42% --% +29.92% +88.06%
Class B +3.00% +9.49%* --% --%
Michigan Fund:
Class A +1.77% --% +30.06% +91.40%
Class B +2.32% +9.01%* --% --%
Minnesota Fund:
Class A +2.65% --% +28.84% +96.35%
Class B +3.23% +9.81%* --% --%
New York Fund:
Class A +2.22% --% +26.73% +96.97%
Class B +2.80% +7.86%* --% --%
Ohio Fund:
Class A +2.05% --% +27.85% +87.24%
Class B +2.62% +8.44%* --% --%
Lehman Brothers
Total Return
Municipal Bond
Index +8.25% +18.22%** +40.89% +119.39%
*Inception date was March 20, 1995.
**Measurement period started April 1, 1995.
The above tables show total returns from hypothetical investments in Class A and
Class B shares of each Fund. These returns are compared to those of a popular
index for the same periods. The performance of Class B will vary from the
performance of Class A based on differences in sales charges and fees.
For purposes of calculation, information about each Fund assumes:
o a sales charge of 5% for Class A shares
o redemption at the end of the period and deduction of the
applicable contingent deferred sales charge for Class B shares
o no adjustments for taxes an investor may have paid on the
reinvested income and capital gains
o a period of widely fluctuating securities prices. Returns
shown should not be considered a representation of a Fund's
future performance.
<PAGE>
PAGE 24
Lehman Brothers Total Return Municipal Bond Index is an unmanaged index made up
of a representative list of general obligation, revenue, insured and
pre-refunded bonds. The index is frequently used as a general measure of
tax-exempt bond market performance. However, the securities used to create the
index may not be representative of the bonds held in a Fund. The index reflects
reinvestment of all distributions and changes in market prices, but excludes
brokerage commissions or other fees.
Yield
Yield is the net investment income earned per share for a specified time period,
divided by the offering price at the end of the period. SEC standardized yield
for the 30-day period ended June 30, 1997 were the following for each Fund:
SEC standardized yield
Class A Class B
California Fund 4.00% 3.47%
Massachusetts Fund 4.20% 3.66%
Michigan Fund 4.16% 3.61%
Minnesota Fund 4.63% 4.12%
New York Fund 4.13% 3.60%
Ohio Fund 4.37% 3.84%
Each Fund calculates the 30-day SEC standardized yield by dividing:
o net investment income per share deemed earned during a 30-day
period by
o the public offering price per share on the last day of the
period, and
o converting the result to a yearly equivalent figure
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.
<PAGE>
PAGE 25
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. Other investments may include debt securities sold at a
deep discount, taxable investments and derivative instruments or municipal
securities issued by or on behalf of Puerto Rico, its agencies or
instrumentalities.
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 bonds generally falls as interest rates increase, and rises
as interest rates decrease. The price of bonds also fluctuates if the credit
rating is upgraded or downgraded. At least 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. (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).
The yields on tax-exempt securities are dependent on a variety of factors,
including the financial condition of the issuer or other obligor thereon or the
revenue source from which debt service is payable, general economic and monetary
conditions, conditions in the relevant market, the size of a particular issue,
maturity of the obligation and the rating of the issue.
Securities in which the Funds may invest, including tax-exempt securities are
subject to the provisions of bankruptcy, insolvency, reorganization and other
laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Code, and laws, if any, which may be enacted by Congress, state
legislatures or other governmental agencies extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations within consititutional limitations.
<PAGE>
PAGE 26
There is also the possibility that, as a result of litigation or other
conditions, the power or ability of issuers to make interest and principal
payments on their tax-exempt securities may be materially impaired.
Debt securities below investment grade: The price of these bonds may react more
to the ability of the issuing company to pay interest and principal when due
than to changes in interest rates. They have greater price fluctuations, are
more likely to experience a default and sometimes are referred to as junk bonds.
Reduced market liquidity for these bonds may occasionally make it more difficult
to value them. In valuing bonds, each Fund relies both on independent rating
agencies and on the investment manager's credit analysis. Securities that are
subsequently downgraded in quality may continue to be held by a Fund and will be
sold only when the investment manager believes it is advantageous to do so.
Bond ratings and holdings for fiscal 1997 for
California Tax-Exempt Fund
Percent of
S&P Rating Protection of net assets in
Percent of (or Moody's principal and unrated securities
net assets equivalent) interest assessed by AEFC
54.73% AAA Highest quality 4.03%
18.66 AA High quality
11.02 A Upper medium grade
7.07 BBB Medium grade 0.16
BB Moderately speculative 2.57
B Speculative
CCC Highly speculative
CC Poor quality
C Lowest quality
D In default
6.76 Unrated Unrated securities
Bond ratings and holdings for fiscal 1997 for
Massachusetts Tax-Exempt Fund
Percent of
S&P Rating Protection of net assets in
Percent of (or Moody's principal and unrated securities
net assets equivalent) interest assessed by AEFC
63.26% AAA Highest quality 0.94%
9.00 AA High quality
15.05 A Upper medium grade
7.28 BBB Medium grade
BB Moderately speculative 2.25
B Speculative
CCC Highly speculative
CC Poor quality
C Lowest quality
D In default
3.19 Unrated Unrated securities
<PAGE>
PAGE 27
Bond ratings and holdings for fiscal 1997 for
Michigan Tax-Exempt Fund
Percent of
S&P Rating Protection of net assets in
Percent of (or Moody's principal and unrated securities
net assets equivalent) interest assessed by AEFC
56.88% AAA Highest quality 15.01%
11.04 AA High quality
4.92 A Upper medium grade
6.11 BBB Medium grade 2.76
0.49 BB Moderately speculative
0.16 B Speculative
CCC Highly speculative 0.64
CC Poor quality
C Lowest quality
D In default 0.10
18.60 Unrated Unrated securities 0.09
Bond ratings and holdings for fiscal 1997 for
Minnesota Tax-Exempt Fund
Percent of
S&P Rating Protection of net assets in
Percent of (or Moody's principal and unrated securities
net assets equivalent) interest assessed by AEFC
41.42% AAA Highest quality 3.30%
15.07 AA High quality 4.12
14.01 A Upper medium grade 0.02
2.04 BBB Medium grade 5.72
0.01 BB Moderately speculative 8.57
0.01 B Speculative 2.11
CCC Highly speculative
CC Poor quality
C Lowest quality
1.23 D In default 0.27
24.27 Unrated Unrated securities 0.16
Bond ratings and holdings for fiscal 1997 for
New York Tax-Exempt Fund
Percent of
S&P Rating Protection of net assets in
Percent of (or Moody's principal and unrated securities
net assets equivalent) interest assessed by AEFC
48.51% AAA Highest quality 3.74%
15.65 AA High quality
13.45 A Upper medium grade
15.11 BBB Medium grade
BB Moderately speculative 1.30
B Speculative
CCC Highly speculative
CC Poor quality
C Lowest quality
D In default
5.04 Unrated Unrated securities
<PAGE>
PAGE 28
Bond ratings and holdings for fiscal 1997 for
Ohio Tax-Exempt Fund
Percent of
S&P Rating Protection of net assets in
Percent of (or Moody's principal and unrated securities
net assets equivalent) interest assessed by AEFC
58.96% AAA Highest quality 4.83%
9.22 AA High quality
8.40 A Upper medium grade
7.77 BBB Medium grade 0.95
3.49 BB Moderately speculative 2.04
B Speculative 1.99
CCC Highly speculative
CC Poor quality
C Lowest quality
D In default
9.93 Unrated Unrated securities 0.12
(See the Appendix to this prospectus describing bond ratings for further
information.)
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, each 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, a 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, judicial, environmental, 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
<PAGE>
PAGE 29
on conservative economic forecasts and reduced spending levels. Budgetary
shortfalls may cause rating agencies to lower a state's credit rating. 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 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. This does not, however, limit the
portion of a Fund's assets at risk to 5%. The Funds are not limited as to the
percentage of their assets that may be invested in permissible investments,
including derivatives, except as otherwise explicitly provided in this
prospectus or the SAI. For descriptions of these and other types of derivative
instruments, see the Appendix to this prospectus and the SAI.
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
<PAGE>
PAGE 30
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 net assets will be held in inverse
floaters.
Securities and other instruments that are illiquid: A security or other
instrument is illiquid if it cannot be sold quickly in the normal course of
business. Some investments cannot be resold to the U.S. public because of their
terms or government regulations. Securities and instruments, however, can be
sold in private sales, and many may be sold to other institutions and qualified
buyers or on foreign markets. The portfolio manager will follow guidelines
established by the board and consider relevant factors such as the nature of the
security and the number of likely buyers when determining whether a security is
illiquid. No more than 10% of each Fund's net assets will be held in securities
and other instruments that are illiquid.
The investment policies described above, except for the policies concerning the
type and amount of tax-exempt investments, may be changed by the board.
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 a majority of the outstanding voting securities
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 assets would
be invested in an investment company with the same goal as the Fund, rather than
invested directly in a portfolio of securities.
Valuing Fund shares
The public offering price is the net asset value (NAV) adjusted for the sales
charge for Class A. It is the NAV for Class B.
The NAV is the value of a single Fund share. The NAV usually changes daily, and
is calculated at the close of business, normally 3 p.m. Central time, each
business day (any day the New York Stock Exchange is open). NAV generally
declines as interest rates increase and rises as interest rates decline.
<PAGE>
PAGE 31
To establish the net assets, all securities are valued as of the close of each
business day. In valuing assets:
o Bonds and assets without readily available market values are
valued at fair value according to methods selected in good
faith by the board
o Securities maturing in 60 days or less are valued at
amortized cost
o Securities (except bonds) and assets with available market
values are valued on that basis
How to purchase, exchange or redeem shares
Alternative purchase arrangements
Each Fund offers two different classes of shares - Class A and Class B. The
primary differences between 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.
Sales charge and
distribution
(12b-1) fee Service fee Other information
Class A Maximum initial 0.175% of average Initial sales charge
sales charge of daily net assets waived or reduced
5%; no 12b-1 fee for certain purchases
Class B No initial sales 0.175% of average Shares convert to charge;
maximum CDSC daily net assets Class A after eight of 5% declines
to 0% years; CDSC waived in after six years; 12b-1 certain
circumstances fee of 0.75% of average daily net assets
Conversion of Class B shares to Class A shares - During the ninth calendar year
of owning your Class B shares, Class B shares will convert to Class A shares and
will no longer be subject to a distribution fee. Class B shares that convert to
Class A shares are not subject to a sales charge or distribution fee. Class B
shares purchased through reinvested dividends and distributions also will
convert to Class A shares in the same proportion as the other Class B shares.
This means more of your money will be put to work for you.
Considerations in determining whether to purchase Class A or Class B shares -
You should consider the information below in determining whether to purchase
Class A or Class B shares. The distribution fee (included in "Ongoing expenses")
and sales charges are structured so that you will have approximately the same
total return at the end of eight years regardless of which class you chose.
<PAGE>
PAGE 32
Sales charges on purchase or redemption
If you purchase Class A If you purchase Class B
shares shares
o You will not have all o All of your money is
of your purchase price invested in shares of
invested. Part of your stock. However, you will
purchase price will go pay a sales charge if you
to pay the sales charge. redeem your shares within
You will not pay a sales six years of purchase.
charge when you redeem
your shares.
o You will be able to o No reductions of the
take advantage of sales charge are
reductions in the sales available for large
charge. purchases.
If your investments in IDS funds that are subject to a sales charge total
$250,000 or more, you are better off paying the reduced sales charge in Class A
than paying the higher fees in Class B. If you qualify for a waiver of the sales
charge, you should purchase Class A shares.
Ongoing expenses
If you purchase Class A If you purchase Class B
shares shares
o Your shares will have o The distribution and
a lower expense ratio transfer agency fees for
than Class B shares Class B will cause your
because Class A does not shares to have a higher
pay a distribution fee expense ratio and to pay
and the transfer agency lower dividends than
fee for Class A is lower Class A shares. After
than the fee for Class B. eight years, Class B
As a result, Class A shares shares will convert to
will pay higher dividends Class A shares and you
than Class B shares. will no longer be
subject to higher fees.
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.
How to purchase shares
Not all classes of the Funds are sold in every state. Your financial advisor
will help you determine if a particular class is available in your state.
<PAGE>
PAGE 33
If you're investing in these 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 purchase shares for a new or existing account, the price you pay per
share is determined at the close of business on the day your investment is
received and accepted at the Minneapolis headquarters.
Purchase policies:
o Investments must be received and accepted in the Minneapolis
headquarters on a business day before 3 p.m. Central time to be included
in your account that day and to receive that day's share price.
Otherwise, your purchase will be processed the next business day and you
will pay the next day's share price.
o The minimums allowed for investment may change from time to
time.
o Wire orders can be accepted only on days when your bank, AEFC, the Funds
and Norwest Bank Minneapolis are open for business.
o Wire purchases are completed when wired payment is received
and the Fund accepts the purchase.
o AEFC and the Funds are not responsible for any delays that
occur in wiring funds, including delays in processing by the
bank.
o You must pay any fee the bank charges for wiring.
o Each Fund reserves the right to reject any application for any
reason.
o If your application does not specify which class of shares you are
purchasing, it will be assumed that you are investing in Class A shares.
<TABLE>
<CAPTION>
Three ways to invest
<S> <C> <C> <C>
1
By regular account Send your check and application Minimum amounts
(or your name and account number Initial investment
if you have an established account) per Fund: $2,000
to: Additional investments
American Express Financial Advisors Inc. per Fund: $ 100
P.O. Box 74 Account balances
Minneapolis, MN 55440-0074 per Fund: $ 300*
Your financial advisor will help you with this process.
<PAGE>
PAGE 34
2
By scheduled Contact your financial advisor Minimum amounts
investment plan to set up one of the following Initial investment: $ 100
scheduled plans: Additional
investments: $100/each payment
o automatic payroll deduction Account balances: none
(on active plans of
o bank authorization monthly payments)
o direct deposit of If account balance is below $2,000,
Social Security check frequency of payments must be at
least monthly.
o other plan approved by the Fund
3
By wire If you have an established account, If this information is not
you may wire money to: included, the order may be
rejected and all money
Norwest Bank Minneapolis received by the Fund, less
Routing No. 091000019 any costs the Fund or AEFC
Minneapolis, MN incurs, will be returned
Attn: Domestic Wire Dept. 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).
</TABLE>
*If your account balance falls below $300, you will be asked in writing to bring
it up to $300 or establish a scheduled investment plan. If you 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.
How to exchange shares
You can exchange your shares of a Fund at no charge for shares of the same class
of any other publicly offered fund in the IDS MUTUAL FUND GROUP available in
your state. Exchanges into IDS Tax-Free Money Fund must be made from Class A
shares. For complete information on any other fund, including fees and expenses,
read that fund's prospectus carefully.
If your exchange request arrives at the Minneapolis headquarters before the
close of business, your shares will be redeemed at the net asset value set for
that day. The proceeds will be used to purchase new fund shares the same day.
Otherwise, your exchange will take place the next business day at that day's net
asset value.
For tax purposes, an exchange represents a redemption and purchase and may
result in a gain or loss. However, you cannot use the sales charge imposed on
the purchase of Class A shares to create or increase a tax loss (or reduce a
taxable gain) by exchanging from the Fund within 91 days of your purchase. For
further explanation, see the SAI.
How to redeem shares
You can redeem your shares at any time. American Express Shareholder Service
will mail payment within seven days after receiving your request.
<PAGE>
PAGE 35
When you redeem shares, the amount you receive may be more or less than the
amount you invested. Your shares will be redeemed at net asset value, minus any
applicable sales charge, at the close of business on the day your request is
accepted at the Minneapolis headquarters. If your request arrives after the
close of business, the price per share will be the net asset value, minus any
applicable sales charge, at the close of business on the next business day.
A redemption is a taxable transaction. If your proceeds from your redemption are
more or less than the cost of your shares, you will have a gain or loss, which
can affect your tax liability.
Two ways to request an exchange or redemption of shares
1
By letter Include in your letter:
o the name of the fund(s)
o the class of shares to be exchanged or
redeemed
o your account number(s) (for exchanges,
both funds must be registered in the same
ownership) o your Taxpayer Identification
Number (TIN) o the dollar amount or number
of shares you want to exchange or redeem o
signature of all registered account owners
o for redemptions, indicate how you want
your money delivered to you o any paper
certificates of shares you hold
Regular mail:
American Express Shareholder Service
Attn: Redemptions
P.O. Box 534
Minneapolis, MN 55440-0534
Express mail:
American Express Shareholder Service
Attn: Redemptions
733 Marquette Ave.
Minneapolis, MN 55402
2
By phone
American Express Financial o A Fund and AEFC will honor any telephone exchange
or redemption request believed to be Advisors Telephone authentic and will use
reasonable procedures to confirm that they are. This includes Transaction
Service: asking identifying questions and tape recording calls. If reasonable
800-437-3133 or procedures are not followed, a Fund or AEFC will be liable for
any loss resulting from 612-671-3800 fraudulent requests.
o Phone exchange and redemption privileges automatically apply to all accounts
except custodial, corporate or qualified retirement accounts unless you request
these privileges NOT apply by writing American Express Shareholder Service. Each
registered owner must sign the request. o AEFC answers phone requests promptly,
but you may experience delays when call volume is high. If you are unable to get
through, use mail procedure as an alternative. o Acting on your instructions,
your financial advisor may conduct telephone transactions on your behalf. o
Phone privileges may be modified or discontinued at any time.
Minimum amount
Redemption: $100
Maximum amount
Redemption: $50,000
<PAGE>
PAGE 36
Exchange policies:
o You may make up to three exchanges within any 30-day period, with each limited
to $300,000. These limits do not apply to scheduled exchange programs and
certain employee benefit plans or other arrangements through which one
shareholder represents the interests of several. Exceptions may be allowed with
pre-approval of a Fund.
o Exchanges must be made into the same class of shares of the new
fund.
o If your exchange creates a new account, it must satisfy the minimum investment
amount for new purchases.
o Once we receive your exchange request, you cannot cancel it.
o Shares of the new fund may not be used on the same day for
another exchange.
o If your shares are pledged as collateral, the exchange will be delayed until
written approval is obtained from the secured party.
o AEFC and each 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 a Fund's investment strategies or
increase its costs.
Redemption policies:
o A "change of mind" option allows you to change your mind after requesting a
redemption and to use all or part of the proceeds to purchase new shares in the
same account from which you redeemed. If you reinvest in Class A, you will
purchase the new shares at net asset value rather than the offering price on the
date of a new purchase. If you reinvest in Class B, any CDSC you paid on the
amount you are reinvesting also will be reinvested. To take advantage of this
option, send a written request within 30 days of the date your redemption
request was received. Include your account number and mention this option. This
privilege may be limited or withdrawn at any time, and it may have tax
consequences.
o A telephone redemption request will not be allowed within 30 days of a
phoned-in address change.
Important: If you request a redemption of shares you recently purchased by a
check or money order that is not guaranteed, each Fund will wait for your check
to clear. It may take up to 10 days from the date of purchase before a check is
mailed to you. (A check may be mailed earlier if your bank provides evidence
satisfactory to the Fund and AEFC that your check has cleared.)
<PAGE>
PAGE 37
<TABLE>
<CAPTION>
Three ways to receive payment when you redeem shares
<S> <C>
1
By regular or express mail o Mailed to the address on record
o Payable to names listed on the account
NOTE: You will be charged a fee if you
request express mail delivery.
2
By wire o Minimum wire redemption: $1,000
o Request that money be wired to your bank
o Bank account must be in the same
ownership as the IDS fund account
NOTE: Pre-authorization required. For
instructions, contact your financial
advisor or American Express Shareholder Service.
3
By scheduled payout plan o Minimum payment: $50
o Contact your financial
advisor or American
Express Shareholder
Service to set up regular
payments to you on a
monthly, bimonthly,
quarterly, semiannual or
annual basis
o Purchasing new shares while under a payout
plan may be disadvantageous because of
the sales charges
</TABLE>
Reductions and waivers of the sales charge
Class A - initial sales charge alternative
On purchases of Class A shares, you pay a 5% sales charge on the first $50,000
of your total investment and less on investments after the first $50,000:
Total investment Sales charge as a
percent of:*
Public Net
offering amount
price invested
Up to $50,000 5.0% 5.26%
Next $50,000 4.5 4.71
Next $400,000 3.8 3.95
Next $500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
* To calculate the actual sales charge on an investment greater than $50,000 and
less than $1,000,000, amounts for each applicable increment must be totaled. See
the SAI.
Reductions of the sales charge on Class A shares
Your sales charge may be reduced, depending on the totals of:
o the amount you are investing in a Fund now,
o the amount of your existing investment in the Fund, if any, and
<PAGE>
PAGE 38
o the amount you and your primary household group are investing or have in other
funds in the IDS MUTUAL FUND GROUP that carry a sales charge. (The primary
household group consists of accounts in any ownership for spouses or domestic
partners and their unmarried children under 21. Domestic partners are
individuals who maintain a shared primary residence and have joint property or
other insurable interests.)
Other policies that affect your sales charge:
o IDS Tax-Free Money Fund and Class A shares of IDS Cash Management Fund do not
carry sales charges. However, you may count investments in these funds if you
acquired shares in them by exchanging shares from IDS funds that carry sales
charges.
o Employee benefit plan purchases made through a payroll deduction plan or
through a plan sponsored by an employer, association of employers, employee
organization or other similar entity, may be added together to reduce sales
charges for all shares purchased through that plan.
o If you intend to invest $1 million over a period of 13 months, you can reduce
the sales charges in Class A by filing a letter of intent.
For more details, see the SAI.
Waivers of the sales charge for Class A shares
Sales charges do not apply to:
o Current or retired board members, officers or employees of the Fund or AEFC or
its subsidiaries, their spouses and unmarried children under 21.
o Current or retired American Express financial advisors, their spouses and
unmarried children under 21.
o Investors who have a business relationship with a newly associated financial
advisor who joined AEFA from another investment firm provided that (1) the
purchase is made within six months of the advisor's appointment date with AEFA,
(2) the purchase is made with proceeds of a redemption of shares that were
sponsored by the financial advisor's previous broker-dealer, and (3) the
proceeds must be the result of a redemption of an equal or greater value where a
sales load was previously assessed.
o Qualified employee benefit plans* using a daily transfer recordkeeping system
offering participants daily access to IDS funds.
(Participants in certain qualified plans for which the initial sales charge is
waived may be subject to a deferred sales charge of up to 4% on certain
redemptions. For more information, see the SAI.)
<PAGE>
PAGE 39
o Shareholders who have at least $1 million invested in funds of the IDS MUTUAL
FUND GROUP. If the investment is redeemed in the first year after purchase, a
CDSC of 1% will be charged on the redemption. The CDSC will be waived only in
the circumstances described for waivers for Class B shares.
o Purchases made within 30 days after a redemption of shares (up to the amount
redeemed):
- of a product distributed by American Express Financial
Advisors in a qualified plan subject to a deferred
sales charge or
- a qualified plan where American Express Trust Company has a
recordkeeping, trustee, investment management or investment servicing
relationship.
Send the Fund a written request along with your payment, indicating the amount
of the redemption and the date on which it occurred.
o Purchases made with dividend or capital gain distributions from the same class
of another fund in the IDS MUTUAL FUND GROUP that has a sales charge.
o Purchases made through or under a "wrap fee" product sponsored by American
Express Financial Advisors Inc. (total amount of all investments must be
$50,000); or a segregated separate account offered by Nationwide Life Insurance
Company or Nationwide Life and Annuity Insurance Company.
o Purchases made with the proceeds from IDS Life Real Estate Variable Annuity
surrenders through December 31, 1997.
*Eligibility must be determined in advance by American Express
Financial Advisors. 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:
If a redemption is The percentage rate
made during the for the CDSC is:
First year 5%
Second year 4%
Third year 4%
Fourth year 3%
Fifth year 2%
Sixth year 1%
Seventh year 0%
<PAGE>
PAGE 40
If the amount you are redeeming reduces the current net asset value of your
investment in Class B shares below the total dollar amount of all your purchase
payments during the last six years (including the year in which your redemption
is made), the CDSC is based on the lower of the redeemed purchase payments or
market value.
The following example illustrates how the CDSC is applied. Assume you had
invested $10,000 in Class B shares and that your investment had appreciated in
value to $12,000 after 15 months, including reinvested dividend and capital gain
distributions. You could redeem any amount up to $2,000 without paying a CDSC
($12,000 current value less $10,000 purchase amount). If you redeemed $2,500,
the CDSC would apply only to the $500 that represented part of your original
purchase price. The CDSC rate would be 4% because a redemption after 15 months
would take place during the second year after purchase.
Because the CDSC is imposed only on redemptions that reduce the total of your
purchase payments, you never have to pay a CDSC on any amount you redeem that
represents appreciation in the value of your shares, income earned by your
shares or capital gains. In addition, when determining the rate of any CDSC,
your redemption will be made from the oldest purchase payment you made. Of
course, once a purchase payment is considered to have been redeemed, the next
amount redeemed is the next oldest purchase payment. By redeeming the oldest
purchase payments first, lower CDSCs are imposed than would otherwise be the
case.
Waivers of the contingent deferred sales charge
The CDSC on Class B shares will be waived on redemptions of shares:
o In the event of the shareholder's death,
o Purchased by any board member, officer or employee of a fund or
AEFC or its subsidiaries,
o Held in a trusteed employee benefit plan, o Held in IRAs or certain qualified
plans for which American Express Trust Company acts as custodian, such as Keogh
plans, tax-sheltered custodial accounts or corporate pension plans, provided
that the shareholder is:
- at least 59-1/2 years old, and
- taking a retirement distribution (if the redemption is part of a
transfer to an IRA or qualified plan in a product distributed by
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.
For investors in Class A shares who have over $1 million invested in one year,
the 1% CDSC on redemption of those shares will be waived in the same
circumstances described for Class B.
<PAGE>
PAGE 41
Special shareholder services
Services
To help you track and evaluate the performance of your investments, AEFC
provides these services:
Quarterly statements listing all of your holdings and transactions during the
previous three months.
Yearly tax statements featuring average-cost-basis reporting of capital gains or
losses if you redeem your shares along with distribution information which
simplifies tax calculations.
A personalized mutual fund progress report detailing returns on your initial
investment and cash-flow activity in your account. It calculates a total return
to reflect your individual history in owning Fund shares. This report is
available from your financial advisor.
Quick telephone reference
American Express Financial Advisors Telephone Transaction Service
Redemptions and exchanges, dividend payments or reinvestments and
automatic payment arrangements
National/Minnesota: 800-437-3133
Mpls./St. Paul area: 671-3800
TTY Service
For the hearing impaired
800-846-4852
American Express Financial Advisors Easy Access Line Automated account
information (TouchToneR phones only), including current prices and performance,
account values and recent account transactions
800-862-7919
Distributions and taxes
As a shareholder you are entitled to your share of a Fund's net income and any
net gains realized on its investments. Each Fund distributes dividends and
capital gain distributions to qualify as a regulated investment company and to
avoid paying corporate income and excise taxes. Dividend and capital gain
distributions will have tax consequences you should know about.
Dividend and capital gain distributions
A Fund's net investment income from dividends and interest is distributed to you
monthly as dividends. Short-term capital gains are distributed at the end of the
calendar year and are included in net investment income. Long-term capital gains
are realized whenever a security held for more than one year is sold for a
higher price than was paid for it. A Fund will offset any net realized capital
gains by any available capital loss carryovers.
<PAGE>
PAGE 42
Net realized long-term capital gains, if any, are distributed at the end of the
calendar year as capital gain distributions. Before they are distributed, net
long-term capital gains are included in the value of each share. After they are
distributed, the value of each share drops by the per-share amount of the
distribution. (If your distributions are reinvested, the total value of your
holdings will not change.)
Dividends for each class will be calculated at the same time, in the same manner
and will be the same amount prior to deduction of expenses. Expenses
attributable solely to a class of shares will be paid exclusively by that class.
Reinvestments
Dividends and capital gain distributions are automatically reinvested in
additional shares in the same class of a Fund, unless:
o you request the Fund in writing or by phone to pay
distributions to you in cash, or
o you direct the Fund to invest your distributions in the same class of
another publicly available IDS fund for which you've previously opened
an account.
The reinvestment price is the net asset value at close of business on the day
the distribution is paid. (Your quarterly statement will confirm the amount
invested and the number of shares purchased.)
If you choose cash distributions, you will receive only those declared after
your request has been processed.
If the U.S. Postal Service cannot deliver the checks for the cash distributions,
we will reinvest the checks into your account at the then-current net asset
value and make future distributions in the form of additional shares.
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 declares them regardless of
whether you take them in cash or reinvest them.
Interest on certain private activity bonds is a preference item for purposes of
the individual and corporate alternative minimum taxes. To the extent 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.
<PAGE>
PAGE 43
Because interest on municipal bonds and notes is tax-exempt for federal income
tax purposes, any interest on borrowed money used directly or indirectly to
purchase Fund shares is not deductible on your federal income tax return. You
should consult a tax advisor regarding its deductibility for state and local
income tax purposes.
Each January, you will receive a tax statement showing the kinds and total
amount of all distributions you received during the previous year. You must
report distributions on your tax returns, even if they are reinvested in
additional shares.
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, or the TIN you report is incorrect, you could be
subject to backup withholding of 31% of taxable distributions and proceeds from
certain sales and exchanges. You also could be subject to further penalties,
such as:
o a $50 penalty for each failure to supply your correct TIN
o a civil penalty of $500 if you make a false statement that
results in no backup withholding
o criminal penalties for falsifying information
You also could be subject to backup withholding because you failed to report
interest or dividends on your tax return as required.
How to determine the correct TIN
Use the Social Security or
For this type of account: Employer Identification number
of:
Individual or joint account The individual or individuals
listed on the account
Custodian account of a minor The minor
(Uniform Gifts/Transfers to
Minors Act)
<PAGE>
PAGE 44
A living trust The grantor-trustee (the person
who puts the money into the
trust)
An irrevocable trust, pension The legal entity (not the
trust or estate personal representative or
trustee, unless no legal entity
is designated in the account
title)
Sole proprietorship The owner
Partnership The partnership
Corporate The corporation
Association, club or The organization
tax-exempt organization
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
The board members 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.
Shares
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 two classes - Class A and Class B. Class Y is currently
not available to new investors. Each class has different sales arrangements and
bears different expenses. Each class represents interests in the assets of a
Fund. Par value is one cent per share. Both full and fractional shares can be
issued.
The shares of each Fund 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.
<PAGE>
PAGE 45
The board 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 of a Fund, you have voting rights over that Fund's management
and fundamental policies. You are entitled to one vote for each share you own.
Shares of each Fund have cumulative voting rights. Each class has exclusive
voting rights with respect to the provisions of that 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 board members
may call meetings at their discretion, or on demand by holders of 10% or more of
the outstanding shares, to elect or remove board members.
Board members and officers
Shareholders elect a board that oversees the operations of the Fund and chooses
its officers. Its officers are responsible for day-to-day business decisions
based on policies set by the board. The board has named an executive committee
that has authority to act on its behalf between meetings. Board members and
officers serve 47 IDS and IDS Life funds and 15 Master Trust portfolios, except
for William H. Dudley, who does not serve the nine IDS Life funds.
Board members and officers of the Funds
President and interested board member
William R. Pearce
Chairman of the board, Board Services Corporation (provides administrative
services to boards including the boards of the IDS and IDS Life funds and Master
Trust portfolios).
Independent board members
H. Brewster Atwater, Jr.
Former chairman and chief executive officer, General Mills, Inc.
Lynne V. Cheney
Distinguished fellow, American Enterprise Institute for Public
Policy Research.
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.
<PAGE>
PAGE 46
Anne P. Jones
Attorney and telecommunications consultant.
Melvin R. Laird
Senior counsellor for national and international affairs, The Reader's Digest
Association, Inc.
Alan K. Simpson
Former United States senator for Wyoming.
Edson W. Spencer
Former chairman and chief executive officer, Honeywell, Inc.
Wheelock Whitney
Chairman, Whitney Management Company.
C. Angus Wurtele
Chairman of the board, The Valspar Corporation.
Interested board members who are officers and/or employees of AEFC
William H. Dudley
Senior advisor to the chief executive officer, AEFC.
David R. Hubers
President and chief executive officer, AEFC.
John R. Thomas
Senior vice president, AEFC.
Officers who also are officers and/or employees of AEFC
Peter J. Anderson
Senior vice president, AEFC. Vice president - Investments for the Fund.
Melinda S. Urion
Senior vice president and chief financial officer, AEFC. Treasurer for the Fund.
Other officer
Leslie L. Ogg
President, treasurer and corporate secretary of Board Services Corporation. Vice
president, general counsel and secretary for the Fund.
Refer to the SAI for the board members' and officers' biographies.
Investment manager
The Funds pay AEFC for managing their assets. Under its Investment Management
Services Agreement, AEFC is paid a fee for these services based on the average
daily net assets of each Fund, as follows:
<PAGE>
PAGE 47
Assets Annual rate
(billions) at each asset level
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
For the fiscal year ended June 30, 1997, the Funds paid AEFC total investment
management fees of 0.47% of its average daily net assets for California, 0.47%
for Massachusetts, 0.47% for Michigan, 0.46% for Minnesota, 0.47% for New York
and 0.47% for Ohio Fund. Under the Agreement, each Fund also pays taxes,
brokerage commissions and nonadvisory expenses.
Administrator and transfer agent
Each Fund pays AEFC for shareholder accounting and transfer agent services under
two agreements. The first agreement, the Administrative Services Agreement, has
a declining annual rate beginning at 0.04% and decreasing to 0.02% as assets
increase. The second agreement, the Transfer Agency Agreement, has an annual fee
per shareholder account as follows:
o Class A $15.50
o Class B $16.50
Distributor
The Funds have an exclusive distribution agreement with American Express
Financial Advisors, a wholly-owned subsidiary of AEFC. Financial advisors
representing American Express Financial Advisors provide information to
investors about individual investment programs, the Funds and their operations,
new account applications, and exchange and redemption requests. The cost of
these services is paid partially by the Funds' sales charges.
Persons who buy Class A shares pay a sales charge at the time of purchase.
Persons who buy Class B shares are subject to a contingent deferred sales charge
on a redemption in the first six years and pay an asset-based sales charge (also
known as a 12b-1 fee) of 0.75% of the Fund's average daily net assets.
Financial advisors may receive different compensation for selling Class A and
Class B shares. Portions of the sales charge also may be paid to securities
dealers who have sold the Funds' shares or to banks and other financial
institutions. The amounts of those payments range from 0.8% to 4% of each Fund's
offering price depending on the monthly sales volume.
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 average daily net assets for Class A
and Class B shares.
<PAGE>
PAGE 48
Total expenses paid by each Fund's Class A and Class B shares for the fiscal
year ended June 30, 1997 were of average daily net assets as follows.
Class A Class B
California Fund 0.77% 1.52%
Massachusetts Fund 0.84% 1.59%
Michigan Fund 0.81% 1.56%
Minnesota Fund 0.75% 1.50%
New York Fund 0.81% 1.56%
Ohio Fund 0.83% 1.59%
About American Express Financial Corporation
General information
The AEFC family of companies offers not only mutual funds but also insurance,
annuities, investment certificates and a broad range of financial management
services.
Besides managing investments for all funds in the IDS MUTUAL FUND GROUP, AEFC
also manages investments for itself and its subsidiaries, IDS Certificate
Company and IDS Life Insurance Company. Total assets under management on June
30, 1997 were more than $162 billion.
American Express Financial Advisors serves individuals and businesses through
its nationwide network of more than 175 offices and more than 8,500 advisors.
Other AEFC subsidiaries provide investment management and related services for
pension, profit sharing, employee savings and endowment funds of businesses and
institutions.
AEFC is located at IDS Tower 10, Minneapolis, MN 55440-0010. It is a
wholly-owned subsidiary of American Express Company (American Express), a
financial services company with headquarters at American Express Tower, World
Financial Center, New York, NY 10285. The Funds may pay brokerage commissions to
broker-dealer affiliates of AEFC.
<PAGE>
PAGE 49
Appendix A
Description of bond ratings
Bond ratings concern the quality of the issuing state or local governmental
unit. They are not an opinion of the market value of the security. Such ratings
are opinions on whether the principal and interest will be repaid when due. A
security's rating may change, which could affect its price. Ratings by Moody's
Investors Service, Inc. are Aaa, Aa, A, Baa, Ba, B, Caa, Ca and C. Ratings by
Standard & Poor's Corporation are AAA, AA, A, BBB, BB, B, CCC, CC, C and D. The
following is a compilation of the two agencies' rating descriptions. For further
information, see the SAI.
Aaa/AAA - Judged to be of the best quality and carry the smallest degree of
investment risk. Interest and principal are secure.
Aa/AA - Judged to be high-grade although margins of protection for interest and
principal may not be quite as good as Aaa or AAA rated securities.
A - Considered upper-medium grade. Protection for interest and principal is
deemed adequate but may be susceptible to future impairment.
Baa/BBB - Considered medium-grade obligations. Protection for interest and
principal is adequate over the short-term; however, these obligations may have
certain speculative characteristics.
Ba/BB - Considered to have speculative elements. The protection of interest and
principal payments may be very moderate.
B - Lack characteristics of more desirable investments. There may be small
assurance over any long period of time of the payment of interest and principal.
Caa/CCC - Are of poor standing. Such issues may be in default or there may be
risk with respect to principal or interest.
Ca/CC - Represent obligations that are highly speculative. Such issues are often
in default or have other marked shortcomings.
C - Are obligations with a higher degree of speculation. These securities have
major risk exposures to default.
D - Are in payment default. The D rating is used when interest payments or
principal payments are not made on the due date.
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.
<PAGE>
PAGE 50
Definitions of zero-coupon and pay-in-kind securities
A zero-coupon security is a security that is sold at a deep discount from its
face value and makes no periodic interest payments. The buyer of such a security
receives a rate of return by gradual appreciation of the security, which is
redeemed at face value on the maturity date.
A pay-in-kind security is a security in which the issuer has the option to make
interest payments in cash or in additional securities. The securities issued as
interest usually have the same terms, including maturity date, as the
pay-in-kind securities.
<PAGE>
PAGE 51
Appendix B
1997 state tax-exempt and taxable equivalent yield calculation
These tables will help you determine your state taxable yield equivalents for
given rates of tax-exempt income.
Tax-exempt income vs. taxable income
1997 California tax-exempt and taxable equivalent yield calculation
These tables will help you determine your combined federal and state taxable
yield equivalents for given rates of tax-exempt income.
STEP 1: Calculating your marginal tax rate.
Using your Taxable Income and Adjusted Gross Income figures as guides, you can
locate your Marginal Tax Rate in the table below.
First, locate your Taxable Income in a filing status and income range in the
left-hand column. Then, locate your Adjusted Gross Income at the top of the
chart. At the point where your Taxable Income line meets your Adjusted Gross
Income column, the percentage indicated is an approximation of your 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
$99,600-$151,750 range. Under Adjusted Gross Income, $175,000 is in the $121,200
to $181,800 column. The Taxable Income line and Adjusted Gross Income column
meet at 38.26%. This is the rate you'll use in Step 2.
Adjusted gross income*
- -------------------------------------------------------------------------------
Taxable income** $0 $121,200 $181,800
Married Filing Jointly to to to OVER
$121,200(1) $181,800(2) $304,300(3) $304,300(2)
--------------------------------------------------------
$ 0 - $ 9,816 15.85%
9,816 - 23,264 16.70
23,264 - 36,714 18.40
36,714 - 41,200 20.10
41,200 - 50,968 32.32
50,968 - 64,414 33.76
64,414 - 99,600 34.70 35.46%
99,600 - 151,750 37.42 38.26 39.45%
151,750 - 271,050 41.95 42.93 44.32
42.93%
271,050 + 45.22 47.82%*** 46.29
- -------------------------------------------------------------------------------
Taxable income** $0 $121,200
Single to to OVER
$121,200(1) $243,700(3) $243,700(2)
- -------------------------------------------------------------------------------
$ 0 - $ 4,908 15.85%
4,908 - 11,632 16.70
11,632 - 18,357 18.40
18,357 - 24,650 20.10
24,650 - 25,484 32.32
25,484 - 32,207 33.76
32,207 - 59,750 34.70
59,750 - 124,650 37.42 38.86%
124,650 - 271,050 41.95 43.62 42.93%
271,050 + 45.22 46.29
- ------------------------------------------------------------------------
*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 $304,300 and your taxable income exceeds $271,050.
(1) No Phase-out -- Assumes no phase-out of itemized deductions or personal
exemptions.
(2) Itemized Deductions Phase-out -- Assumes a phase-out of itemized deductions
and no phase out of personal exemptions. (3) Itemized Deductions and Personal
Exemption Phase-outs -- Assumes a single taxpayer has one personal exemption,
joint taxpayers have two personal exemptions, personal exemptions phase-out and
itemized deductions continue to phase-out.
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, 1996. These rates may change if California tax rates change
in 1997. If state tax rates change, equivalent rates may differ from those
shown.
If these assumptions do not apply to you, it will be necessary to construct your
own personalized tax equivalency table.
<PAGE>
PAGE 52
STEP 2: Determining your combined federal and California state taxable yield
equivalents.
Using 38.26%, you may determine that a tax-exempt yield of 5% is equivalent to
earning a taxable 8.10% yield.
For these Tax-Exempt Rates:
- --------------------------------------------------------------------------------
3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
- --------------------------------------------------------------------------------
Marginal
Tax Rates Equal the Taxable Rates shown below:
- --------------------------------------------------------------------------------
15.85% 3.57 4.16 4.75 5.35 5.94 6.54 7.13 7.72
16.70% 3.60 4.20 4.80 5.40 6.00 6.60 7.20 7.80
18.40% 3.68 4.29 4.90 5.51 6.13 6.74 7.35 7.97
20.10% 3.75 4.38 5.01 5.63 6.26 6.88 7.51 8.14
32.32% 4.43 5.17 5.91 6.65 7.39 8.13 8.87 9.60
33.76% 4.53 5.28 6.04 6.79 7.55 8.30 9.06 9.81
34.70% 4.59 5.36 6.13 6.89 7.66 8.42 9.19 9.95
35.46% 4.65 5.42 6.20 6.97 7.75 8.52 9.30 10.07
37.42% 4.79 5.59 6.39 7.19 7.99 8.79 9.59 10.39
38.26% 4.86 5.67 6.48 7.29 8.10 8.91 9.72 10.53
38.86% 4.91 5.72 6.54 7.36 8.18 9.00 9.81 10.63
39.45% 4.95 5.78 6.61 7.43 8.26 9.08 9.91 10.73
41.95% 5.17 6.03 6.89 7.75 8.61 9.47 10.34 11.20
42.93% 5.26 6.13 7.01 7.89 8.76 9.64 10.51 11.39
43.62% 5.32 6.21 7.09 7.98 8.87 9.76 10.64 11.53
44.32% 5.39 6.29 7.18 8.08 8.98 9.88 10.78 11.67
45.22% 5.48 6.39 7.30 8.21 9.13 10.04 10.95 11.87
46.29% 5.59 6.52 7.45 8.38 9.31 10.24 11.17 12.10
47.82% 5.75 6.71 7.67 8.62 9.58 10.54 11.50 12.46
- --------------------------------------------------------------------------------
<PAGE>
PAGE 53
Appendix B
1997 Massachusetts tax-exempt and taxable equivalent yield calculation
These tables will help you determine your combined federal and state taxable
yield equivalents for given rates of tax-exempt income.
STEP 1: Calculating your marginal tax rate.
Using your Taxable Income and Adjusted Gross Income figures as guides, you can
locate your Marginal Tax Rate in the table below.
First, locate your Taxable Income in a filing status and income range in the
left-hand column. Then, locate your Adjusted Gross Income at the top of the
chart. At the point where your Taxable Income line meets your Adjusted Gross
Income column, the percentage indicated is an approximation of your 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
$99,600-$151,750 range. Under Adjusted Gross Income, $175,000 is in the $121,200
to $181,800 column. The Taxable Income line and Adjusted Gross Income column
meet at 40.10%. This is the rate you'll use in Step 2.
Adjusted gross income*
- --------------------------------------------------------------------------------
Taxable income** $0 $121,200 $181,800
Married Filing Jointly to to to OVER
$121,200(1) $181,800(2) $304,300(3) $304,300(2)
-------------------------------------------------------
$ 0 - $ 41,200 25.20%
41,200 - 99,600 36.64 37.38%
99,600 - 151,750 39.28 40.10 41.26%
151,750 - 271,050 43.68 44.63 45.97 44.63%
271,050 + 46.85 49.37*** 47.89
- --------------------------------------------------------------------------------
Taxable income** $0 $121,200
Single to to OVER
$121,200(1) $243,700(3) $243,700(2)
-------------------------------------------------------
$ 8,000 - $ 24,650 25.20%
24,650 - 59,750 36.64
59,750 - 124,650 39.28 40.68%
124,650 - 271,050 43.68 45.30 44.63%
271,050 + 46.85 47.89
-------------------------------------------------------------------------------
*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 $304,300 and your taxable income exceeds $271,050.
(1) No Phase-out -- Assumes no phase-out of itemized deductions or personal
exemptions. (2) Itemized Deductions Phase-out -- Assumes a phase-out of itemized
deductions and no phase-out of personal exemptions. (3) Itemized Deductions and
Personal Exemption Phase-outs -- Assumes a single taxpayer has one personal
exemption, joint taxpayers have two personal exemptions, personal exemptions
phase-out and itemized deductions continue to phase-out.
Federal taxes are not deductible on the Massachusetts state tax return.
The combined federal/Massachusetts tax brackets are based on state tax rates for
Part A income in effect on Jan. 1, 1997. These rates may change if Massachusetts
tax rates change in 1997. If state tax rates change, equivalent rates may differ
from those shown.
If these assumptions do not apply to you, it will be necessary to construct your
own personalized tax equivalency table.
<PAGE>
PAGE 54
STEP 2: Determining your combined federal and Massachusetts state taxable yield
equivalents.
Using 40.10%, you may determine that a tax-exempt yield of 5% is equivalent to
earning a taxable 8.35% yield.
For these Tax-Exempt Rates:
3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
---------------------------------------------------------------------
Marginal
Tax Rates Equal the Taxable Rates shown below:
- --------------------------------------------------------------------------------
25.20% 4.01 4.68 5.35 6.02 6.68 7.35 8.02 8.69
36.64% 4.73 5.52 6.31 7.10 7.89 8.68 9.47 10.26
37.38% 4.79 5.59 6.39 7.19 7.98 8.78 9.58 10.38
39.28% 4.94 5.76 6.59 7.41 8.23 9.06 9.88 10.70
40.10% 5.01 5.84 6.68 7.51 8.35 9.18 10.02 10.85
40.68% 5.06 5.90 6.74 7.59 8.43 9.27 10.11 10.96
41.26% 5.11 5.96 6.81 7.66 8.51 9.36 10.21 11.07
43.68% 5.33 6.21 7.10 7.99 8.88 9.77 10.65 11.54
44.63% 5.42 6.32 7.22 8.13 9.03 9.93 10.84 11.74
45.30% 5.48 6.40 7.31 8.23 9.14 10.05 10.97 11.88
45.97% 5.55 6.48 7.40 8.33 9.25 10.18 11.10 12.03
46.85% 5.64 6.59 7.53 8.47 9.41 10.35 11.29 12.23
47.89% 5.76 6.72 7.68 8.64 9.60 10.55 11.51 12.47
49.37% 5.93 6.91 7.90 8.89 9.88 10.86 11.85 12.84
- --------------------------------------------------------------------------------
<PAGE>
PAGE 55
Appendix B
1997 Michigan tax-exempt and taxable equivalent yield calculation
These tables will help you determine your combined federal and state taxable
yield equivalents for given rates of tax-exempt income.
STEP 1: Calculating your marginal tax rate.
Using your Taxable Income and Adjusted Gross Income figures as guides, you can
locate your Marginal Tax Rate in the table below.
First, locate your Taxable Income in a filing status and income range in the
left-hand column. Then, locate your Adjusted Gross Income at the top of the
chart. At the point where your Taxable Income line meets your Adjusted Gross
Income column, the percentage indicated is an approximation of your 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
$99,600-$151,750 range. Under Adjusted Gross Income, $175,000 is in the $121,200
to $181,800 column. The Taxable Income line and Adjusted Gross Income column
meet at 34.93%. This is the rate you'll use in Step 2.
Adjusted gross income*
- --------------------------------------------------------------------------------
Taxable income** $0 $121,200 $181,800
Married Filing Jointly to to to OVER
$121,200(1) $181,800(2) $304,300(3) $304,300(2)
-------------------------------------------------------
$ 0 - $ 41,200 18.74%
41,200 - 99,600 31.17 31.97%
99,600 - 151,750 34.04 34.93 36.18%
151,750 - 271,050 38.82 39.85 41.31 39.85%
271,050 + 42.26 45.00*** 43.39
- --------------------------------------------------------------------------------
Taxable income** $0 $121,200
Single to to OVER
$121,200(1) $243,700(3) $243,700(2)
--------------------------------------------------------
$ 0 - $ 24,650 18.74%
24,650 - 59,750 31.17
59,750 - 124,650 34.04 35.55%
124,650 - 271,050 38.82 40.58 39.85%
271,050 + 42.26 43.39
-------------------------------------------------------------------------------
*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 $304,300 and your taxable income exceeds $271,050.
(1) No Phase-out -- Assumes no phase-out of itemized deductions or personal
exemptions. (2) Itemized Deductions Phase-out -- Assumes a phase-out of itemized
deductions and no phase-out of personal exemptions.
(3) Itemized Deductions and Personal Exemption Phase-outs -- Assumes a single
taxpayer has one personal exemption, joint taxpayers have two personal
exemptions, personal exemptions phase-out and itemized deductions continue to
phase-out.
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 Jan 1, 1997. These rates may change if Michigan tax rates change in
1997. If state tax rates change, equivalent rates may differ from those shown.
If these assumptions do not apply to you, it will be necessary to construct your
own personalized tax equivalency table.
<PAGE>
PAGE 56
STEP 2: Determining your combined federal and Michigan state taxable yield
equivalents.
Using 34.93%, you may determine that a tax-exempt yield of 5% is equivalent to
earning a taxable 7.68% yield.
For these Tax-Exempt Rates:
-----------------------------------------------------------------------
3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
-----------------------------------------------------------------------
Marginal
Tax Rates Equal the Taxable Rates shown below:
- --------------------------------------------------------------------------------
18.74% 3.69 4.31 4.92 5.54 6.15 6.77 7.38 8.00
31.17% 4.36 5.08 5.81 6.54 7.26 7.99 8.72 9.44
31.97% 4.41 5.14 5.88 6.61 7.35 8.08 8.82 9.55
34.04% 4.55 5.31 6.06 6.82 7.58 8.34 9.10 9.85
34.93% 4.61 5.38 6.15 6.92 7.68 8.45 9.22 9.99
35.55% 4.65 5.43 6.21 6.98 7.76 8.53 9.31 10.09
36.18% 4.70 5.48 6.27 7.05 7.83 8.62 9.40 10.18
38.82% 4.90 5.72 6.54 7.36 8.17 8.99 9.81 10.62
39.85% 4.99 5.82 6.65 7.48 8.31 9.14 9.98 10.81
40.58% 5.05 5.89 6.73 7.57 8.41 9.26 10.10 10.94
41.31% 5.11 5.96 6.82 7.67 8.52 9.37 10.22 11.08
42.26% 5.20 6.06 6.93 7.79 8.66 9.53 10.39 11.26
43.39% 5.30 6.18 7.07 7.95 8.83 9.72 10.60 11.48
45.00% 5.45 6.36 7.27 8.18 9.09 10.00 10.91 11.82
- --------------------------------------------------------------------------------
<PAGE>
PAGE 57
Appendix B
1997 Minnesota tax-exempt and taxable equivalent yield calculation
These tables will help you determine your combined federal and state taxable
yield equivalents for given rates of tax-exempt income.
STEP 1: Calculating your marginal tax rate.
Using your Taxable Income and Adjusted Gross Income figures as guides, you can
locate your Marginal Tax Rate in the table below.
First, locate your Taxable Income in a filing status and income range in the
left-hand column. Then, locate your Adjusted Gross Income at the top of the
chart. At the point where your Taxable Income line meets your Adjusted Gross
Income column, the percentage indicated is an approximation of your 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
$99,600-$151,750 range. Under Adjusted Gross Income, $175,000 is in the $121,200
to $181,800 column. The Taxable Income line and Adjusted Gross Income column
meet at 37.72%. This is the rate you'll use in Step 2.
Adjusted gross income*
- --------------------------------------------------------------------------------
Taxable income** $0 $121,200 $181,800
Married Filing Jointly to to to OVER
$121,200(1) $181,800(2) $304,300(3) $304,300(2)
-----------------------------------------------------
$ 0 - $ 24,140 20.10%
24,140 - 41,200 21.80
41,200 - 95,920 33.76 34.53%
95,920 - 99,600 34.12 34.89
96,600 - 151,750 36.87 37.72 38.92%
151,750 - 271,050 41.44 42.43 43.82 42.43%
271,050 + 44.73 47.36*** 45.82
- --------------------------------------------------------------------------------
Taxable income** $0 $121,200
Single to to OVER
$121,200(1) $243,700(3) $243,700(2)
----------------------------------------------------------
$ 0 - $ 16,510 20.10%
16,510 - 24,650 21.80
24,650 - 54,250 33.76
54,250 - 59,750 34.12
59,750 - 124,650 36.87 38.32%
124,650 - 271,050 41.44 43.13 42.43%
271,050 + 44.73 45.82
-------------------------------------------------------------------------------
*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 $304,300 and your taxable income exceeds $271,050.
(1) No Phase-out -- Assumes no phase-out of itemized deductions or personal
exemptions. (2) Itemized Deductions Phase-out -- Assumes a phase-out of itemized
deductions and no phase-out of personal exemptions.
(3) Itemized Deductions and Personal Exemption Phase-outs -- Assumes a single
taxpayer has one personal exemption, joint taxpayers have two personal
exemptions, personal exemptions phase out and itemized deductions continue to
phase-out.
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, 1997. These rates may change if Minnesota tax rates change in
1997. If state tax rates change, equivalent rates may differ from those shown.
If these assumptions do not apply to you, it will be necessary to construct your
own personalized tax equivalency table.
<PAGE>
PAGE 58
STEP 2: Determining your combined federal and Minnesota state taxable yield
equivalents.
Using 37.72%, you may determine that a tax-exempt yield of 5% is equivalent to
earning a taxable 8.03% yield.
For these Tax-Exempt Rates:
-----------------------------------------------------------------------
3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
-----------------------------------------------------------------------
Marginal
Tax Rates Equal the Taxable Rates shown below:
- ------------------------------------------------------------------------------
20.10% 4.38 5.01 5.63 6.26 6.88 7.51 8.14 8.76
21.80% 4.48 5.12 5.75 6.39 7.03 7.67 8.31 8.95
33.76% 5.28 6.04 6.79 7.55 8.30 9.06 9.81 10.57
34.12% 5.31 6.07 6.83 7.59 8.35 9.11 9.87 10.63
34.53% 5.35 6.11 6.87 7.64 8.40 9.16 9.93 10.69
34.89% 5.38 6.14 6.91 7.68 8.45 9.22 9.98 10.75
35.43% 5.42 6.19 6.97 7.74 8.52 9.29 10.07 10.84
36.87% 5.54 6.34 7.13 7.92 8.71 9.50 10.30 11.09
37.72% 5.62 6.42 7.23 8.03 8.83 9.63 10.44 11.24
38.32% 5.67 6.49 7.30 8.11 8.92 9.73 10.54 11.35
38.92% 5.73 6.55 7.37 8.19 9.00 9.82 10.64 11.46
41.44% 5.98 6.83 7.68 8.54 9.39 10.25 11.10 11.95
42.43% 6.08 6.95 7.82 8.69 9.55 10.42 11.29 12.16
43.13% 6.15 7.03 7.91 8.79 9.67 10.55 11.43 12.31
43.82% 6.23 7.12 8.01 8.90 9.79 10.68 11.57 12.46
44.73% 6.33 7.24 8.14 9.05 9.95 10.86 11.76 12.67
45.82% 6.46 7.38 8.31 9.23 10.15 11.07 12.00 12.92
47.36% 6.65 7.60 8.55 9.50 10.45 11.40 12.35 13.30
- ------------------------------------------------------------------------------
<PAGE>
PAGE 59
Appendix B
1997 New York state tax-exempt and taxable equivalent yield calculation
These tables will help you determine your combined federal and state taxable
yield equivalents for given rates of tax-exempt income.
STEP 1: Calculating your marginal tax rate.
Using your Taxable Income and Adjusted Gross Income figures as guides, you can
locate your Marginal Tax Rate in the table below.
First, locate your Taxable Income in a filing status and income range in the
left-hand column. Then, locate your Adjusted Gross Income at the top of the
chart. At the point where your Taxable Income line meets your Adjusted Gross
Income column, the percentage indicated is an approximation of your 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
$99,600-$151,750 range. Under Adjusted Gross Income, $175,000 is in the $121,200
to $181,800 column. The Taxable Income line and Adjusted Gross Income column
meet at 36.59%. This is the rate you'll use in Step 2.
Adjusted gross income*
- --------------------------------------------------------------------------------
Taxable income** $0 $121,200 $181,800
Married Filing Jointly to to to OVER
$121,200(1) $181,800(2) $304,300(3) $304,300(2)
---------------------------------------------------------
$ 0 - $ 16,000 18.40%
16,000 - 22,000 18.83
22,000 - 26,000 19.46
26,000 - 40,000 20.02
40,000 - 41,200 20.82
41,200 - 99,600 32.93 33.71%
99,600 - 151,750 35.73 36.59 37.82%
151,750 - 271,050 40.38 41.39 42.81 41.39%
271,050 + 43.74 46.41*** 44.84
- --------------------------------------------------------------------------------
Taxable income** $0 $121,200
Single to to OVER
$121,200(1) $243,700(3) $243,700(2)
---------------------------------------------------------
$ 0 - $ 8,000 18.40%
8,000 - 11,000 18.83
11,000 - 13,000 19.46
13,000 - 20,000 20.02
20,000 - 24,650 20.82
24,650 - 59,750 32.93
59,750 - 124,650 35.73 37.21%
124,650 - 271,050 40.38 42.10 41.39%
271,050 + 43.74 44.84
- --------------------------------------------------------------------------------
*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 $304,300 and your taxable income exceeds $271,050.
(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 phase-out of itemized deductions and no phase-out of personal
exemptions. This does not take into consideration the state AGI recapture of
personal income tax, which might increase the percentage.
(3) Itemized Deductions and Personal Exemption Phase-outs -- Assumes a single
taxpayer has one personal exemption, joint taxpayers have two personal
exemptions, personal exemptions phase-out and itemized deductions continue to
phase-out.
<PAGE>
PAGE 60
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, 1997. These rates may change if New York state tax rates
change in 1997. If state tax rates change, equivalent rates may differ from
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 36.78%, you may determine that a tax-exempt yield of 5% is equivalent to
earning a taxable 7.91% yield.
For these Tax-Exempt Rates:
------------------------------------------------------------------------
3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
------------------------------------------------------------------------
Marginal Tax Rates Equal the Taxable Rates shown below:
- --------------------------------------------------------------------------------
18.40% 3.68 4.29 4.90 5.51 6.13 6.74 7.35 7.97
18.83% 3.70 4.31 4.93 5.54 6.16 6.78 7.39 8.01
19.46% 3.72 4.35 4.97 5.59 6.21 6.83 7.45 8.07
20.02% 3.75 4.38 5.00 5.63 6.25 6.88 7.50 8.13
20.82% 3.79 4.42 5.05 5.68 6.31 6.95 7.58 8.21
32.93% 4.47 5.22 5.96 6.71 7.45 8.20 8.95 9.69
33.71% 4.53 5.28 6.03 6.79 7.54 8.30 9.05 9.81
35.73% 4.67 5.45 6.22 7.00 7.78 8.56 9.34 10.11
36.59% 4.73 5.52 6.31 7.10 7.89 8.67 9.46 10.25
37.20% 4.78 5.57 6.37 7.17 7.96 8.76 9.55 10.35
37.82% 4.82 5.63 6.43 7.24 8.04 8.85 9.65 10.45
40.38% 5.03 5.87 6.71 7.55 8.39 9.23 10.06 10.90
41.39% 5.12 5.97 6.82 7.68 8.53 9.38 10.24 11.09
42.10% 5.18 6.04 6.91 7.77 8.64 9.50 10.36 11.23
42.81% 5.25 6.12 6.99 7.87 8.74 9.62 10.49 11.37
43.74% 5.33 6.22 7.11 8.00 8.89 9.78 10.66 11.55
44.84% 5.44 6.35 7.25 8.16 9.06 9.97 10.88 11.78
46.41% 5.60 6.53 7.46 8.40 9.33 10.26 11.20 12.13
- --------------------------------------------------------------------------------
<PAGE>
PAGE 61
1997 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
yield equivalents for given rates of tax-exempt income.
STEP 1: Calculating your marginal tax rate.
Using your Taxable Income and Adjusted Gross Income figures as guides, you can
locate your Marginal Tax Rate in the table below.
First, locate your Taxable Income in a filing status and income range in the
left-hand column. Then, locate your Adjusted Gross Income at the top of the
chart. At the point where your Taxable Income line meets your Adjusted Gross
Income column, the percentage indicated is an approximation of your 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
$99,600-$151,750 range. Under Adjusted Gross Income, $175,000 is in the $121,200
to $181,800 column. The Taxable Income line and Adjusted Gross Income column
meet at 39.63%. This is the rate you'll use in Step 2.
Adjusted gross income*
- --------------------------------------------------------------------------------
Taxable income** $0 $121,200 $181,800
Married Filing Jointly to to to OVER
$121,200(1) $181,800(2) $304,300(3) $304,300(2)
- --------------------------------------------------------------------------------
$ 0 - $ 14,400 21.02%
14,400 - 16,000 21.51
16,000 - 22,000 21.94
22,000 - 26,000 23.15
26,000 - 27,000 23.70
27,000 - 40,000 23.25
40,000 - 41,200 24.55
41,200 - 45,000 36.09
45,000 - 90,000 36.10 36.85%
90,000 - 99,600 36.14 36.89
99,600 - 151,750 38.80 39.63 40.75%
151,750 - 271,050 43.24 44.20 45.50 44.20%
271,050 + 48.92*** 47.48
- --------------------------------------------------------------------------------
Taxable income** $0 $121,200
Single to to OVER
$121,200(1) $243,700(3) $243,700(2)
- --------------------------------------------------------------------------------
$ 0 - $ 8,000 21.02%
8,000 - 8,400 21.44
8,400 - 11,000 21.94
11,000 - 12,000 22.57
12,000 - 13,000 23.15
13,000 - 20,000 23.70
20,000 - 24,650 24.55
24,650 - 50,000 36.10
50,000 - 54,750 36.14
59,750 - 124,650 38.80
124,650 - 271,050 43.24 40.19 44.20
271,050 - 44.85 47.48
- --------------------------------------------------------------------------------
* 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 $304,300 and your taxable income exceeds $271,050.
(1) No Phase-out -- Assumes no phase-out of itemized deductions or personal
exemptions.
<PAGE>
PAGE 62
(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. Does not take into consideration the state AGI recapture of
personal income tax, which might increase the percentage.
(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. 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 blended city tax rates in effect on
January 1, 1997. These rates may change if New York state or city tax rates
change in 1997. 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.
STEP 2: Determining your combined federal, New York state and New York City
taxable yield equivalents.
Using 39.63%, you may determine that a tax-exempt yield of 5% is equivalent to
earning a taxable 8.28% yield.
For these Tax-Exempt Rates:
- --------------------------------------------------------------------------------
3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
- --------------------------------------------------------------------------------
Marginal
Tax Rates Equal the Taxable Rates shown below:
- --------------------------------------------------------------------------------
21.02% 3.80 4.43 5.06 5.70 6.33 6.96 7.60 8.23
21.44% 3.82 4.46 5.09 5.73 6.36 7.00 7.64 8.27
21.51% 3.82 4.46 5.10 5.73 6.37 7.01 7.64 8.28
21.94% 3.84 4.48 5.12 5.76 6.41 7.05 7.69 8.33
22.57% 3.87 4.52 5.17 5.81 6.46 7.10 7.75 8.39
23.15% 3.90 4.55 5.20 5.86 6.51 7.16 7.81 8.46
23.70% 3.93 4.59 5.24 5.90 6.55 7.21 7.86 8.52
23.75% 3.93 4.59 5.25 5.90 6.56 7.21 7.87 8.52
24.55% 3.98 4.64 5.30 5.96 6.63 7.29 7.95 8.61
36.09% 4.69 5.48 6.26 7.04 7.82 8.61 9.39 10.17
36.10% 4.69 5.48 6.26 7.04 7.82 8.61 9.39 10.17
36.14% 4.70 5.48 6.26 7.05 7.83 8.61 9.40 10.18
36.85% 4.75 5.54 6.33 7.13 7.92 8.71 9.50 10.29
36.89% 4.75 5.55 6.34 7.13 7.92 8.71 9.51 10.30
38.80% 4.90 5.72 6.54 7.35 8.17 8.99 9.80 10.62
39.63% 4.97 5.80 6.63 7.45 8.28 9.11 9.94 10.77
39.89% 4.99 5.82 6.65 7.49 8.32 9.15 9.98 10.81
40.19% 5.02 5.85 6.69 7.52 8.36 9.20 10.03 10.87
40.75% 5.06 5.91 6.75 7.59 8.44 9.28 10.13 10.97
43.24% 5.29 6.17 7.05 7.93 8.81 9.69 10.57 11.45
44.20% 5.38 6.27 7.17 8.06 8.96 9.86 10.75 11.65
44.85% 5.44 6.35 7.25 8.16 9.07 9.97 10.88 11.79
45.50% 5.50 6.42 7.34 8.26 9.17 10.09 11.01 11.93
46.43% 5.60 6.53 7.47 8.40 9.33 10.27 11.20 12.13
47.48% 5.71 6.66 7.62 8.57 9.52 10.47 11.42 12.38
48.20% 5.79 6.76 7.72 8.69 9.65 10.62 11.58 12.55
48.92% 5.87 6.85 7.83 8.81 9.79 10.77 11.75 12.73
- --------------------------------------------------------------------------------
<PAGE>
PAGE 63
Appendix B
1997 Ohio tax-exempt and taxable equivalent yield calculation
These tables will help you determine your combined federal and state taxable
yield equivalents for given rates of tax-exempt income.
STEP 1: Calculating your marginal tax rate.
Using your Taxable Income and Adjusted Gross Income figures as guides, you can
locate your Marginal Tax Rate in the table below.
First, locate your Taxable Income in a filing status and income range in the
left-hand column. Then, locate your Adjusted Gross Income at the top of the
chart. At the point where your Taxable Income line meets your Adjusted Gross
Income column, the percentage indicated is an approximation of your 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
$100,000-$151,750 range. Under Adjusted Gross Income, $175,000 is in the
$121,200 to $181,800 column. The Taxable Income line and Adjusted Gross Income
column meet at 36.63%. This is the rate you'll use in Step 2.
Adjusted gross income*
- --------------------------------------------------------------------------------
Taxable income** $0 $121,200 $181,800
Married Filing Jointly to to to OVER
$121,200(1) $181,800(2) $304,300(3) $304,300(2)
-------------------------------------------------------
$ 0 - $ 5,000 15.59%
5,000 - 10,000 16.18
10,000 - 15,000 17.36
15,000 - 20,000 17.95
20,000 - 40,000 18.54
40,000 - 41,200 19.13
41,200 - 80,000 31.50 32.30%
80,000 - 99.600 32.00 32.79
99,600 - 100,000 34.83 35.71 36.95%
100,000 - 151,750 35.45 36.32 37.55
151,750 - 200,000 40.12 41.13 42.56
200,000 - 271,050 40.48 42.95 41.49%
271,050 + 43.83 46.50*** 44.94
- --------------------------------------------------------------------------------
Taxable income** $0 $121,200
Single to to OVER
$121,200(1) $243,700(3) $243,700(2)
-------------------------------------------------------
$ 0 - $ 5,000 15.59%
5,000 - 10,000 16.18
10,000 - 15,000 17.36
15,000 - 20,000 17.95
20,000 - 24,650 18.54
24,650 - 40,000 31.00
40,000 - 59,750 31.50
59,750 - 80,000 34.35
80,000 - 100,000 34.83 35.71%
100,000 - 124,650 35.45 36.93
124,650 - 200,000 40.12 41.85 41.13%
200,000 - 271,050 40.48 41.49
271,050 + 43.83 44.94
-------------------------------------------------------------------------------
*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 $304,300 and your taxable income exceeds $271,050.
(1) No Phase-out -- Assumes no phase-out of itemized deductions or personal
exemptions.
(2) Itemized Deductions Phase-out -- Assumes a phase-out of itemized deductions
and no phase-out of personal exemptions.
<PAGE>
PAGE 64
(3) Itemized Deductions and Personal Exemption Phase-outs -- Assumes a single
taxpayer has one personal exemption, joint taxpayers have two personal
exemptions, personal exemptions phase-out and the itemized deductions continue
to phase-out.
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, 1996. These rates may change if Ohio tax rates change in 1997. If state
tax rates change, equivalent rates may differ from 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 36.63%, you may determine that a tax-exempt yield of 5% is equivalent to
earning a taxable 7.89% yield.
For these Tax-Exempt Rates:
-----------------------------------------------------------------------
3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
-----------------------------------------------------------------------
Marginal
Tax Rates Equal the Taxable Rates shown below:
- --------------------------------------------------------------------------------
15.59% 3.55 4.15 4.74 5.33 5.92 6.52 7.11 7.70
16.18% 3.58 4.18 4.77 5.37 5.97 6.56 7.16 7.75
17.36% 3.63 4.24 4.84 5.45 6.05 6.66 7.26 7.87
17.95% 3.66 4.27 4.88 5.48 6.09 6.70 7.31 7.92
18.54% 3.68 4.30 4.91 5.52 6.14 6.75 7.37 7.98
19.13% 3.71 4.33 4.95 5.56 6.18 6.80 7.42 8.04
31.00% 4.35 5.07 5.80 6.52 7.25 7.97 8.70 9.42
31.50% 4.38 5.11 5.84 6.57 7.30 8.03 8.76 9.49
32.00% 4.41 5.15 5.88 6.62 7.35 8.09 8.82 9.56
32.30% 4.43 5.17 5.91 6.65 7.39 8.12 8.86 9.60
32.79% 4.46 5.21 5.95 6.70 7.44 8.18 8.93 9.67
34.35% 4.57 5.33 6.09 6.85 7.62 8.38 9.14 9.90
34.83% 4.60 5.37 6.14 6.91 7.67 8.44 9.21 9.97
35.45% 4.65 5.42 6.20 6.97 7.75 8.52 9.30 10.07
35.71% 4.67 5.44 6.22 7.00 7.78 8.55 9.33 10.11
36.32% 4.71 5.50 6.28 7.07 7.85 8.64 9.42 10.21
36.93% 4.76 5.55 6.34 7.13 7.93 8.72 9.51 10.31
36.95% 4.76 5.55 6.34 7.14 7.93 8.72 9.52 10.31
37.55% 4.80 5.60 6.41 7.21 8.01 8.81 9.61 10.41
40.12% 5.01 5.85 6.68 7.52 8.35 9.19 10.02 10.86
40.48% 5.04 5.88 6.72 7.56 8.40 9.24 10.08 10.92
41.13% 5.10 5.95 6.79 7.64 8.49 9.34 10.19 11.04
41.49% 5.13 5.98 6.84 7.69 8.55 9.40 10.25 11.11
41.85% 5.16 6.02 6.88 7.74 8.60 9.46 10.32 11.18
42.56% 5.22 6.09 6.96 7.83 8.70 9.58 10.45 11.32
42.95% 5.26 6.13 7.01 7.89 8.76 9.64 10.52 11.39
43.83% 5.34 6.23 7.12 8.01 8.90 9.79 10.68 11.57
44.94% 5.45 6.36 7.26 8.17 9.08 9.99 10.90 11.81
- -------------------------------------------------------------------------------
<PAGE>
PAGE 65
Appendix C
Descriptions of derivative instruments
What follows are brief descriptions of derivative instruments each Fund may use.
At various times a Fund may use some or all of these instruments and is not
limited to these instruments. It may use other similar types of instruments if
they are consistent with its investment goal and policies. For more information
on these instruments, see the SAI.
Options and futures contracts. An option is an agreement to buy or sell an
instrument at a set price during a certain period of time. A futures contract is
an agreement to buy or sell an instrument for a set price on a future date. A
Fund may buy and sell options and futures contracts to manage its exposure to
changing interest rates, security prices and currency exchange rates. Options
and futures may be used to hedge a Fund's investments against price fluctuations
or to increase market exposure.
Asset-backed and mortgage-backed securities. Asset-backed securities include
interests in pools of assets such as motor vehicle installment sale contracts,
installment loan contracts, leases on various types of real and personal
property, receivables from revolving credit (credit card) agreements or other
categories of receivables. Mortgage-backed securities include collateralized
mortgage obligations and stripped mortgage-backed securities. Interest and
principal payments depend on payment of the underlying loans or mortgages. The
value of these securities may also be affected by changes in interest rates, the
market's perception of the issuers and the creditworthiness of the parties
involved. The non-mortgage related asset-backed securities do not have the
benefit of a security interest in the related collateral. Stripped
mortgage-backed securities include interest only (IO) and principal only (PO)
securities. Cash flows and yields on IOs and POs are extremely sensitive to the
rate of principal payments on the underlying mortgage loans or mortgage-backed
securities.
Indexed securities. The value of indexed securities is linked to currencies,
interest rates, commodities, indexes or other financial indicators. Most indexed
securities are short- to intermediate- term fixed income securities whose values
at maturity or interest rates rise or fall according to the change in one or
more specified underlying instruments. Indexed securities may be more volatile
than the underlying instrument itself.
Inverse floaters. Inverse floaters are created by underwriters using the
interest payment on securities. A portion of the interest received is paid to
holders of instruments based on current interest rates for short-term
securities. The remainder, minus a servicing fee, is paid to holders of inverse
floaters. As interest rates go down, the holders of the inverse floaters receive
more income and an increase in the price for the inverse floaters. As interest
rates go up, the holders of the inverse floaters receive less income and a
decrease in the price for the inverse floaters.
<PAGE>
PAGE 66
Structured products. Structured products are over-the-counter financial
instruments created specifically to meet the needs of one or a small number of
investors. The instrument may consist of a warrant, an option or a forward
contract embedded in a note or any of a wide variety of debt, equity and/or
currency combinations. Risks of structured products include the inability to
close such instruments, rapid changes in the market and defaults by other
parties.
<PAGE>
PAGE 67
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, 1997
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, 1997, and it is to be used with the
prospectus dated Aug. 29, 1997, and the Annual Report for the
fiscal year ended June 30, 1997.
<PAGE>
PAGE 68
TABLE OF CONTENTS
Goal and Investment Policies.....................See Prospectus
Additional Investment Policies...............................p.3
Security Transactions........................................p.5
Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation.......................p.8
Performance Information......................................p.8
Valuing Fund Shares..........................................p.11
Investing in the Fund........................................p.12
Redeeming Shares.............................................p.16
Pay-out Plans................................................p.17
Capital Loss Carryover.......................................p.18
Taxes........................................................p.19
Agreements...................................................p.20
The Trusts...................................................p.25
Organizational Information...................................p.25
Board Members and Officers...................................p.25
Compensation for Board Members...............................p.29
Principal Holders of Securities..............................p.31
Independent Auditors.........................................p.31
Financial Statements..........................See Annual Report
Prospectus...................................................p.31
Appendix A: Description of Ratings of Tax-Exempt Securities
and Short-Term Securities.......................p.32
Appendix B: Options and Interest Rate Futures Contracts.....p.36
Appendix C: State Risk Factors..............................p.42
Appendix D: Dollar-Cost Averaging...........................p.54
<PAGE>
PAGE 69
ADDITIONAL INVESTMENT POLICIES
These are investment policies in addition to those presented in the prospectus.
Unless holders of a majority of the outstanding voting securities 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 no Fund
has a present intention to borrow.
'Make cash loans if the total commitment amount exceeds 5% of the Fund's total
assets.
'Buy or sell real estate, unless acquired as a result of ownership of securities
or other instruments, except this shall not prevent a Fund from investing in
securities or other instruments backed by real estate or securities of companies
engaged in the real estate business or real estate investment trusts. For
purposes of this policy, real estate includes real estate limited partnerships.
'Buy or sell physical commodities unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent a Fund from
buying or selling financial instruments (such as 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 board members and officers of AEFC or to its own board members
and officers.
'Purchase securities of an issuer if the board members and officers of a Fund or
the board members and officers of AEFC hold more than a certain percentage of
the issuer's outstanding securities. The rule is this: the holdings of all board
members and officers of a Fund and the holding of all board members 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%, a Fund will not purchase securities of that
issuer.
'Lend Fund securities in excess of 30% of its net assets, at market value. The
current policy of each Fund's board is to make these loans, either long- or
short-term, to broker-dealers. In making loans, a Fund receives the market price
in cash, U.S. government securities, letters of credit or such other collateral
as may be permitted by regulatory agencies and approved by the board members.
<PAGE>
PAGE 70
If a Fund receives cash as collateral, that Fund will invest the cash collateral
in short-term debt securities. Each 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 board, each Fund will not:
'Buy on margin or sell short, except each Fund may enter into interest rate
futures contracts.
'Pledge or mortgage its assets beyond 15% 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 policy, collateral arrangements for margin deposits
on futures contracts are not deemed to be a pledge of assets.
'Invest more than 5% of its total assets in securities whose issuer or guarantor
of principal and interest has been in operation for less than three years.
'Invest in voting securities, securities of investment companies or exploration
or development programs, such as oil, gas or mineral leases.
'Invest more than 5% of its net assets in warrants.
'Invest more than 10% of its net assets in securities and other instruments that
are illiquid. In determining the liquidity of municipal lease obligations, the
investment manager, under guidelines established by the board, will consider the
essential nature of the lease property, the likelihood that the municipality
will continue appropriating funding for the leased property, and other relevant
factors related to the general credit quality of the municipality and the
marketability of the municipal lease 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 board, will evaluate
relevant factors such as the issuer and the size and nature of its commercial
paper programs, the willingness and ability of the issuer or dealer to
repurchase the paper, and the nature of the clearance and settlement procedures
for the paper.
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 the 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.
<PAGE>
PAGE 71
When-issued securities are subject to market fluctuations and they may affect a
Fund's total assets the same as owned securities. 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 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 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.
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, each 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.
SECURITY TRANSACTIONS
Subject to policies set by the board, 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 except where otherwise
authorized by the trustees.
<PAGE>
PAGE 72
AEFC has a strict Code of Ethics that prohibits its affiliated personnel from
engaging in personal investment activities that compete with or attempt to take
advantage of planned portfolio transactions for any fund in the IDS MUTUAL FUND
GROUP. AEFC carefully monitors compliance with its Code of Ethics.
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.
On occasion, it may be desirable to compensate a broker for research services or
for brokerage services by paying a commission that might not otherwise be
charged or a commission in excess of the amount another broker might charge. The
board has adopted a policy authorizing AEFC to do so to the extent authorized by
law, if AEFC determines, in good faith, that such commission is reasonable in
relation to the value of the brokerage or research services provided by a broker
or dealer, viewed either in the light of that transaction or AEFC's overall
responsibilities to the funds in the IDS MUTUAL FUND GROUP and other accounts
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.
When paying a commission that might not otherwise be charged or a commission in
excess of the amount another broker might charge, AEFC must follow procedures
authorized by the board of directors. To date, three procedures have been
authorized. One procedure permits AEFC to direct an order to buy or sell a
security traded on a national securities exchange to a specific broker for
research services it has provided. The second procedure permits AEFC, in order
to obtain research, to direct an order on an agency basis to buy or sell a
security traded in the over-the-counter market to a
<PAGE>
PAGE 73
firm that does not make a market in that security. The commission paid generally
includes compensation for research services. The third procedure permits AEFC,
in order to obtain research and brokerage services, to cause a Fund to pay a
commission in excess of the amount another broker might have charged. AEFC has
advised the Funds that it is necessary to do business with a number of brokerage
firms on a continuing basis to obtain such services as the handling of large
orders, the willingness of a broker to risk its own money by taking a position
in a security, and the specialized handling of a particular group of securities
that only certain brokers may be able to offer. As a result of this arrangement,
some portfolio transactions may not be effected at the lowest commission, but
AEFC believes it may obtain better overall execution. AEFC has assured the Funds
that under all three procedures the amount of commission paid will be reasonable
and competitive in relation to the value of the brokerage services performed or
research provided.
All other transactions shall be placed on the basis of obtaining the best
available price and the most favorable execution. In so doing, if in the
professional opinion of the person responsible for selecting the broker or
dealer, several firms can execute the transaction on the same basis,
consideration will be given to those firms offering research services. Research
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 a 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 the Fund, the Fund hopes to gain
an overall advantage in execution. AEFC has assured the Funds it will continue
to seek ways to reduce brokerage costs.
On a periodic basis, AEFC makes a comprehensive review of the broker-dealers and
the overall reasonableness of their commissions. The review evaluates execution,
operational efficiency and research services.
For the fiscal years ending June 30, each Fund paid the following brokerage
commissions on financial futures contracts.
CA MA MI MN NY OH
1997 $ 4,656 $ 1,320 $ 1,404 $ 7,620 $ 3,228 $ 1,344
1996 12,144 2,892 3,252 18,000 7,320 3,036
1995 55,741 10,533 11,742 91,029 30,993 11,668
<PAGE>
PAGE 74
No transactions were directed to brokers because of research services they
provided to each Fund.
As of the fiscal year ended June 30, 1997, each Fund held 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.
The portfolio turnover rates for the fiscal years ended June 30 were as follows:
CA MA MI MN NY OH
1997 14% 8% 21% 14% 12% 9%
1996 15 6 29 13 9 24
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH AMERICAN
EXPRESS FINANCIAL CORPORATION
Affiliates of American Express Company (American Express) (of which AEFC is a
wholly-owned subsidiary) may engage in brokerage and other securities
transactions on behalf of each Fund according to procedures adopted by that
Fund's board and to the extent consistent with applicable provisions of the
federal securities laws. AEFC will use an American Express affiliate only if (i)
AEFC determines that each 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 each
Fund commission rates consistent with those the affiliate charges comparable
unaffiliated customers in similar transactions and if such use is consistent
with terms of the Investment Management Services Agreement.
AEFC may direct brokerage to compensate an affiliate. AEFC will receive research
on South Africa from New Africa Advisors, a wholly-owned subsidiary of Sloan
Financial Group. AEFC owns 100% of IDS Capital Holdings Inc. which in turn owns
40% of Sloan Financial Group. New Africa Advisors will send research to AEFC and
in turn AEFC will direct trades to a particular broker. The broker will have an
agreement to pay New Africa Advisors. All transactions will be on a best
execution basis. Compensation received will be reasonable for the services
rendered.
No brokerage commissions were paid to brokers affiliated with AEFC for the three
most recent fiscal years.
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 a Fund to compute performance follows
below.
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PAGE 75
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 a Fund over
a specified period of time according to the following formula:
ERV - P
P
where: P = a hypothetical initial payment of $1,000
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of a period, at the
end of the period (or fractional portion thereof)
Annualized yield
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
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PAGE 76
The following table gives an annualized yield quotation for each of the funds:
30-Day Period Class A Class B
Fund Ended June 30, 1997 Yield Yield
- -------------------------------------------------------
California 4.00% 3.47%
Massachusetts 4.20 3.66
Michigan 4.16 3.61
Minnesota 4.63 4.12
New York 4.13 3.60
Ohio 4.37 3.84
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:
<TABLE>
<CAPTION>
Marginal
Income Tax Tax-Equivalent Yield
Bracket for 30-Day Period Ended June 30, 1997
- ---------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
California Massachusetts Michigan Minnesota New York Ohio
Class A
15.0% 4.71% 4.94% 4.89% 5.45% 4.86% 5.14%
28.0% 5.56% 5.83% 5.78% 6.43% 5.74% 6.07%
33.0% 5.97% 6.27% 6.21% 6.91% 6.16% 6.52%
Class B
15.0% 4.08% 4.31% 4.25% 4.85% 4.24% 4.52%
28.0% 4.82% 5.08% 5.01% 5.72% 5.00% 5.33%
33.0% 5.18% 5.46% 5.39% 6.15% 5.37% 5.73%
</TABLE>
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 Week, Donoghue's Money Market Fund Report, Financial
Services Week, Financial Times, Financial World, Forbes, Fortune, Global
Investors, Institutional Investor, Investor's Daily, Kiplinger's Personal
Finance, Lipper Analytical Services, Money, Morningstar, Mutual Fund Forecaster,
Newsweek, The New York Times, Personal Investor, Stanger Report, Sylvia Porter's
Personal Finance, USA Today, U.S. News and World Report, The Wall Street Journal
and Wiesenberger Investment Companies Service.
<PAGE>
PAGE 77
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, 1997, the first business
day following the end of the year, the computation looked like this:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Net assets before Shares outstanding Net asset value
Fund shareholder transactions at end of previous day of one share
California
Class A $232,344,863 divided by 44,289,909 equals $ 5.246
Class B 10,069,115 1,919,755 5.245
Massachusetts
Class A 66,577,414 12,274,597 5.424
Class B 8,121,431 1,497,590 5.423
Michigan
Class A 76,723,620 14,080,312 5.449
Class B 3,633,889 666,891 5.449
Minnesota
Class A 376,854,458 71,077,793 5.302
Class B 22,222,766 4,191,393 5.302
New York
Class A 107,756,013 20,878,902 5.161
Class B 7,561,299 1,465,084 5.161
Ohio
Class A 66,665,979 12,391,446 5.380
Class B 3,542,596 658,475 5.380
</TABLE>
In determining net assets before shareholder transactions, each Fund's
securities are valued as follows as of the close of business of the New York
Stock Exchange (the 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.
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PAGE 78
'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. The board is responsible for selecting methods they believe
provide fair value. When possible bonds are valued by a pricing service
independent from a fund. If a valuation of a bond is not available from a
pricing service, the bond will be valued by a dealer knowledgeable about the
bond if such a dealer is available.
The Exchange, AEFC and each of the Funds will be closed on the following
holidays: New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
INVESTING IN THE FUNDS
Sales Charge
Shares of each 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 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, 1997, was determined as follows:
The sales charge is paid to American Express Financial Advisors by the person
buying the shares.
Fund Net asset value Divided by (1.00 Public offering
of one share -0.05) for a price
sales charge
California $ 5.246 / 0.95 = $ 5.52
Massachusetts 5.424 / 0.95 = 5.71
Michigan 5.449 / 0.95 = 5.74
Minnesota 5.302 / 0.95 = 5.58
New York 5.161 / 0.95 = 5.43
Ohio 5.380 / 0.95 = 5.66
Class A - Calculation of the Sales Charge
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PAGE 79
Sales charges are determined as follows:
Within each increment,
sales charge as a
percentage of:
Public Net
Amount of Investment Offering Price Amount Invested
First $ 50,000 5.0% 5.26%
Next 50,000 4.5 4.71
Next 400,000 3.8 3.95
Next 500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
Sales charges on an investment greater than $50,000 and less than $1,000,000 are
calculated for each increment separately and then totaled. The resulting total
sales charge, expressed as a percentage of the public offering price and of the
net amount invested, will vary depending on the proportion of the investment at
different sales charge levels.
For example, compare an investment of $60,000 with an investment of $85,000. The
$60,000 investment is composed of $50,000 that incurs a sales charge of $2,500
(5.0% x $50,000) and $10,000 that incurs a sales charge of $450 (4.5% x
$10,000). The total sales charge of $2,950 is 4.92% of the public offering price
and 5.17% of the net amount invested.
In the case of the $85,000 investment, the first $50,000 also incurs a sales
charge of $2,500 (5.0% x $50,000) and $35,000 incurs a sales charge of $1,575
(4.5% x $35,000). The total sales charge of $4,075 is 4.79% of the public
offering price and 5.04% of the net amount invested.
The following table shows the range of sales charges as a percentage of the
public offering price and of the net amount invested on total investments at
each applicable level.
On total investment, sales
charge as a percentage of
Public Net
Offering Price Amount Invested
Amount of Investment ranges from:
First $ 50,000 5.00% 5.26%
More than 50,000 to 100,000 5.00-4.50 5.26-4.71
More than 100,000 to 500,000 4.50-3.80 4.71-3.95
More than 500,000 to 999,999 3.80-2.00 3.95-2.04
$1,000,000 or more 0.00 0.00
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Class A - Reducing the Sales Charge
Sales charges are based on the total amount of your investments in these Funds.
The amount of all prior investments plus any new purchase is referred to as your
"total amount invested." For example, suppose you have made an investment of
$20,000 and later decide to invest $40,000 more. Your total amount invested
would be $60,000. As a result, $10,000 of your $40,000 investment qualifies for
the lower 4.5% sales charge that applies to investments of more than $50,000 and
up to $100,000.
The total amount invested includes any shares held in any of these Funds in the
name of a member of your primary household group. (The primary household group
consists of accounts in any ownership for spouses or domestic partners and their
unmarried children under 21. Domestic partners are individuals who maintain a
shared primary residence and have joint property or other insurable interests.)
For instance, if your spouse already has invested $20,000 and you want to invest
$40,000, your total amount invested will be $60,000 and therefore you will pay
the lower charge of 4.5% on $10,000 of the $40,000.
Until a spouse remarries, the sales charge is waived for spouses and unmarried
children under 21 of deceased board members, officers or employees of the Fund
or AEFC or its subsidiaries and deceased advisors.
The total amount invested also includes any investment you or your immediate
family already have in the other publicly offered funds in the IDS MUTUAL FUND
GROUP where the investment is subject to a sales charge. For example, suppose
you already have an investment of $30,000 in another IDS Fund. If you invest
$40,000 more in 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 (LOI)
If you intend to invest $1 million over a period of 13 months, you can reduce
the sales charges in Class A by filing a LOI. The agreement can start at any
time and will remain in effect for 13 months. Your investment will be charged
normal sales charges until you have invested $1 million. At that time, your
account will be credited with the sales charges previously paid. Class A
investments made prior to signing an LOI may be used to reach the $1 million
total, excluding Cash Management Fund and Tax-Free Money Fund. However, we will
not adjust for sales charges on investments made prior to the signing of the
LOI. If you do not invest $1 million by the end of 13 months, there is no
penalty, you'll just miss out on the sales charge adjustment. A LOI is not an
option (absolute right) to buy shares.
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PAGE 81
Here's an example. You file a LOI to invest $1 million and make an investment of
$100,000 at that time. You pay the normal 5% sales charge on the first $50,000
and 4.5% sales charge on the next $50,000 of this investment. Let's say you make
a second investment of $900,000 (bringing the total up to $1 million) one month
before the 13-month period is up. On the date that you bring your total to $1
million, AEFC makes an adjustment to your account. The adjustment is made by
crediting your account with additional shares, in an amount equivalent to sales
charge previously paid.
Systematic Investment Programs
After you make your initial 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 investment programs. You
decide how often 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
<PAGE>
PAGE 82
exchanged into the same class of another fund in the IDS MUTUAL FUND GROUP but
cannot be split to make purchases in two or more funds. Automatic directed
dividends are available between accounts of any ownership except:
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.
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 that fund's prospectus. You will
receive a confirmation that the automatic directed dividend service has been set
up for your account.
REDEEMING SHARES
You have a right to redeem your shares at any time. For an explanation of
redemption procedures, please see the prospectus.
During an emergency, the board can suspend the computation of net asset value,
stop accepting payments for purchase of shares or suspend the duty of a Fund to
redeem shares for more than seven days. Such emergency situations would occur
if:
'The Exchange closes for reasons other than the usual weekend and
holiday closings or trading on the Exchange is restricted, or
'Disposal of 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 (the 1940
Act), as amended, declares a period of emergency to exist.
<PAGE>
PAGE 83
Should a Fund stop selling shares, the board 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.
Each Fund has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates a Fund to redeem shares in cash, with respect to any one shareholder
during any 90-day period, up to the lesser of $250,000 or 1% of the net assets
of a Fund at the beginning of the period. Although redemptions in excess of this
limitation would normally be paid in cash, each Fund reserves the right to make
these payments in whole or in part in securities or other assets in case of an
emergency, or if the payment of a redemption in cash would be detrimental to the
existing shareholders of a Fund as determined by the board. In these
circumstances, the securities distributed would be valued as set forth in the
prospectus. Should a Fund distribute securities, a shareholder may incur
brokerage fees or other transaction costs in converting the securities to cash.
PAY-OUT PLANS
You can use any of several pay-out plans to redeem your investment in regular
installments. If you redeem Class B shares you may be subject to a contingent
deferred sales charge as discussed in the prospectus. While the plans differ on
how the pay-out is figured, they all are based on the redemption of your
investment. Net investment income dividends and any capital gain distributions
will automatically be reinvested, unless you elect to receive them in cash.
Applications for a systematic investment in a class of any fund
subject to a sales charge normally will not be accepted while a
pay-out plan for any of those funds is in effect. Occasional
investments, however, may be accepted.
To start any of these plans, please write 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. Each Fund reserves the right to
change or stop any pay-out plan and to stop making such plans available.
<PAGE>
PAGE 84
Plan #1: Pay-out for a fixed period of time
If you choose this plan, a varying number of shares will be redeemed at regular
intervals during the time period you choose. This plan is designed to end in
complete redemption of all shares in your account by the end of the fixed
period.
Plan #2: Redemption of a fixed number of shares
If you choose this plan, a fixed number of shares will be redeemed for each
payment and that amount will be sent to you. The length of time these payments
continue is based on the number of shares in the account.
Plan #3: Redemption of a fixed dollar amount
If you decide on a fixed dollar amount, whatever number of shares is necessary
to make the payment will be redeemed in regular installments until the account
is closed.
Plan #4: Redemption of a percentage of net asset value
Payments are made based on a fixed percentage of the net asset value of the
shares in your account computed on the day of each payment. Percentages range
from 0.25% to 0.75%. For example, if you are on this plan and arrange to take
0.5% each month, you will get $50 if the value of your account is $10,000 on the
payment date.
CAPITAL LOSS CARRYOVER
For federal income tax purposes, IDS California, Massachusetts, Michigan,
Minnesota, New York and Ohio Tax-Exempt Funds had total capital loss carryovers
of $1,643,088, $268,549, $147,263, $972,605, $1,956,275, and $527,216,
respectively, at June 30, 1997, that if not offset by subsequent capital gains
will expire as set
out below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fund 1999 2000 2001 2002 2003 2004 2005 2006
- -------------------------------------------------------------------------------------------
California $1,643,088
Massachusetts $133,728 $ 6,932 $ 25,326 $ 763 $ 11,866 $ 71,473 $ 18,461
Michigan 147,263
Minnesota 972,605
New York 199,630 12,737 1,743,908
Ohio 527,216
</TABLE>
It is unlikely that the board will authorize a distribution of any net realized
capital gains until the available capital loss carryover has been offset or has
expired except as required by Internal Revenue Service rules.
<PAGE>
PAGE 85
TAXES
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.
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, 1997, 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
Massachusetts, Minnesota, New York and Ohio whereas California and Michigan had
96% and 99% respectively, 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.
The Fund may purchase tax-exempt securities at a discount from the price at
which they were originally issued, especially during periods of rising interest
rates. For federal income tax purposes, some or all of this market discount will
be included in the Fund's ordinary income and will be taxable income when it is
distributed to you.
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.
<PAGE>
PAGE 86
Interest on private activity bonds generally issued after August 1986 is a tax
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
to 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
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
On June 30, 1997, the daily rate applied to the Funds' net assets was equal to
0.470% for California, Massachusetts, Michigan, New York and Ohio, and 0.461%
for Minnesota 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.
<PAGE>
PAGE 87
The management fee is paid monthly. The table below shows the total amount paid
by each Fund over the past three fiscal years.
Fiscal Year Ended June 30,
Fund 1997 1996 1995
- ---------------------------------------------------------
California $ 1,136,825 $ 1,138,491 $ 1,222,758
Massachusetts 349,582 344,729 349,517
Michigan 382,131 381,069 390,460
Minnesota 1,856,870 1,895,243 2,013,423
New York 555,919 578,413 599,733
Ohio 335,881 355,739 365,009
Under the agreement, each Fund also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees; audit and certain legal
fees; cost of prospectuses, proxies and reports sent to shareholders; fidelity
bond premiums; registration fees for shares; office expenses; consultants' fees;
compensation of board members, officers and employees; corporate filing fees;
organizational expenses; expenses incurred in connection with lending securities
of each Fund; and expenses properly payable by each Fund, approved by the board.
Under the agreement, each Fund paid nonadvisory expenses. The table below shows
the expenses paid over the past three fiscal years.
Fiscal Year Ended June 30,
Fund 1997 1996 1995
- -----------------------------------------------------------
California $ 79,107 $ 92,077 $ 77,270
Massachusetts 64,534 77,636 45,060
Michigan 66,202 71,022 43,853
Minnesota 44,674 174,109 95,952
New York 64,887 94,745 53,049
Ohio 55,835 64,467 46,013
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
First $0.25 0.040%
Next 0.25 0.035
Next 0.25 0.030
Next 0.25 0.025
Over 1.0 0.020
On June 30, 1997, the daily rate applied to the Fund's net assets was equal to
0.040% for California, Massachusetts, Michigan, New York and Ohio, and 0.038%
for Minnesota on an annual basis. The fee is calculated for each calendar day on
the basis of net assets
<PAGE>
PAGE 88
as of the close of business two business days prior to the day for which the
calculation is made. Under the agreement, each Fund paid fees for the fiscal
year ended June 30, 1997:
California $ 96,751
Massachusetts 28,771
Michigan 32,522
Minnesota 153,661
New York 47,312
Ohio 28,586
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 dividing by the number of
days in the year. The rate for Class A and Class Y is $15.50 per year and for
Class B is $16.50 per year. The fees paid to AEFC may be changed from time to
time upon agreement of the parties without shareholder approval. Under the
agreement, each Fund paid the following fees for the fiscal year ended June 30,
1997:
California $ 91,352
Massachusetts 44,352
Michigan 40,236
Minnesota 217,567
New York 65,260
Ohio 38,370
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Year California Massachusetts Michigan Minnesota New York Ohio
-------------------------------------------------------------------------------------------
1997 (1) $ 447,310 $ 217,111 $ 132,029 $ 815,821 $ 244,183 $ 107,459
(2) 77,322 17,237 18,556 140,883 29,981 (19,095)
1996 (1) 734,901 316,202 211,247 1,120,048 271,649 178,969
(2) 157,015 17,343 33,096 115,979 14,847 13,066
1995 (1) 480,443 296,532 176,901 1,139,773 408,417 205,263
(2) 211,214 147,293 88,307 499,731 174,370 91,621
</TABLE>
<PAGE>
PAGE 89
Additional information about commissions and compensation for the fiscal year
ended June 30, 1997 is contained in the following table:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
<S> <C> <C> <C> <C> <C>
Net Compensation
Name of Underwriting on Redemption
Principal Discounts and and Brokerage Other
Fund Underwriter Commissions Repurchases Commissions Compensation*
California AEFC None None None $ 61,667
American Express
Financial
Advisors $ 447,310 None None None
Massachusetts AEFC None None None 50,354
American Express
Financial
Advisors 217,111 None None None
Michigan AEFC None None None 23,438
American Express
Financial
Advisors 132,029 None None None
Minnesota AEFC None None None 144,457
American Express
Financial
Advisors 815,821 None None None
New York AEFC None None None 45,744
American Express
Financial
Advisors 244,183 None None None
Ohio AEFC None None None 20,664
American Express
Financial
Advisors 107,459 None None None
- --------------------------------------------------------------------------------------------
</TABLE>
*Distribution fees paid pursuant to the Plan and Agreement of
Distribution.
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 the 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.
<PAGE>
PAGE 90
The Plan must be approved annually by the board, including a majority of the
disinterested board members, if it is to continue for more than a year. At least
quarterly, the board must review written reports concerning the amounts expended
under the Plan and the purposes for which such expenditures were made. The Plan
and any agreement related to it may be terminated at any time by vote of a
majority of the board members 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's Class B shares 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 1940 Act, 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 board members, including a majority of the board members
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 board members is the responsibility of
disinterested board members. No board member who is not an interested person,
has any direct or indirect financial interest in the operation of the Plan or
any related agreement. The following fees were paid under the agreement:
Fees paid as of
Fiscal year ended
June 30, 1997
California $ 61,667
Massachusetts 50,354
Michigan 23,438
Minnesota 144,457
New York 45,744
Ohio 20,664
Custodian Agreement
The Fund's securities and cash are held by First Bank National Association, 180
E. Fifth St., St. Paul, MN 55101-1631, through a custodian agreement. The
custodian is permitted to deposit some or all of its securities in central
depository systems as allowed by federal law. For its services, each Fund pays
the custodian a maintenance charge and a charge per transaction in addition to
reimbursing the custodian's out-of-pocket expenses.
<PAGE>
PAGE 91
THE TRUSTS
Total fees and expenses
Each Fund paid the following total fees and nonadvisory expenses for the fiscal
year ended June 30, 1997:
Total fees and
nonadvisory
expenses
California $1,883,163
Massachusetts 666,585
Michigan 684,857
Minnesota 3,116,840
New York 983,844
Ohio 602,692
The Trusts are 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.
ORGANIZATIONAL INFORMATION
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.
BOARD MEMBERS AND OFFICERS
The following is a list of the Fund's board members. They serve 15 Master Trust
portfolios and 47 IDS and IDS Life funds (except for William H. Dudley, who does
not serve on the nine IDS Life fund boards.)
All shares have cumulative voting rights with respect to the election of board
members.
H. Brewster Atwater, Jr.
Born in 1931
4900 IDS Tower
Minneapolis, MN
Former chairman and chief executive officer, General Mills, Inc.
Director, Merck & Co., Inc. and Darden Restaurants, Inc.
<PAGE>
PAGE 92
Lynne V. Cheney'
Born in 1941
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W.
Washington, D.C.
Distinguished Fellow AEI. Former Chair of National Endowment of
the Humanities. Director, The Reader's Digest Association Inc.,
Lockheed-Martin, Union Pacific Resources, and FPL Group, Inc.
(holding company for Florida Power and Light).
William H. Dudley**
Born in 1932
2900 IDS Tower
Minneapolis, MN
Senior advisor to the chief executive officer, AEFC.
Robert F. Froehlke+
Born in 1922
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+**
Born in 1943
2900 IDS Tower
Minneapolis, MN
President and chief executive officer of AEFC since August 1993, and director of
AEFC. Previously, senior vice president, finance and chief financial officer of
AEFC.
Heinz F. Hutter+'
Born in 1929
P.O. Box 2187
Minneapolis, MN
Former president and chief operating officer, Cargill, Incorporated (commodity
merchants and processors).
Anne P. Jones
Born in 1935
5716 Bent Branch Rd.
Bethesda, MD
Attorney and telecommunications consultant. Former partner, law
firm of Sutherland, Asbill & Brennan. Director, Motorola, Inc. and
C-Cor Electronics, Inc.
<PAGE>
PAGE 93
Melvin R. Laird
Born in 1922
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. Former nine-term U.S. Congressman, U.S. Secretary of Defense
and Presidential Counsellor. Director, 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).
William R. Pearce+*
Born in 1927
901 S. Marquette Ave.
Minneapolis, MN
Chairman of the board, Board Services Corporation (provides administrative
services to boards). Director, trustee and officer of registered investment
companies whose boards are served by the company. Former vice chairman of the
board, Cargill, Incorporated (commodity merchants and processors).
Alan K. Simpson
Born in 1931
1201 Sunshine Ave.
Cody, WY
Former three-term United States Senator for Wyoming. Former
Assistant Republican Leader, U.S. Senate. Director, PacifiCorp
(electric power).
Edson W. Spencer+
Born in 1926
4900 IDS Center
80 S. 8th St.
Minneapolis, MN
President, Spencer Associates Inc. (consulting). Former chairman
of the board and chief executive officer, Honeywell Inc. Director,
Boise Cascade Corporation (forest products). Member of
International Advisory Council of NEC (Japan).
John R. Thomas**
Born in 1937
2900 IDS Tower
Minneapolis, MN
Senior vice president and director of AEFC.
<PAGE>
PAGE 94
Wheelock Whitney+
Born in 1926
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN
Chairman, Whitney Management Company (manages family assets).
C. Angus Wurtele'
Born in 1934
Valspar Corporation
Suite 1700
Foshay Tower
Minneapolis, MN
Chairman of the board and retired chief executive officer, The Valspar
Corporation (paints). Director, Bemis Corporation (packaging), Donaldson Company
(air cleaners & mufflers) and
General Mills, Inc. (consumer foods).
+ Member of executive committee.
' Member of joint audit committee.
* Interested person by reason of being an officer and employee of the Fund.
**Interested person by reason of being an officer, board member, employee and/or
shareholder of AEFC or American Express.
The board also has appointed officers who are responsible for day-to-day
business decisions based on policies it has established.
In addition to Mr. Pearce, who is president, the Fund's other officers are:
Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN
President, treasurer and corporate secretary of Board Services Corporation. Vice
president, general counsel and secretary for each Fund.
Officers who also are officers and/or employees of AEFC
Peter J. Anderson
Born in 1942
IDS Tower 10
Minneapolis, MN
Director and senior vice president-investments of AEFC. Vice
president-investments for each Fund.
<PAGE>
PAGE 95
Melinda S. Urion
Born in 1953
IDS Tower 10
Minneapolis, MN
Director, senior vice president and chief financial officer of AEFC. Director,
executive vice president and controller of IDS Life Insurance Company. Treasurer
for each Fund.
COMPENSATION FOR FUND BOARD MEMBERS
Members of the board who are not officers of the Funds or AEFC receive an annual
fee of $100 for California, Massachusetts, Michigan, Minnesota, New York and
Ohio, and the chair of the Contracts Committee receives an additional $86. Board
members receive a $50 per day attendance fee for board meetings. The attendance
fee for meetings of the Contracts and Investment Review Committees is $50; for
meetings of the Audit Committee and Personnel Committee $25 and for traveling
from out-of-state $1. Expenses for attending meetings are reimbursed.
During the fiscal year ended June 30, 1997, the members of the board, for
attending up to 31 meetings, received the following compensation:
<TABLE>
<CAPTION>
Board Compensation
IDS California Tax-Exempt Fund
<S> <C> <C> <C> <C>
Pension or Estimated Total cash compensation
Aggregate Retirement annual from the IDS MUTUAL FUND
compensation benefits accrued benefit upon GROUP and the Preferred
Board member from the Fund as Fund expenses retirement Master Trust Group
H. Brewster Atwater, Jr. $225 $0 $0 $ 68,900
(part of year)
Lynne V. Cheney 369 0 0 92,000
Robert F. Froehlke 428 0 0 99,800
Heinz F. Hutter 481 0 0 99,900
Anne P. Jones 394 0 0 107,600
Melvin R. Laird 322 0 0 93,700
Alan K. Simpson 8 0 0 46,300
(part of year)
Edson W. Spencer 463 0 0 122,900
Wheelock Whitney 438 0 0 104,600
C. Angus Wurtele 481 0 0 104,200
Board Compensation
IDS Massachusetts Tax-Exempt Fund
Pension or Estimated Total cash compensation
Aggregate Retirement annual from the IDS MUTUAL FUND
compensation benefits accrued benefit upon GROUP and the Preferred
Board member from the Fund as Fund expenses retirement Master Trust Group
H. Brewster Atwater, Jr. $225 $0 $0 $ 68,900
(part of year)
Lynne V. Cheney 331 0 0 92,000
Robert F. Froehlke 390 0 0 99,800
Heinz F. Hutter 443 0 0 99,900
Anne P. Jones 356 0 0 107,600
Melvin R. Laird 284 0 0 93,700
Alan K. Simpson 8 0 0 46,300
(part of year)
Edson W. Spencer 425 0 0 122,900
Wheelock Whitney 400 0 0 104,600
C. Angus Wurtele 443 0 0 104,200
<PAGE>
PAGE 96
Board Compensation
IDS Michigan Tax-Exempt Fund
Pension or Estimated Total cash compensation
Aggregate Retirement annual from the IDS MUTUAL FUND
compensation benefits accrued benefit upon GROUP and the Preferred
Board member from the Fund as Fund expenses retirement Master Trust Group
H. Brewster Atwater, Jr. $225 $0 $0 $ 68,900
(part of year)
Lynne V. Cheney 331 0 0 92,000
Robert F. Froehlke 390 0 0 99,800
Heinz F. Hutter 443 0 0 99,900
Anne P. Jones 356 0 0 107,600
Melvin R. Laird 284 0 0 93,700
Alan K. Simpson 8 0 0 46,300
(part of year)
Edson W. Spencer 425 0 0 122,900
Wheelock Whitney 400 0 0 104,600
C. Angus Wurtele 443 0 0 104,200
Board Compensation
IDS Minnesota Tax-Exempt Fund
Pension or Estimated Total cash compensation
Aggregate Retirement annual from the IDS MUTUAL FUND
compensation benefits accrued benefit upon GROUP and the Preferred
Board member from the Fund as Fund expenses retirement Master Trust Group
H. Brewster Atwater, Jr. $225 $0 $0 $ 68,900
(part of year)
Lynne V. Cheney 406 0 0 92,000
Robert F. Froehlke 465 0 0 99,800
Heinz F. Hutter 518 0 0 99,900
Anne P. Jones 431 0 0 107,600
Melvin R. Laird 359 0 0 93,700
Alan K. Simpson 8 0 0 46,300
(part of year)
Edson W. Spencer 500 0 0 122,900
Wheelock Whitney 475 0 0 104,600
C. Angus Wurtele 518 0 0 104,200
Board Compensation
IDS New York Tax-Exempt Fund
Pension or Estimated Total cash compensation
Aggregate Retirement annual from the IDS MUTUAL FUND
compensation benefits accrued benefit upon GROUP and the Preferred
Board member from the Fund as Fund expenses retirement Master Trust Group
H. Brewster Atwater, Jr. $225 $0 $0 $ 68,900
(part of year)
Lynne V. Cheney 344 0 0 92,000
Robert F. Froehlke 403 0 0 99,800
Heinz F. Hutter 456 0 0 99,900
Anne P. Jones 369 0 0 107,600
Melvin R. Laird 297 0 0 93,700
Alan K. Simpson 8 0 0 46,300
(part of year)
Edson W. Spencer 438 0 0 122,900
Wheelock Whitney 413 0 0 104,600
C. Angus Wurtele 456 0 0 104,200
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Board Compensation
IDS Ohio Tax-Exempt Fund
Pension or Estimated Total cash compensation
Aggregate Retirement annual from the IDS MUTUAL FUND
compensation benefits accrued benefit upon GROUP and the Preferred
Board member from the Fund as Fund expenses retirement Master Trust Group
H. Brewster Atwater, Jr. $225 $0 $0 $ 68,900
(part of year)
Lynne V. Cheney 331 0 0 92,000
Robert F. Froehlke 390 0 0 99,800
Heinz F. Hutter 443 0 0 99,900
Anne P. Jones 356 0 0 107,600
Melvin R. Laird 284 0 0 93,700
Alan K. Simpson 8 0 0 46,300
(part of year)
Edson W. Spencer 425 0 0 122,900
Wheelock Whitney 400 0 0 104,600
C. Angus Wurtele 443 0 0 104,200
</TABLE>
On June 30, 1997, the Fund's board members and officers as a group owned less
than 1% of the outstanding shares of each Fund.
PRINCIPAL HOLDERS OF SECURITIES
As of June 30, 1997, the following held more than 5% of a Fund's shares.
IDS Michigan Tax-Exempt Fund
Barbara and William Clark, 5.09%
Additional information on principal holders of securities may be obtained by
writing to American Express Shareholders Services, P.O.
Box 534, Minneapolis, MN 55440-0534.
INDEPENDENT AUDITORS
The financial statements contained in the Annual Report to shareholders for the
fiscal year ended June 30, 1997, were audited by independent auditors, KPMG Peat
Marwick LLP, 4200 Norwest Center, 90 S. Seventh St., Minneapolis, MN 55402-3900.
The independent auditors also provide other accounting and tax-related services
as requested by the Funds.
FINANCIAL STATEMENTS
The Independent Auditors' Report and the Financial Statements, including Notes
to the Financial Statements and the Schedules of Investments in Securities,
contained in the Annual Report to shareholders for the fiscal year ended June
30, 1997, 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 California Tax-Exempt Trust and IDS Special
Tax-Exempt Trust, dated Aug. 29, 1997, is hereby incorporated in
this SAI by reference.
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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 issuer.
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 is 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
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economic conditions and require constant review. Such bonds are more responsive
to business and trade conditions than to interest rate fluctuations.
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.
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(4) Tax and revenue anticipation notes issued in anticipation of revenues from
taxes and other sources of revenue, except bond placements.
(5) Construction loan notes insured by the Federal Housing Administration which
remain outstanding until permanent financing by the Federal National Mortgage
Association (FNMA) or the Government National Mortgage Association (GNMA) at the
end of the project construction period.
(6) Tax-exempt commercial paper with a stated maturity of 365 days or less
issued by agencies of state and local governments to finance seasonal working
capital needs or as short-term financing in anticipation of longer-term
financing.
(7) 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 101
Short-term Taxable Securities and Repurchase Agreement
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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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.
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 or securities of equivalent value (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. 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
<PAGE>
PAGE 103
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, 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 goals.
'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.
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. A 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 Exchange. An option listed on a
national exchange, Chicago Board Options Exchange (CBOE) or NASDAQ will be
valued at the last-quoted sales price or, if such a price is not readily
available, at the mean of the last bid and asked prices.
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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, each
Fund pays the difference and realizes a loss. Similarly, closing out a futures
contract purchase is effected by a Fund entering into a futures contract sale.
If the offsetting sale price exceeds the purchase price, each Fund realizes a
gain, and if the offsetting sale price is less than the purchase price, each
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 a 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 each 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 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
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PAGE 105
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 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.
OPTIONS ON FUTURES CONTRACTS. Options on futures contracts give the holder a
right to buy or sell futures contracts in the future. Unlike a futures contract,
which requires the parties to the contract to buy and sell a security on a set
date, an option on a futures contract merely entitles its holder to decide on or
before a future date (within nine months of the date of issue) whether to enter
into such a contract. If the holder decides not to enter into the contract, all
that is lost is the amount (premium) paid for the option. Furthermore, because
the value of the option is fixed at the point of sale, there are no daily
payments of cash to reflect the change in the value of the underlying contract.
However, since an option gives the buyer the right to enter into a contract at a
set price for a fixed period of time, its value does change daily and that
change is reflected in the net asset value of 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.
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.
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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 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 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 will depend on whether such option is a section
1256 contract. If the option is a non-equity option, a Fund will either make a
1256(d) election and treat the option as a mixed straddle or mark to market the
option at fiscal year end and treat the gain/loss as 40% short-term and 60%
long-term. Certain provisions of the Internal Revenue Code may also limit 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 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.
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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
The yields on the securities in which the Funds will invest generally are
dependent on a variety of factors, including the financial condition of the
issuer or other obligator, the revenue source from which the debt service is
payable, general economic and monetary conditions, conditions in the relevant
market, the size of a particular issue, the maturity of the obligation, and the
rating of the issue.
In addition to such factors, such securities will experience particular
sensitivity to local conditions - including political and economic changes,
adverse conditions to an industry significant to the area, and other
developments within a particular locality including: ecological or environmental
concerns; litigation; natural disasters; and statutory limitations on an
issuer's ability to increase taxes. Because many tax-exempt bonds may be revenue
or general obligations of local governments or authorities, ratings on
tax-exempt bonds may be different from the ratings given to the general
obligation bonds of a particular state. A summary description of certain factors
and statistics describing the economies in each state is set forth below. Such
information is not specific to the issuer of a particular security that a Fund
may own and is only intended to provide a general overview of the respective
state economy. Such information has been excerpted from publicly available
offering documents and from other research reports prepared by rating agencies.
No Fund has independently verified this information and no Fund makes any
representations regarding this information.
Please remember that most state and local economies have experienced significant
expansions over the past 5-7 years. In recessionary periods, an issuer's ability
to pay interest on or repay principal of securities in which the Funds will
invest may be significantly impaired. Accordingly, please monitor your
investment accordingly.
FACTORS AFFECTING CALIFORNIA
California's economy is showing many signs of recovery after several years of
hardship.
This year has seen strong gains in employment, business services,
non-residential construction and local education sectors. During the recent
recession, about 5% job loss was experienced and by November 1996 employment was
approximately 3% over the pre-recession peak. California expects that economic
growth will be focused in entertainment and export trade sectors to the Pacific
Rim.
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California's population is estimated at 31,589,000, which makes it the most
populous state. The March 1997 unemployment rate was 6.5%. The state's personal
income gain was well below the national rate in 1991-1994, and in 1995 it
rebounded to maintain a pace with the rest of the nation. The trend continued
into the second quarter of 1996 with the per capita personal income rate at
$25,144.
An operating deficit is expected for the state as the need for further financial
strengthening continues. Limited economic flexibility surrounds structural
budget issues for restructuring initiatives, mandating strict property tax
limits and the share of the budget which must be devoted to educational reform.
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, 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 and 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.
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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 limitation" 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 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 called 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
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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 a Fund.
FACTORS AFFECTING MASSACHUSETTS
Massachusetts' wealthy and diverse economy continues to flourish after suffering
from a severe recession. Employment gains continue to be positive with 55% of
recession losses recaptured. The annual employment gains are accelerating at a
rate of 3.2% and unemployment was 3.8% in May 1997. Per capital personal income
was $29,439 in 1996. However, debt ratios continue to be high. Net tax-supported
debt at $13.6 billion is 8% of personal income and equals $2,243 per capita.
Debt servicing costs required 10% of 1995-1996 tax-revenues and 8.5% of own
source revenues.
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.
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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.
FACTORS AFFECTING MICHIGAN
Michigan's economy and operating funds continue to be successful. The stability
is provided by the state's replenished reserve, and anticipated expenditure
controls, and by the state's improved economy. However, the state's principal
pension fund's performance continues to corrode and unfunded liabilites have
increased significantly.
The unemployment rate is 4.9%. Employment growth is strong and is expected to
continue at a rate of 1.5% in the manufacturing, export and the services
sectors. Per capita personal income in 1996 was $24,810. Michigan's economic
strength is mitigated, however, by the potential for a volatile economy due to
its specialized heavy manufacturing sector. Additionally, the effects of school
financing reform have deepened cash flow pressure.
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. 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 benefited from significant private
investment and improved international competitiveness. The current low interest
rate environment should continue to help strengthen business investment.
Some local economies have been significantly affected by recent weather
conditions.
FACTORS AFFECTING MINNESOTA
Minnesota's economy is diverse with positive levels of wealth, and the frequent
reforecasting enables prompt reaction to change. Unemployment is well below
previous levels and wage growth is stronger than anticipated.
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PAGE 113
The 1995-97 budget projects year-end reserves equal to over 3% of biennial
revenue. The abundance of jobs and low unemployment rate have assisted the
state's economy and the state's financial condition. Statewide unemployment fell
to a record low of 3% in February 1997. Employment growth, however, is believed
to be hindered by the reduction in workers available for work and the
corresponding increase in labor costs. Minnesota has experienced rapid growth in
per capita income at $25,580 in 1996 up 9.34% from 1995.
Some local economies have been significantly affected by recent flooding.
The Minnesota "Price of Government" is the governor's statutory four year budget
proposal. It is a measure of government revenues as a percentage of personal
income. Minnesota's school districts, counties and cities rely greatly on
property tax revenues as the largest source of operating funds, and it is the
only source of potential revenue flexibility. K-12 educational funding proposals
are on the table, taxpayer and "Price of Government" pressures on revenue
increases could result in budgetary constraints for local units.
Economic weakness has, in the recent past, tested Minnesota's historically
strong financial management. The rainy day fund established in the mid-1980s
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,
demonstrating the severe effects of a lasting recession.
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.
FACTORS AFFECTING NEW YORK
New York reports an economy that is currently outperforming expectations.
Although debt levels have continued to increase, Medicaid costs, the highest in
the nation, are being reduced to align with the costs of other states, and
welfare reform proposals are expected to move welfare recipients from welfare to
work. New York's most recent fiscal year ended in March of 1997 with a $1.4
billion budget surplus. The 1997-98 Executive budget continues to cut taxes and
control governmental spending increasing "rainy day" reserves to their highest
level ever.
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PAGE 114
New York state's unemployment rate is approximately 6.1%. Business, management,
recreation and entertainment is expected to outpace the overall service sector.
Generally, job gains are seen in the service, retail trade and construction
sectors. Per capita personal income was $28,782 in 1996. More progress, however,
is needed to ease the burden of paralyzing property tax increases. According to
1993 data, New Yorkers pay 63% more per capita average than the national
average. The largest portion of property tax burden is school district property
taxes.
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 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. The existence of
this tax burden limits the state's ability to impose higher taxes in the event
of future financial difficulties.
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.
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
<PAGE>
PAGE 115
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. Lawsuits 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 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
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PAGE 116
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 Shoreham 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
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 of 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
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PAGE 117
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.
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PAGE 118
FACTORS AFFECTING OHIO
The state's Budget Stabilization Fund is approximately $830 million, indicative
of the state's recent economic strength. The outlook for debt is stable. Ohio's
credit position has strengthened from sensible financial management. The current
1997- 98 biennial capital budget totals $3 billion of debt to be issued over the
next four years. Key areas of capital spending include schools, prisons, parks,
and natural resource facilities.
Manufacturing sector growth has escalated in recent years with more exports of
key industrial products, such as transportation equipment and nonelectrical
machinery. The state's unemployment rate was below the national average at 4.7%
in March 1997. Per capita personal income in 1996 was $23,537.
Ohio continues to be among the most important contributors to the national
manufacturing sector. Even with the proportional decline of the manufacturing
sector over the past two decades, its dominance still makes Ohio vulnerable to
recession.
Recently, the Ohio Supreme Court found that the current method of educational
funding is unconstitutional. The Ohio General Assembly has one year to remedy
specific findings. The outcome is unpredictable. Bonding and higher tax rates
may be required.
As with other states, Ohio experienced economic weakness during the recent
recession. This, and other factors, led to budget shortfalls in 1991-1992.
However, these shortfalls 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. 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.
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PAGE 119
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.
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.
FACTORS AFFECTING PUERTO RICO
The Funds may invest in municipal securities issued by or on behalf of Puerto
Rico, its agencies or instrumentalities. Since the early 1970s, manufacturing
has been the primary force in Puerto Rican development. Other major sectors of
Puerto Rico's economy include government, trade and services. Puerto Rico's
unemployment rate remains relatively high and per capita income is less than
half of the U.S. average. Debt ratios for the Commonwealth are high as it
assumes much of the responsibility for financing improvements in the local
infrastructure. Puerto Rico's economic base remains centered around tax
advantages offered to U.S. manufacturing firms. Legislation or other action that
would eliminate or reduce such tax incentives might give rise to economic
instability and volatility in the market for the securities.
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PAGE 120
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 technique does not ensure a profit and does not protect against a
loss if the market declines, it is an effective way for many shareholders who
can continue investing on a regular basis through changing market conditions,
including times when the price of their shares falls or the market declines, to
accumulate shares in a fund to meet long-term goals.
Dollar-cost averaging
- -------------------------------------------------------------------
Regular Market Price Shares
Investment of a Share Acquired
$100 $6.00 16.7
100 4.00 25.0
100 4.00 25.0
100 6.00 16.7
100 5.00 20.0
---- ----- -----
$500 $25.00 103.4
Average market price of a share over 5 periods:
$5.00 ($25.00 divided by 5).
The average price you paid for each share:
$4.84 ($500 divided by 103.4).
<PAGE>
IDS Insured Tax-Exempt Fund
Prospectus
August 29, 1997
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 (SEC) and available for
reference, along with other related materials, on the SEC Internet web site
(http://www.sec.gov). The SAI is incorporated here by reference.
For a free copy, contact American Express Shareholder Service.
Like all mutual fund shares, these securities have not been approved or
disapproved by the Securities and Exchange Commission or any state securities
commission, nor has the Securities and Exchange Commission or any state
securities commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
Please note that the Fund:
o is not a bank deposit
o is not federally insured
o is not endorsed by any bank or government agency
o is not guaranteed to achieve its goals
American Express Shareholder Service
P.O. Box 534
Minneapolis, MN
55440-0534
800-862-7919
TTY: 800-846-4852
Web site address: http://www.americanexpress.com/advisors
<PAGE>
Table of contents
The Fund in brief
Goals
Investment policies and risks
Manager and distributor
Portfolio manager
Alternative purchase arrangements
Sales charge and Fund expenses
Performance
Financial highlights
Total returns
Yield
Investment policies and risks
Facts about investments and their risks
Alternative investment option
Valuing Fund shares
How to purchase, exchange or redeem shares
Alternative purchase arrangements
How to purchase shares
How to exchange shares
How to redeem shares
Reductions and waivers of the sales charge
Special shareholder services
Services
Quick telephone reference
Distributions and taxes
Dividend and capital gain distributions
Reinvestments
Taxes
How to determine the correct TIN
<PAGE>
How the Fund is organized
Shares
Voting rights
Shareholder meetings
Board members and officers
Investment manager
Administrator and transfer agent
Distributor
About American Express Financial Corporation
General information
Appendices
1997 Federal tax information
Descriptions of derivative instruments
<PAGE>
The Fund in brief
Goals
IDS Insured Tax-Exempt Fund (the 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.
Investment policies and risks
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. Other investments may include
taxable investments, derivative instruments and tax-exempt money market
instruments.
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. For
further information, refer to the later section in the prospectus titled
"Investment policies and risks."
Manager and distributor
The Fund is managed by American Express Financial Corporation (AEFC), a provider
of financial services since 1894. AEFC currently manages more than $ 65 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 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.
<PAGE>
Alternative purchase arrangements
The Fund offers its shares in three classes. Class A shares are subject to a
sales charge at the time of purchase. Class B shares are subject to a contingent
deferred sales charge (CDSC) on redemptions made within six years of purchase
and an annual distribution (12b-1) fee. Class Y shares are sold without a sales
charge to qualifying institutional investors.
Sales charge and Fund expenses
Shareholder transaction expenses are incurred directly by an investor on the
purchase or redemption of Fund shares. Fund operating expenses are paid out of
Fund assets for each class of shares. Operating expenses are reflected in the
Fund's daily share price and dividends, and are not charged directly to
shareholder accounts.
Shareholder transaction expenses
Class A Class B Class Y
Maximum sales charge on purchases*
(as a percentage of offering price) 5% 0% 0%
Maximum deferred sales charge
imposed on redemptions (as a
percentage of original purchase price) 0% 5% 0%
Annual Fund operating expenses (as a percentage of average daily net assets):
Class A Class B Class Y
Management fee 0.45% 0.45% 0.45%
12b-1 fee 0.00% 0.75% 0.00%
Other expenses** 0.29% 0.30% 0.22%
Total 0.74% 1.50% 0.67%
*This charge may be reduced depending on your total investments in IDS funds.
See "Reductions of the sales charge."
**Other expenses include an administrative services fee, a shareholder services
fee, a transfer agency fee and other nonadvisory expenses.
<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:
1 year 3 years 5 years 10 years
Class A $ 57 $ 72 $ 89 $138
Class B $ 65 $ 87 $102 $159**
Class B* $ 15 $ 47 $ 82 $159**
Class Y $ 7 $ 21 $ 37 $ 84
*Assuming Class B shares are not redeemed at the end of the period.
**Based on conversion of Class B shares to Class A shares after eight years.
This example does not represent actual expenses, past or future. Actual expenses
may be higher or lower than those shown. Because Class B pays annual
distribution (12b-1) fees, long-term shareholders of Class B may indirectly pay
an equivalent of more than a 6.25% sales charge, the maximum permitted by the
National Association of Securities Dealers.
<TABLE>
<CAPTION>
IDS Insured Tax-Exempt Fund
Performance
Financial highlights
Fiscal period ended June 30,
Per share income and capital changes(a)
Class A
1997 1996 1995 1994 1993 1992 1991 1990 1989(b) 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $5.43 $5.40 $5.35 $5.63 $5.33 $5.04 $4.96 $5.00 $4.86 $4.73 $5.07
beginning of period
Income from investment operations:
Net investment .30 .30 .30 .30 .30 .31 .32 .31 .16 .31 .32
income
Net gains .07 .03 .05 (.28) .30 .29 .08 (.04) .14 .14 (.34)
(losses) (both realized
and unrealized)
Total from .37 .33 .35 .02 .60 .60 .40 .27 .30 .45 (.02)
investment
operations
Less distributions:
Dividends from (.29) (.28) (.30) (.30) (.30) (.31) (.32) (.31) (.16) (.32) (.32)
net investment income
Distributions -- (.02) -- -- -- -- -- -- -- -- --
from realized gains
Total (.29) (.30) (.30) (.30) (.30) (.31) (.32) (.31) (.16) (.32) (.32)
distributions
Net asset value, $5.51 $5.43 $5.40 $5.35 $5.63 $5.33 $5.04 $4.96 $5.00 $4.86 $4.73
end of period
Ratios/supplemental data
Class A
1997 1996 1995 1994 1993 1992 1991 1990 1989(b) 1988 1987
Net assets, end $462 $491 $505 $525 $464 $308 $195 $133 $79 $55 $37
of period (in
millions)
Ratio of .74% .75% .66% .65% .65% .67% .67% .69% .72%(c) .77% .88%
expenses to average
daily net assets(e)
Ratio of net 5.42% 5.16% 5.66% 5.32% 5.53% 6.06% 6.36% 6.44% 6.60%(c) 6.55% 6.77%
income to average
daily net assets
Portfolio 33% 52% 53% 37% 5% 11% 8% 24% 19% 33% 29%
turnover rate
(excluding short-term
securities)
Total return(d) 7.1% 6.3% 6.7% .3% 11.7% 12.3% 8.1% 5.6% 6.4% 9.7% (.2%)
(a) For a share outstanding throughout the period. Rounded to nearest cent.
(b) The Fund's fiscal year-end was changed from Dec. 31 to June 30, effective 1989.
(c) Adjusted to an annual basis.
(d) Total return does not reflect payment of a sales charge.
(e) Effective fiscal year 1996, expense ratio is based on total expenses
of the Fund before reduction of earnings credits on cash balances.
</TABLE>
<PAGE>
Fiscal period ended June 30,
Per share income and capital
changesa
Class B Class Y
1997 1996 1995(b) 1997 1996 1995(b)
Net asset value, $5.43 $5.40 $5.47 $5.44 $5.41 $5.47
beginning of period
Income from investment operations:
Net investment .25 .26 .09 .30 .31 .08
income
Net gains (losses) .08 .03 (.07) .08 .03 (.06)
(both realized
and unrealized)
Total from .33 .29 .02 .38 .34 .02
investment operations
Less distributions:
Dividends from net (.25) (.24) (.09) (.30) (.29) (.08)
investment income
Distributions -- (.02) -- -- (.02) --
from realized gains
Total (.25) (.26) (.09) (.30) (.31) (.08)
distributions
Net asset value, $5.51 $5.43 $5.40 $5.52 $5.44 $5.41
end of period
Ratios/supplemental data
Class B Class Y
1997 1996 1995(b) 1997 1996 1995(b)
Net assets, end of $31 $21 $6 $-- $-- $--
period (in millions)
Ratio of expenses 1.50% 1.51% 1.49%(c) .58% .57% .54%(c)
to average daily net
assets(e)
Ratio of net 4.71% 4.42% 4.72%(c) 5.78% 5.32% 5.38%(c)
income to average
daily net assets
Portfolio 33% 52% 53% 33% 52% 53%
turnover rate (excluding
short-term securities)
Total return(d) 6.3% 5.5% .4% 7.3% 6.4% .4%
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date was March 20, 1995.
(c) Adjusted to an annual basis.
(d) Total return does not reflect payment of a sales charge.
(e) Effective fiscal year 1996, expense ratio is based on total expenses
of the Fund before reduction of earnings credits on cash balances.
The information in these tables has been audited by KPMG Peat Marwick LLP,
independent auditors. The independent auditors' report and additional
information about the performance of the Fund are contained in the Fund's annual
report which, if not included with this prospectus, may be obtained without
charge.
Total returns
Total return is the sum of all of your returns for a given period, assuming you
reinvest all distributions. It is calculated by taking the total value of shares
you own at the end of the period (including shares acquired by reinvestment),
less the price of shares you purchased at the beginning of the period.
Average annual total return is the annually compounded rate of return over a
given time period (usually two or more years). It is the total return for the
period converted to an equivalent annual figure.
<PAGE>
Average annual total returns as of June 30, 1997
Purchase 1 year Since 5 years 10 years
made ago inception* ago ago
Insured Tax-Exempt:
Class A +1.72% --% +5.25% +7.18%
Class B +2.26% +3.65%* --% --%
Class Y +7.25% +6.19%* --% --%
Lehman Brothers Total Return
Municipal Bond
Index +8.25% +7.72%** +7.10% +8.17%
*Inception date was March 20, 1995.
**Measurement period started April 1, 1995.
Cumulative total returns as of June 30, 1997
Purchase 1 year Since 5 years 10 years
made ago inception* ago ago
Insured Tax-Exempt:
Class A +1.72% --% +29.19% +100.15%
Class B +2.26% +8.53%* --% --%
Class Y +7.25% +14.68%* --% --%
Lehman Brothers Total Return
Municipal Bond
Index +8.25% +18.22%** +40.89% +119.39%
*Inception date was March 20, 1995.
**Measurement period started April 1, 1995.
These examples show total returns from hypothetical investments in Class A,
Class B and Class Y shares of the Fund. These returns are compared to those of a
popular index for the same periods. The performance of Class B and Class Y will
vary from the performance of Class A based on differences in sales charges and
fees. March 20, 1995 was the inception date for Class B and Class Y. Past
performance for Class Y for the periods prior to March 20, 1995 may be
calculated based on the performance of Class A, adjusted to reflect differences
in sales charges although not for other differences in expenses.
<PAGE>
For purposes of calculation, information about the Fund assumes:
o a sales charge of 5% for Class A shares
o redemption at the end of the period and deduction of the applicable
contingent deferred sales
charge for Class B shares
o no sales charge for Class Y shares
o no adjustments for taxes an investor may have paid on the reinvested
income and capital gains
o a period of widely fluctuating securities prices. Returns shown should
not be considered a representation of the Fund's future performance.
Lehman Brothers Total Return Municipal Bond Index is an unmanaged index made up
of a representative list of general obligation, revenue, insured and
pre-refunded bonds. The index is frequently used as a general measure of
tax-exempt bond market performance. However, the securities used to create the
index may not be representative of the bonds held in the Fund. The index
reflects reinvestment of all distributions and changes in market prices, but
excludes brokerage commissions or other fees.
Yield
Yield is the net investment income earned per share for a specified time period,
divided by the offering price at the end of the period. The Fund's SEC
standardized yield for the 30-day period ended June 30, 1997, was 4.24% for
Class A, 3.71% for Class B and 4.70% for Class Y. The Fund calculates this
30-day SEC standardized yield by dividing:
o net investment income per share deemed earned during a 30-day period by
o the public offering price per share on the last day of the period, and
o converting the result to a yearly equivalent figure
The Fund also may calculate a tax equivalent yield by dividing the tax-exempt
portion of its yield by one minus a stated income tax rate. A tax equivalent
yield demonstrates the taxable yield necessary to produce an after-tax yield
equivalent to that of a fund that invests in exempt obligations.
These yield calculations do not include any contingent deferred sales charge,
ranging from 5% to 0% on Class B shares, which would reduce the yields quoted.
The Fund's yield varies from day to day, mainly because share values and
offering prices (which are calculated daily) vary in response to changes in
interest rates. Net investment income normally changes much less in the short
run. Thus, when interest rates rise and share values fall, yield tends to rise.
When interest rates fall, yield tends to follow.
Past yields should not be considered an indicator of future yields.
<PAGE>
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.
Other investments may include taxable investments, derivative instruments and
tax-exempt money market instruments.
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
bonds generally falls as interest rates increase, and rises as interest rates
decrease. The price of bonds also fluctuates if the credit rating is upgraded or
downgraded. 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.
<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. These investments are not insured or guaranteed. No more
than 5% of the Fund's net assets can be used at any one time for good faith
deposits on futures and premiums for options on futures that do not offset
existing investment positions. This does not, however, limit the portion of the
Fund's assets at risk to 5%. The Fund is not limited as to the percentage of its
assets that may be invested in permissible investments, including derivatives,
except as otherwise explicitly provided in this prospectus or the SAI. For
descriptions of these and other types of derivative instruments, see the
Appendix to this prospectus and the SAI.
<PAGE>
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. These investments are not
insured or guaranteed. No more than 10% of the Fund's assets will be held in
inverse floaters.
Securities and other instruments that are illiquid: A security or other
instrument is illiquid if it cannot be sold quickly in the normal course of
business. Some investments cannot be resold to the U.S. public because of their
terms or government regulations. Securities and instruments, however, can be
sold in private sales, and many may be sold to other institutions and qualified
buyers or on foreign markets. The portfolio manager will follow guidelines
established by the board and consider relevant factors such as the nature of the
security and the number of likely buyers when determining whether a security is
illiquid. No more than 10% of the Fund's net assets will be held in securities
and other instruments that are illiquid.
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 by S&P or if the long-term debt of such
issuers is rated Aaa by Moody's or AAA by S&P or the equivalent.
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 or the equivalent. None of the Fund's assets were used to pay premiums
for the fiscal year ended June 30, 1997.
<PAGE>
Except for the investment policies concerning the type and amount of tax-exempt
investments, the investment policies described above may be changed by the
board.
Lending portfolio securities: The Fund may lend its securities to earn income so
long as borrowers provide collateral equal to the market value of the loans. The
risks are that borrowers will not provide collateral when required or return
securities when due. Unless a majority of the outstanding voting securities
approve otherwise, loans may not exceed 30% of the Fund's net assets.
Alternative investment option
In the future, the board of the Fund may determine for operating efficiencies to
use a master/feeder structure. Under that structure, the Fund's assets would be
invested in an investment company with the same goal as the Fund, rather than
invested directly in a portfolio of securities.
Valuing Fund shares
The public offering price is the net asset value (NAV) adjusted for the sales
charge for Class A. It is the NAV for Class B and Class Y.
The NAV is the value of a single Fund share. The NAV usually changes daily, and
is calculated at the close of business, normally 3 p.m. Central time, each
business day (any day the New York Stock Exchange is open). NAV generally
declines as interest rates increase and rises as interest rates decline.
To establish the net assets, all securities are valued as of the close of each
business day. In valuing assets:
o Bonds and assets without readily available market values are valued at fair
value according to methods selected in good faith by the board
o Securities maturing in 60 days or less are valued at amortized cost
o Securities (except bonds) and assets with available market values are valued
on that basis
<PAGE>
How to purchase, exchange or redeem shares
Alternative purchase arrangements
The Fund offers three different classes of shares - Class A, Class B and Class
Y. The primary differences among the classes are in the sales charge structures
and in their ongoing expenses. These differences are summarized in the table
below. You may choose the class that best suits your circumstances and
objectives.
<TABLE>
<CAPTION>
Sales charge and distribution
<S> <C> <C> <C>
(12b-1) fee Service fee Other information
Class A Maximum initial 0.175% of average Initial sales charge
sales charge of daily net assets waived or reduced
5%; no 12b-1 fee for certain purchases
Class B No initial sales 0.175% of average Shares convert to
charge; maximum CDSC daily net assets Class A after eight
of 5% declines to 0% years; CDSC waived in
after six years; 12b-1 certain circumstances
fee of .75% of average
daily net assets
Class Y None 0.10% of average Available only to
daily net assets certain qualifying
institutional
investors
</TABLE>
Conversion of Class B shares to Class A shares
During the ninth calendar year of owning your class B shares, Class B shares
will convert to Class A shares and will no longer be subject to a distribution
fee. Class B shares that convert to Class A shares are not subject to a sales
charge or distribution fee. Class B shares purchased through reinvested
dividends and distributions also will convert to Class A shares in the same
proportion as the other Class B shares. This means more of your money will be
put to work for you.
Considerations in determining whether to purchase Class A or Class B shares -
You should consider the information below in determining whether to purchase
Class A or Class B shares. The distribution fee (included in "Ongoing expenses")
and sales charges are structured so that you will have approximately the same
total return at the end of eight years regardless of which class you chose.
<PAGE>
Sales charges on purchase or redemption
If you purchase Class A shares If you purchase Class B shares
o You will not have all o All of your money is
of your purchase price invested in shares of
invested. Part of your stock. However, you will
purchase price will go pay a sales charge if you
to pay the sales charge redeem your shares within
You will not pay a sales six years of purchase.
charge when you redeem
your shares.
o You will be able to o No reductions of the
take advantage of sales charge are
reductions in the sales available for large
charge purchases.
If your investments in IDS funds that are subject to a sales charge total
$250,000 or more, you are better off paying the reduced sales charge in Class A
than paying the higher fees in Class B. If you qualify for a waiver of the sales
charge, you should purchase Class A shares.
Ongoing expenses
If you purchase Class A shares If you purchase Class B shares
o Your shares will have o The distribution and
a lower expense ratio transfer agency fees for
than Class B shares Class B will cause your
because Class A does not shares to have a higher
pay a distribution fee expense ratio and to pay
and the transfer agency lower dividends than
fee for Class A is lower Class A shares. After
than the fee for Class B eight years, Class B
As a result, Class A shares shares will convert to will
pay higher dividends Class A shares and you
than Class B shares. will no longer be subject
to higher fees.
<PAGE>
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 a distribution fee. The following investors are eligible to purchase
Class Y shares:
o Qualified employee benefit plans* if the plan:
- uses a daily transfer recordkeeping service offering
participants daily access to IDS funds and has - at least $10
million in plan assets or - 500 or more participants; or - does not
use daily transfer recordkeeping and has
- at least $3 million invested in funds of the IDS MUTUAL FUND GROUP
or - 500 or more participants.
o Trust companies or similar institutions, and charitable organizations
that meet the definition in Section 501(c)(3) of the Internal Revenue
Code.* These must have at least $10 million invested in funds of the
IDS MUTUAL FUND GROUP.
o Nonqualified deferred compensation plans* whose participants are
included in a qualified employee benefit plan described above.
* Eligibility must be determined in advance by American Express Financial
Advisors. To do so, contact your financial advisor.
How to purchase 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 purchase shares for a new or existing account, the price you pay per
share is determined at the close of business on the day your investment is
received and accepted at the Minneapolis headquarters.
<PAGE>
Purchase policies:
o Investments must be received and accepted in the Minneapolis
headquarters on a business day before 3 p.m. Central time to be
included in your account that day and to receive that day's share
price. Otherwise, your purchase will be processed the next business day
and you will pay the next day's share price.
o The minimums allowed for investment may change from time to time.
o Wire orders can be accepted only on days when your bank, AEFC, the Fund
and Norwest Bank Minneapolis are open for business.
o Wire purchases are completed when wired payment is received and the
Fund accepts the purchase.
o AEFC and the Fund are not responsible for any delays that occur in
wiring funds, including delays in processing by the bank.
o You must pay any fee the bank charges for wiring.
o The Fund reserves the right to reject any application for any reason.
o If your application does not specify which class of shares you are
purchasing, it will be assumed that you are investing in Class A
shares.
<TABLE>
<CAPTION>
Three ways to invest
<S> <C> <C>
1
By regular account Send your check and application Minimum amounts
(or your name and account number Initial investment: $2,000
if you have an established account) Additional investments: $100
to:
American Express Financial Advisors Inc. Account balances: $ 300*
P.O. Box 74
Minneapolis, MN 55440-0074
Your financial advisor will help you with
this process.
<PAGE>
2
By scheduled Contact your financial advisor Minimum amounts
investment plan to set up one of the following Initial investment: $100
scheduled plans: Additional investments: $100/each payment
o automatic payroll deduction Account balances: none
(on active plans of
o bank authorization monthly payments)
o direct deposit of If account balance is below $2,000,
Social Security check frequency of payments must be at
least monthly.
o other plan approved by the Fund
3
By wire If you have an established account, If this information is not
you may wire money to: included, the order may be
rejected and all money
Norwest Bank Minneapolis received by the Fund, less
Routing No. 091000019 any costs the Fund or AEFC
Minneapolis, MN incurs, will be returned
Attn: Domestic Wire Dept. 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).
</TABLE>
*If your account balance falls below $300, you will be asked in writing to bring
it up to $300 or establish a scheduled investment plan. If you don't do so
within 30 days, your shares can be redeemed and the proceeds mailed to you.
How to exchange shares
You can exchange your shares of the Fund at no charge for shares of the same
class of any other publicly offered fund in the IDS MUTUAL FUND GROUP available
in your state. Exchanges into IDS Tax-Free Money Fund must be made from Class A
shares. For complete information on any other fund, including fees and expenses,
read that fund's prospectus carefully.
If your exchange request arrives at the Minneapolis headquarters before the
close of business, your shares will be redeemed at the net asset value set for
that day. The proceeds will be used to purchase new fund shares the same day.
Otherwise, your exchange will take place the next business day at that day's net
asset value.
For tax purposes, an exchange represents a redemption and purchase and may
result in a gain or loss. However, you cannot use the sales charge imposed on
the purchase of Class A shares to create or increase a tax loss (or reduce a
taxable gain) by exchanging from the Fund within 91 days of your purchase. For
further explanation, see the SAI.
<PAGE>
How to redeem shares
You can redeem your shares at any time. American Express Shareholder Service
will mail payment within seven days after receiving your request.
When you redeem shares, the amount you receive may be more or less than the
amount you invested. Your shares will be redeemed at net asset value, minus any
applicable sales charge, at the close of business on the day your request is
accepted at the Minneapolis headquarters. If your request arrives after the
close of business, the price per share will be the net asset value, minus any
applicable sales charge, at the close of business on the next business day.
A redemption is a taxable transaction. If your proceeds from your redemption are
more or less than the cost of your shares, you will have a gain or loss, which
can affect your tax liability.
Two ways to request an exchange or redemption of shares
1
By letter Include in your letter:
o the name of the fund(s)
o the class of shares to be exchanged or
redeemed o your account number(s) (for
exchanges, both funds must be registered in
the same ownership) o your Taxpayer
Identification Number (TIN)
o the dollar amount or number of shares you want to
exchange or redeem
o signature of all registered account owners
o for redemptions, indicate how you want your money
delivered to you o any paper certificates of shares
you hold
Regular mail:
American Express Shareholder Service
Attn: Redemptions
P.O. Box 534
Minneapolis, MN 55440-0534
Express mail:
American Express Shareholder Service
Attn: Redemptions
733 Marquette Ave.
Minneapolis, MN 55402
<PAGE>
2
By phone
American Express Financial o The Fund and AEFC will honor any telephone exchange
or redemption request Advisors Telephone believed to be authentic and will use
reasonable procedures to confirm that they Transaction Service: are. This
includes asking identifying questions and tape recording calls. If 800-437-3133
or reasonable procedures are not followed, the Fund or AEFC will be liable for
any loss 612-671-3800 resulting from fraudulent requests.
o Phone exchange and redemption privileges automatically apply to all accounts
except custodial, corporate or qualified retirement accounts unless you request
these privileges NOT apply by writing American Express Shareholder Service. Each
registered owner must sign the request.
o AEFC answers phone requests promptly, but you may experience delays when call
volume is high. If you are unable to get through, use mail procedure as an
alternative.
o Acting on your instructions, your financial advisor may conduct telephone
transactions on your behalf.
o Phone privileges may be modified or discontinued at any time.
Minimum amount
Redemption: $100
Maximum amount
Redemption: $50,000
Exchange policies:
o You may make up to three exchanges within any 30-day period, with each limited
to $300,000. These limits do not apply to scheduled exchange programs and
certain employee benefit plans or other arrangements through which one
shareholder represents the interests of several. Exceptions may be allowed with
pre-approval of the Fund.
o Exchanges must be made into the same class of shares of the new fund.
o If your exchange creates a new account, it must satisfy the minimum investment
amount for new purchases.
o Once we receive your exchange request, you cannot cancel it.
o Shares of the new fund may not be used on the same day for another exchange.
o If your shares are pledged as collateral, the exchange will be delayed until
written approval is obtained from the secured party.
o AEFC and the Fund reserve the right to reject any exchange, limit the amount,
or modify or discontinue the exchange privilege, to prevent abuse or adverse
effects on the Fund and its shareholders. For example, if exchanges are too
numerous or too large, they may disrupt the Fund's investment strategies or
increase its costs.
<PAGE>
Redemption policies:
o A "change of mind" option allows you to change your mind after requesting a
redemption and to use all or part of the proceeds to purchase new shares in the
same account from which you redeemed. If you reinvest in Class A, you will
purchase the new shares at net asset value rather than the offering price on the
date of a new purchase. If you reinvest in Class B, any CDSC you paid on the
amount you are reinvesting also will be reinvested. To take advantage of this
option, send a written request within 30 days of the date your redemption
request was received. Include your account number and mention this option. This
privilege may be limited or withdrawn at any time, and it may have tax
consequences.
o A telephone redemption request will not be allowed within 30 days of a
phoned-in address change.
Important: If you request a redemption of shares you recently purchased by a
check or money order that is not guaranteed, the Fund will wait for your check
to clear. It may take up to 10 days from the date of purchase before a check is
mailed to you. (A check may be mailed earlier if your bank provides evidence
satisfactory to the Fund and AEFC that your check has cleared.)
<TABLE>
<CAPTION>
Three ways to receive payment when you redeem shares
<S> <C>
1
By regular or express mail o Mailed to the address on record
o Payable to names listed on the account
NOTE: You will be charged a fee if you
request express mail delivery.
2
By wire o Minimum wire redemption: $1,000
o Request that money be wired to your bank
o Bank account must be in the same
ownership as the IDS fund account
NOTE: Pre-authorization required. For
instructions, contact your financial
advisor or American Express Shareholder Service.
3
By scheduled payout plan o Minimum payment: $50
o Contact your financial
advisor or American
Express Shareholder
Service to set up
regular payments to you
on a monthly, bimonthly,
quarterly, semiannual or
annual basis
o Purchasing new shares while under a payout
plan may be disadvantageous because of
the sales charges
</TABLE>
<PAGE>
Reductions and waivers of the sales charge
Class A - initial sales charge alternative
On purchases of Class A shares, you pay a 5% sales charge on the first $50,000
of your total investment and less on investments after the first $50,000:
Total investment Sales charge as a
percent of:*
Public Net
offering amount
price invested
Up to $50,000 5.0% 5.26%
Next $50,000 4.5 4.71
Next $400,000 3.8 3.95
Next $500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
* To calculate the actual sales charge on an investment greater than $50,000 and
less than $1,000,000, amounts for each applicable increment must be totaled. See
the SAI.
Reductions of the sales charge on Class A shares
Your sales charge may be reduced, depending on the totals of:
o the amount you are investing in this Fund now,
o the amount of your existing investment in this Fund, if any, and
o the amount you and your primary household group are investing or have in other
funds in the IDS MUTUAL FUND GROUP that carry a sales charge. (The primary
household group consists of accounts in any ownership for spouses or domestic
partners and their unmarried children under 21. Domestic partners are
individuals who maintain a shared primary residence and have joint property or
other insurable interests.)
Other policies that affect your sales charge:
o IDS Tax-Free Money Fund and Class A shares of IDS Cash Management Fund do not
carry sales charges. However, you may count investments in these funds if you
acquired shares in them by exchanging shares from IDS funds that carry sales
charges.
<PAGE>
o Employee benefit plan purchases made through a payroll deduction plan or
through a plan sponsored by an employer, association of employers, employee
organization or other similar entity, may be added together to reduce sales
charges for all shares purchased through that plan.
o If you intend to invest $1 million over a period of 13 months, you can reduce
the sales charges in Class A by filing a letter of intent.
For more details, see the SAI.
Waivers of the sales charge for Class A shares
Sales charges do not apply to:
o Current or retired board members, officers or employees of the Fund or AEFC or
its subsidiaries, their spouses and unmarried children under 21.
o Current or retired American Express financial advisors, their spouses and
unmarried children under 21.
o Investors who have a business relationship with a newly associated financial
advisor who joined AEFA from another investment firm provided that (1) the
purchase is made within six months of the advisor's appointment date with AEFA,
(2) the purchase is made with proceeds of a redemption of shares that were
sponsored by the financial advisor's previous broker-dealer, and (3) the
proceeds must be the result of a redemption of an equal or greater value where a
sales load was previously assessed.
o Qualified employee benefit plans* using a daily transfer recordkeeping system
offering participants daily access to IDS funds.
(Participants in certain qualified plans for which the initial sales charge is
waived may be subject to a deferred sales charge of up to 4% on certain
redemptions. For more information, see the SAI.)
o Shareholders who have at least $1 million invested in funds of the IDS MUTUAL
FUND GROUP. If the investment is redeemed in the first year after purchase, a
CDSC of 1% will be charged on the redemption. The CDSC will be waived only in
the circumstances described for waivers for Class B shares.
<PAGE>
o 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 has a
recordkeeping, trustee, investment management or investment servicing
relationship.
Send the Fund a written request along with your payment, indicating the amount
of the redemption and the date on which it occurred.
o Purchases made with dividend or capital gain distributions from the same class
of another fund in the IDS MUTUAL FUND GROUP that has a sales charge.
o Purchases made through or under a "wrap fee" product sponsored by American
Express Financial Advisors Inc. (total amount of all investments must be
$50,000); or a segregated separate account offered by Nationwide Life Insurance
Company or Nationwide Life and Annuity Insurance Company.
o Purchases made with the proceeds from IDS Life Real Estate Variable Annuity
surrenders through December 31, 1997.
*Eligibility must be determined in advance by American Express Financial
Advisors. 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:
If a redemption is The percentage rate
made during the for the CDSC is:
First year 5%
Second year 4%
Third year 4%
Fourth year 3%
Fifth year 2%
Sixth year 1%
Seventh year 0%
<PAGE>
If the amount you are redeeming reduces the current net asset value of your
investment in Class B shares below the total dollar amount of all your purchase
payments during the last six years (including the year in which your redemption
is made), the CDSC is based on the lower of the redeemed purchase payments or
market value.
The following example illustrates how the CDSC is applied. Assume you had
invested $10,000 in Class B shares and that your investment had appreciated in
value to $12,000 after 15 months, including reinvested dividend and capital gain
distributions. You could redeem any amount up to $2,000 without paying a CDSC
($12,000 current value less $10,000 purchase amount). If you redeemed $2,500,
the CDSC would apply only to the $500 that represented part of your original
purchase price. The CDSC rate would be 4% because a redemption after 15 months
would take place during the second year after purchase.
Because the CDSC is imposed only on redemptions that reduce the total of your
purchase payments, you never have to pay a CDSC on any amount you redeem that
represents appreciation in the value of your shares, income earned by your
shares or capital gains. In addition, when determining the rate of any CDSC,
your redemption will be made from the oldest purchase payment you made. Of
course, once a purchase payment is considered to have been redeemed, the next
amount redeemed is the next oldest purchase payment. By redeeming the oldest
purchase payments first, lower CDSCs are imposed than would otherwise be the
case.
Waivers of the contingent deferred sales charge
The CDSC on Class B shares will be waived on redemptions of shares:
o In the event of the shareholder's death,
o Purchased by any board member, officer or employee of a fund or AEFC or its
subsidiaries, o Held in a trusteed employee benefit plan, o Held in IRAs or
certain qualified plans for which American Express Trust Company acts as
custodian, such as Keogh plans, tax-sheltered custodial accounts or corporate
pension plans, provided that the shareholder is:
- at least 59-1/2 years old, and
- taking a retirement distribution (if the redemption is part of a
transfer to an IRA or qualified plan in a product distributed by
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.
For investors in Class A shares who have over $1 million invested in one year,
the 1% CDSC on redemption of those shares will be waived in the same
circumstances described for Class B.
<PAGE>
Special shareholder services
Services
To help you track and evaluate the performance of your investments, AEFC
provides these services:
Quarterly statements listing all of your holdings and transactions during the
previous three months.
Yearly tax statements featuring average-cost-basis reporting of capital gains or
losses if you redeem your shares along with distribution information which
simplifies tax calculations.
A personalized mutual fund progress report detailing returns on your initial
investment and cash-flow activity in your account. It calculates a total return
to reflect your individual history in owning Fund shares. This report is
available from your financial advisor.
Quick telephone reference
American Express Financial Advisors Telephone Transaction Service
Redemptions and exchanges, dividend payments or reinvestments and automatic
payment arrangements
National/Minnesota: 800-437-3133
Mpls./St. Paul area: 671-3800
TTY Service
For the hearing impaired
800-846-4852
American Express Financial Advisors Easy Access Line
Automated account information (TouchToneR phones only), including current Fund
prices and performance, account values and recent account transactions
800-862-7919
Distributions and taxes
As a shareholder you are entitled to your share of the Fund's net income and any
net gains realized on its investments. The Fund distributes dividends and
capital gain distributions to qualify as a regulated investment company and to
avoid paying corporate income and excise taxes. Dividend and capital gain
distributions will have tax consequences you should know about.
<PAGE>
Dividend and capital gain distributions
The Fund's net investment income from dividends and interest is distributed to
you monthly as dividends. Short-term capital gains are distributed at the end of
the calendar year and are included in net investment income. Long-term capital
gains are realized whenever a security held for more than one year is sold for a
higher price than was paid for it. The Fund will offset any net realized capital
gains by any available capital loss carryovers. Net realized long-term capital
gains, if any, are distributed at the end of the calendar year as capital gain
distributions. Before they are distributed, net long-term capital gains are
included in the value of each share. After they are distributed, the value of
each share drops by the per-share amount of the distribution. (If your
distributions are reinvested, the total value of your holdings will not change.)
Dividends for each class will be calculated at the same time, in the same manner
and will be the same amount prior to deduction of expenses. Expenses
attributable solely to a class of shares will be paid exclusively by that class.
Reinvestments
Dividends and capital gain distributions are automatically reinvested in
additional shares in the same class of the Fund, unless:
o you request the Fund in writing or by phone to pay distributions to
you in cash, or
o you direct the Fund to invest your distributions in the same class of
another publicly available IDS fund for which you've previously opened
an account.
The reinvestment price is the net asset value at close of business on the day
the distribution is paid. (Your quarterly statement will confirm the amount
invested and the number of shares purchased.)
If you choose cash distributions, you will receive only those declared after
your request has been processed.
If the U.S. Postal Service cannot deliver the checks for the cash distributions,
we will reinvest the checks into your account at the then-current net asset
value and make future distributions in the form of additional shares.
<PAGE>
Taxes
Dividends distributed from interest earned on tax-exempt securities
(exempt-interest dividends) are exempt from federal income taxes but may be
subject to state and local taxes. Dividends distributed from other income earned
and capital gain distributions are not exempt from federal income taxes.
Distributions are taxable in the year the Fund declares them regardless of
whether you take them in cash or reinvest them.
Interest on certain private activity bonds is a preference item for purposes of
the individual and corporate alternative minimum taxes. To the extent the Fund
earns such income, it will flow through to its shareholders and may be taxable
to those shareholders who are subject to the alternative minimum tax.
Because interest on municipal bonds and notes is tax-exempt for federal income
tax purposes, any interest on borrowed money used directly or indirectly to
purchase Fund shares is not deductible on your federal income tax return. You
should consult a tax advisor regarding its deductibility for state and local
income tax purposes.
Each January, you will receive a tax statement showing the kinds and total
amount of all distributions you received during the previous year. You must
report distributions on your tax returns, even if they are reinvested in
additional shares.
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, or the TIN you report is incorrect, you could be
subject to backup withholding of 31% of taxable distributions and proceeds from
certain sales and exchanges. You also could be subject to further penalties,
such as:
o a $50 penalty for each failure to supply your correct TIN
o a civil penalty of $500 if you make a false statement that results in
no backup withholding
o criminal penalties for falsifying information
<PAGE>
You also could be subject to backup withholding because you failed to report
interest or dividends on your tax return as required.
<TABLE>
<CAPTION>
<S> <C>
How to determine the correct TIN
Use the Social Security or
For this type of account: Employer Identification number of:
Individual or joint account The individual or individuals listed on
the account
Custodian account of a minor The minor
(Uniform Gifts/Transfers to
Minors Act)
A living trust The grantor-trustee (the
person who puts the money
into the trust)
An irrevocable trust, pension The legal entity (not the
trust or estate personal representative
or trustee, unless no legal
entity is designated in the account title)
Sole proprietorship The owner
Partnership The partnership
Corporate The corporation
Association, club or The organization
tax-exempt 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.
<PAGE>
How the Fund is organized
Shares
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 a fund. Par value is one 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 board 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
As a shareholder, you have voting rights over the Fund's management and
fundamental policies. You are entitled to one vote for each share you own.
Shares of the Fund have cumulative voting rights. Each class has exclusive
voting rights with respect to the provisions of the Fund's distribution plan
that pertain to a particular class and other matters for which separate class
voting is appropriate under applicable law.
Shareholder meetings
The Fund does not hold annual shareholder meetings. However, the board members
may call meetings at their discretion, or on demand by holders of 10% or more of
the outstanding shares, to elect or remove board members.
Board members and officers
Shareholders elect a board that oversees the operations of the Fund and chooses
its officers. Its officers are responsible for day-to-day business decisions
based on policies set by the board. The board has named an executive committee
that has authority to act on its behalf between meetings. Board members and
officers serve 47 IDS and IDS Life funds and 15 Master Trust portfolios, except
for William H. Dudley, who does not serve the nine IDS Life funds.
<PAGE>
Board members and officers of the Fund
President and interested board member
William R. Pearce
Chairman of the Board, Board Services Corporation (provides administrative
services to boards including the boards of the IDS and IDS Life funds and Master
Trust portfolios).
Independent board members
H. Brewster Atwater, Jr.
Former chairman and chief executive officer, General Mills, Inc.
Lynne V. Cheney
Distinguished fellow, American Enterprise Institute for Public Policy Research.
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.
Melvin R. Laird
Senior counselor for national and international affairs, The Reader's Digest
Association, Inc.
Alan K. Simpson
Former United States senator for Wyoming.
Edson W. Spencer
Former chairman and chief executive officer, Honeywell, Inc.
Wheelock Whitney
Chairman, Whitney Management Company.
C. Angus Wurtele
Chairman of the board, The Valspar Corporation.
<PAGE>
Interested board members who are officers and/or employees of AEFC
William H. Dudley
Senior advisor to the chief executive officer, AEFC.
David R. Hubers
President and chief executive officer, AEFC.
John R. Thomas
Senior vice president, AEFC.
Officers who also are officers and/or employees of AEFC
Peter J. Anderson
Senior vice president, AEFC. Vice president - Investments for the Fund.
Melinda S. Urion
Senior vice president and chief financial officer, AEFC. Treasurer for the Fund.
Other officer
Leslie L. Ogg
President, treasurer and corporate secretary of Board Services Corporation. Vice
president, general counsel and secretary for the Fund.
Refer to the SAI for the board members' and officers' biographies.
Investment manager
The Fund pays AEFC for managing its assets. Under its Investment Management
Services Agreement, AEFC is paid a fee for these services based on the average
daily net assets of the Fund, as follows:
Assets Annual rate
(billions) at each asset level
First $1.0 0.450%
Next 1.0 0.425
Next 1.0 0.400
Next 3.0 0.375
Over 6.0 0.350
For the fiscal year ended June 30, 1997, the Fund paid AEFC a total investment
management fee of 0.45% of its average daily net assets. Under the Agreement,
the Fund also pays taxes, brokerage commissions and nonadvisory expenses.
<PAGE>
Administrator and transfer agent
The Fund pays AEFC for shareholder accounting and transfer agent services under
two agreements. The first agreement, the Administrative Services Agreement, has
a declining annual rate beginning at 0.04% and decreasing to 0.02% as assets
increase.
The second agreement, the Transfer Agency Agreement, has an annual fee per
shareholder account as follows:
o Class A $15.50
o Class B $16.50
o Class Y $15.50
Distributor
The Fund has an exclusive distribution agreement with American Express Financial
Advisors, a wholly-owned subsidiary of AEFC. Financial advisors representing
American Express Financial Advisors provide information to investors about
individual investment programs, the Fund and its operations, new account
applications, and exchange and redemption requests. The cost of these services
is paid partially by the Fund's sales charges.
Persons who buy Class A shares pay a sales charge at the time of purchase.
Persons who buy Class B shares are subject to a contingent deferred sales charge
on a redemption in the first six years and pay an asset-based sales charge (also
known as a 12b-1 fee) of 0.75% of the Fund's average daily net assets. Class Y
shares are sold without a sales charge and without an asset-based sales charge.
Financial advisors may receive different compensation for selling Class A, Class
B and Class Y shares. Portions of the sales charge also may be paid to
securities dealers who have sold the Fund's shares or to banks and other
financial institutions. The amounts of those payments range from 0.8% to 4% of
the Fund's offering price depending on the monthly sales volume.
Under a Shareholder Service Agreement, the Fund also pays a fee for service
provided to shareholders by financial advisors and other servicing agents. The
fee is calculated at a rate of 0.175% of average daily net assets for Class A
and Class B shares and 0.10% for Class Y shares.
Total expenses paid by the Fund's Class A shares for the fiscal year ended June
30, 1997, were 0.74% of its average daily net assets. Expenses for Class B and
Class Y were 1.50% and 0.58%, respectively.
<PAGE>
About American Express Financial Corporation
General information
The AEFC family of companies offers not only mutual funds but also insurance,
annuities, investment certificates and a broad range of financial management
services.
Besides managing investments for all funds in the IDS MUTUAL FUND GROUP, AEFC
also manages investments for itself and its subsidiaries, IDS Certificate
Company and IDS Life Insurance Company. Total assets under management on June
30, 1997 were more than $162 billion.
American Express Financial Advisors serves individuals and businesses through
its nationwide network of more than 175 offices and more than 8,500 advisors.
Other AEFC subsidiaries provide investment management and related services for
pension, profit sharing, employee savings and endowment funds of businesses and
institutions.
AEFC is located at IDS Tower 10, Minneapolis, MN 55440-0010. It is a
wholly-owned subsidiary of American Express Company (American Express), a
financial services company with headquarters at American Express Tower, World
Financial Center, New York, NY 10285.
The Fund may pay brokerage commissions to broker-dealer affiliates of AEFC.
<PAGE>
Appendix A
1997 Federal tax-exempt and taxable equivalent yield calculation
These tables will help you determine your federal taxable yield equivalents for
given rates of tax-exempt income.
STEP 1: Calculating your marginal tax rate.
Using your Taxable Income and Adjusted Gross Income figures as guides, you can
locate your Marginal Tax Rate in the table below.
First locate your Taxable Income in a filing status and income range in the
left-hand column. Then, locate your Adjusted Gross Income at the top of the
chart. At the point where your Taxable Income line meets your Adjusted Gross
Income column the percentage indicated is an approximation of your 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
$96,900-$151,750 range. Under Adjusted Gross Income, $175,000 is in the $121,200
to $181,800 column. The Taxable Income line and Adjusted Gross Income column
meet at 31.93%. This is the rate you'll use in Step 2.
<TABLE>
<CAPTION>
Adjusted gross income*
<S> <C> <C> <C> <C>
- ----------------------------- ------------------- ------------------- ------------------ -------------------
Taxable income** $0 $121,200 $181,800 Over
- ----------------------------- ------------------- ------------------- ------------------ -------------------
- ----------------------------- ------------------- ------------------- ------------------ -------------------
to to to
- ----------------------------- ------------------- ------------------- ------------------ -------------------
- ----------------------------- ------------------- ------------------- ------------------ -------------------
$121,200(1) $181,800(2) $304,300(3) $304,300(2)
- ----------------------------- ------------------- ------------------- ------------------ -------------------
Married Filing Jointly
- ----------------------------- ------------------- ------------------- ------------------ -------------------
$ 0 - $ 41,200 15.00%
- ----------------------------- ------------------- ------------------- ------------------ -------------------
- ----------------------------- ------------------- ------------------- ------------------ -------------------
41,200 - 99,600 28.00 28.84%
- ----------------------------- ------------------- ------------------- ------------------ -------------------
- ----------------------------- ------------------- ------------------- ------------------ -------------------
99,600 - 151,750 31.00 31.93 33.24%
- ----------------------------- ------------------- ------------------- ------------------ -------------------
- ----------------------------- ------------------- ------------------- ------------------ -------------------
151,750 - 271,050 37.08 38.61 37.08%
- ----------------------------- ------------------- ------------------- ------------------ -------------------
- ----------------------------- ------------------- ------------------- ------------------ -------------------
271,050 + 42.47*** 40.79
- ----------------------------- ------------------- ------------------- ------------------ -------------------
<PAGE>
Adjusted gross income*
- ----------------------------- ------------------- ------------------- ------------------
Taxable income** $0 $121,200 Over
- ----------------------------- ------------------- ------------------- ------------------
- ----------------------------- ------------------- ------------------- ------------------
to to
- ----------------------------- ------------------- ------------------- ------------------
- ----------------------------- ------------------- ------------------- ------------------
$121,200(1) $243,700(3) $243,700(2)
- ----------------------------- ------------------- ------------------- ------------------
Single
- ----------------------------- ------------------- ------------------- ------------------
$ 0 - $ 24,650 15.00%
- ----------------------------- ------------------- ------------------- ------------------
- ----------------------------- ------------------- ------------------- ------------------
24,650 - 59,750 28.00
- ----------------------------- ------------------- ------------------- ------------------
- ----------------------------- ------------------- ------------------- ------------------
59,750 - 124,650 31.00 32.59%
- ----------------------------- ------------------- ------------------- ------------------
- ----------------------------- ------------------- ------------------- ------------------
124,650 - 271,050 37.84 37.08%
- ----------------------------- ------------------- ------------------- ------------------
- ----------------------------- ------------------- ------------------- ------------------
271,050 + 40.79
- ----------------------------- ------------------- ------------------- ------------------
</TABLE>
*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 $304,300 and your taxable income exceeds $271,050.
(1) No Phase-out -- Assumes no phase-out of itemized deductions or personal
exemptions.
(2) Itemized Deductions Phase-out -- Assumes a phase-out of itemized deductions
and no phase-out of personal exemptions.
(3) Itemized Deductions and Personal Exemption Phase-outs -- Assumes a single
taxpayer has one personal exemption, joint taxpayers have two personal
exemptions and itemized deductions continue to phase-out.
If these assumptions do not apply to you, it will be necessary to construct your
own personalized tax equivalency table.
<PAGE>
STEP 2: Determining your federal taxable yield equivalents.
Using 31.93%, you may determine that a tax-exempt yield of 4% is equivalent to
earning a taxable 5.88% yield.
<TABLE>
<CAPTION>
For these Tax-Exempt Rates:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Marginal
Tax Rates Equal the Taxable Rates shown below:
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
15.00% 3.53 4.12 4.71 5.29 5.88 6.47 7.06 7.65
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
28.00% 4.17 4.86 5.56 6.25 6.94 7.64 8.33 9.03
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
28.84% 4.22 4.92 5.62 6.32 7.03 7.73 8.43 9.13
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
31.00% 4.35 5.07 5.80 6.52 7.25 7.97 8.70 9.42
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
31.93% 4.41 5.14 5.88 6.61 7.35 8.08 8.81 9.55
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
32.59% 4.45 5.19 5.93 6.68 7.42 8.16 8.90 9.64
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
33.24% 4.49 5.24 5.99 6.74 7.49 8.24 8.99 9.74
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
37.08% 4.77 5.56 6.36 7.15 7.95 8.74 9.54 10.33
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
37.84% 4.83 5.63 6.44 7.24 8.04 8.85 9.65 10.46
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
38.61% 4.89 5.70 6.52 7.33 8.14 8.96 9.77 10.59
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
40.79% 5.07 5.91 6.76 7.60 8.44 9.29 10.13 10.98
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
42.47% 5.21 6.08 6.95 7.82 8.69 9.56 10.43 11.30
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
<PAGE>
Appendix B
Descriptions of derivative instruments
What follows are brief descriptions of derivative instruments the Fund may use.
At various times the Fund may use some or all of these instruments and is not
limited to these instruments. It may use other similar types of instruments if
they are consistent with the Fund's investment goal and policies. For more
information on these instruments, see the SAI.
Options and futures contracts. An option is an agreement to buy or sell an
instrument at a set price during a certain period of time. A futures contract is
an agreement to buy or sell an instrument for a set price on a future date. The
Fund may buy and sell options and futures contracts to manage its exposure to
changing interest rates, security prices and currency exchange rates. Options
and futures may be used to hedge the Fund's investments against price
fluctuations or to increase market exposure.
Asset-backed and mortgage-backed securities. Asset-backed securities include
interests in pools of assets such as motor vehicle installment sale contracts,
installment loan contracts, leases on various types of real and personal
property, receivables from revolving credit (credit card) agreements or other
categories of receivables. Mortgage-backed securities include collateralized
mortgage obligations and stripped mortgage-backed securities. Interest and
principal payments depend on payment of the underlying loans or mortgages. The
value of these securities may also be affected by changes in interest rates, the
market's perception of the issuers and the creditworthiness of the parties
involved. The non-mortgage related asset-backed securities do not have the
benefit of a security interest in the related collateral. Stripped
mortgage-backed securities include interest only (IO) and principal only (PO)
securities. Cash flows and yields on IOs and POs are extremely sensitive to the
rate of principal payments on the underlying mortgage loans or mortgage-backed
securities.
Indexed securities. The value of indexed securities is linked to currencies,
interest rates, commodities, indexes or other financial indicators. Most indexed
securities are short- to intermediate-term fixed income securities whose values
at maturity or interest rates rise or fall according to the change in one or
more specified underlying instruments. Indexed securities may be more volatile
than the underlying instrument itself.
Inverse floaters. Inverse floaters are created by underwriters using the
interest payment on securities. A portion of the interest received is paid to
holders of instruments based on current interest rates for short-term
securities. The remainder, minus a servicing fee, is paid to holders of inverse
floaters. As interest rates go down, the holders of the inverse floaters receive
more income and an increase in the price for the inverse floaters. As interest
rates go up, the holders of the inverse floaters receive less income and a
decrease in the price for the inverse floaters.
<PAGE>
Structured products. Structured products are over-the-counter financial
instruments created specifically to meet the needs of one or a small number of
investors. The instrument may consist of a warrant, an option or a forward
contract embedded in a note or any of a wide variety of debt, equity and/or
currency combinations. Risks of structured products include the inability to
close such instruments, rapid changes in the market and defaults by other
parties.
<PAGE>
IDS SPECIAL TAX-EXEMPT SERIES TRUST
STATEMENT OF ADDITIONAL INFORMATION
FOR
IDS INSURED TAX-EXEMPT FUND
Aug. 29, 1997
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, 1997, and it is to be used with the prospectus dated
Aug. 29, 1997, and the Annual Report for the fiscal year ended June 30, 1997.
<PAGE>
TABLE OF CONTENTS
Goals and Investment Policies...................................See Prospectus
Additional Investment Policies...........................................p. 3
Security
Transactions.............................................................p. 5
Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation....................................p. 7
Performance Information...................................................p. 8
Valuing Fund Shares.......................................................p. 10
Investing in the
Fund......................................................................p. 11
Redeeming
Shares....................................................................p. 15
Pay-out
Plans.....................................................................p. 15
Capital Loss Carryover....................................................p. 16
Taxes.....................................................................p. 17
Agreements................................................................p. 18
The
Trusts....................................................................p. 21
Organizational Information................................................p. 21
Board Members and Officers................................................p. 21
Compensation for Board Members............................................p. 25
Independent
Auditors..................................................................p. 25
Financial Statements..................................................See Annual
Report
Prospectus................................................................p. 26
Appendix A: Description of Ratings of Tax-Exempt Securities
and Short-Term Securities....................................p. 27
Appendix B: Options and Interest Rate Futures Contracts................. p. 31
Appendix C: Insured Fund................................................ p. 36
Appendix D: Dollar-Cost Averaging........................................p. 40
<PAGE>
ADDITIONAL INVESTMENT POLICIES
These are investment policies in addition to those presented in the prospectus.
The policies below are fundamental policies of the Fund and may be changed only
with shareholder approval. Unless holders of a majority of the outstanding
voting securities agree to make the change the Fund will not:
'Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it purchases
securities directly from the issuer and later resells them.
'Borrow money or property, except as a temporary measure for extraordinary or
emergency purposes, in an amount not exceeding one-third of the market value of
its total assets (including borrowings) less liabilities (other than borrowings)
immediately after the borrowing. The Fund has not borrowed in the past and has
no present intention to borrow.
'Make cash loans if the total commitment amount exceeds 5% of the Fund's total
assets.
'Invest more than 5% of its total assets in securities of any one company,
government or political subdivision thereof, except the limitation will not
apply to investments in securities issued by the U.S. government, its agencies
or instrumentalities, and except that up to 25% of the Fund's total assets may
be invested without regard to this 5% limitation.
'Buy or sell real estate, unless acquired as a result of ownership of securities
or other instruments, except this shall not prevent the Fund from investing in
securities or other instruments backed by real estate or securities of companies
engaged in the real estate business or real estate investment trusts. For
purposes of this policy, real estate includes real estate limited partnerships.
'Buy or sell physical commodities unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund from
buying or selling financial instruments (such as 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 board members and officers of AEFC or to its own board members
and officers.
'Purchase securities of an issuer if the board members and officers of the Fund
or the board members and officers of AEFC hold more than a certain percentage of
the issuer's outstanding securities. The rule is this: the holdings of all board
members and officers of the Fund and the holding of all board members 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.
<PAGE>
'Lend Fund securities in excess of 30% of its net assets. The current policy of
the Fund's board is to make these loans, either long- or short-term, to
broker-dealers. In making loans, the Fund receives the market 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 board, the Fund will not:
'Buy on margin or sell short, except the Fund may enter into interest rate
futures contracts.
'Pledge or mortgage its assets beyond 15% of total assets. If the Fund were ever
to do so, valuation of the pledged or mortgaged assets would be based on market
values. For purposes of this policy, collateral arrangements for margin deposits
on a futures contract are not deemed to be a pledge of assets.
'Invest more than 5% of its total assets in securities whose issuer or guarantor
of principal and interest has been in operation for less than three years.
'Invest in voting securities, securities of investment companies or exploration
or development programs, such as oil, gas or mineral leases.
'Invest more than 5% of its net assets in warrants.
'Invest more than 10% of its net assets in securities and other instruments that
are illiquid. In determining the liquidity of municipal lease obligations, the
investment manager, under guidelines established by the board, will consider the
essential nature of the lease property, the likelihood that the municipality
will continue appropriating funding for the leased property, and other relevant
factors related to the general credit quality of the municipality and the
marketability of the municipal lease 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 board, will evaluate
relevant factors such as the issuer and the size and nature of its commercial
paper programs, the willingness and ability of the issuer or dealer to
repurchase the paper, and the nature of the clearance and settlement procedures
for the paper.
The Fund may make contracts to purchase securities for a fixed price at a future
date beyond normal settlement time (when-issued securities or forward
commitments). Under normal market conditions, the Fund does not intend to commit
more than 5% of its total assets to these practices. The Fund does not pay for
the securities or receive dividends or interest on them until the contractual
settlement date. The Fund will designate cash or liquid high-grade debt
securities at least equal in value to its commitments to purchase the
securities. When-issued securities or forward commitments are subject to market
fluctuations and they may affect the Fund's total assets the same as owned
securities.
<PAGE>
The Fund may invest up to 20% of its net assets in certain taxable investments
for temporary defensive purposes. It may purchase short-term U.S. and Canadian
government securities. It may invest in bank obligations including negotiable
certificates of deposit, non-negotiable fixed time deposits, bankers'
acceptances and letters of credit. The issuing bank or savings and loan
generally must have capital, surplus and undivided profits (as of the date of
its most recently published annual financial statements) in excess of $100
million (or the equivalent in the instance of a foreign branch of a U.S.
bank) at the date of investment.
The Fund may purchase short-term corporate notes and obligations rated in the
top two classifications by Moody's Investors Service, Inc. (Moody's) or Standard
& Poor's Corporation (S&P) or the equivalent. It also may use repurchase
agreements with broker- dealers registered under the Securities Exchange Act of
1934 and with commercial banks. Repurchase agreements involve investments in
debt securities where the seller (broker-dealer or bank) agrees to repurchase
the securities from the Fund at cost plus an agreed to interest rate within a
specified time. A risk of a repurchase agreement is that if the seller seeks the
protection of the bankruptcy laws, the Fund's ability to liquidate the security
involved could be impaired, and it might subsequently incur a loss if the value
of the security declines or if the other party to a repurchase agreement
defaults on its obligation.
Notwithstanding any of the Fund's other investment policies, the Fund may invest
its assets in an open-end management investment company having substantially the
same investment objectives, policies and restrictions as the Fund for the
purpose of having those assets managed as part of a combined pool.
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 on Insured Fund, see Appendix C.
SECURITY TRANSACTIONS
Subject to policies set by the board, AEFC is authorized to determine,
consistent with the Fund's investment goal and policies,which securities will be
purchased, held or sold. In determining where the buy and sell orders are to be
placed, AEFC has been directed to use its best efforts to obtain the best
available price and the most favorable execution except where otherwise
authorized by the board.
AEFC has a strict Code of Ethics that prohibits its affiliated personnel from
engaging in personal investment activities that compete with or attempt to take
advantage of planned portfolio transactions for any fund in the IDS MUTUAL FUND
GROUP. AEFC carefully monitors compliance with its Code of Ethics.
Normally, the Fund's securities are traded on a principal rather than an agency
basis. In other words, AEFC will trade directly with the issuer or with a dealer
who buys or sells for its own account, rather than acting on behalf of another
client. AEFC does not pay the dealer commissions. Instead, the dealer's profit,
if any, is the difference, or spread, between the dealer's purchase and sale
price for the security.
<PAGE>
On occasion it may be desirable to compensate a broker for research services or
for brokerage services by paying a commission that might not otherwise be
charged or a commission in excess of the amount another broker might charge. The
board has adopted a policy authorizing AEFC to do so to the extent authorized by
law, if AEFC determines, in good faith, that such commission is reasonable in
relation to the value of the brokerage or research services provided by a broker
or dealer, viewed either in the light of that transaction or AEFC's overall
responsibilities to the funds in the IDS MUTUAL FUND GROUP and other accounts
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 (SEC).
When paying a commission that might not otherwise be charged or a commission in
excess of the amount another broker might charge, AEFC must follow procedures
authorized by the board. To date, three procedures have been authorized. One
procedure permits AEFC to direct an order to buy or sell a security traded on a
national securities exchange to a specific broker for research services it has
provided. The second procedure permits AEFC, in order to obtain research, to
direct an order on an agency basis to buy or sell a security traded in the
over-the-counter market to a firm that does not make a market in that security.
The commission paid generally includes compensation for research services. The
third procedure permits AEFC, in order to obtain research and brokerage
services, to cause the Fund to pay a commission in excess of the amount another
broker might have charged. AEFC has advised the Fund it is necessary to do
business with a number of brokerage firms on a continuing basis to obtain such
services as the handling of large orders, the willingness of a broker to risk
its own money by taking a position in a security, and the specialized handling
of a particular group of securities that only certain brokers may be able to
offer. As a result of this arrangement, some portfolio transactions may not be
effected at the lowest commission, but AEFC believes it may obtain better
overall execution. AEFC has 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 selecting the broker or
dealer, several firms can execute the transaction on the same basis,
consideration will be given by such person to those firms offering research
services. Such services may be used by AEFC in providing advice to all the funds
in the IDS MUTUAL FUND GROUP even though it is not possible to relate the
benefits to any particular fund or account.
<PAGE>
Each investment decision made for the Fund is made independently from any
decision made for another fund in the IDS MUTUAL FUND GROUP or other account
advised by AEFC or any of its subsidiaries. When the Fund buys or sells the same
security as another fund or account, AEFC carries out the purchase or sale in a
way the Fund agrees in advance is fair. Although sharing in large transactions
may adversely affect the price or volume purchased or sold by the Fund, the Fund
hopes to gain an overall advantage in execution. AEFC has assured the Fund it
will continue to seek ways to reduce brokerage costs.
On a periodic basis, AEFC makes a comprehensive review of the broker-dealers and
the overall reasonableness of their commissions. The review evaluates execution,
operational efficiency and research services.
The Fund paid total brokerage commissions of $-0- for the fiscal year ended June
30, 1997, $21,654 for the fiscal year 1996, and $80,516 for the fiscal year
1995. Substantially all firms through whom transactions were executed provide
research services.
No transactions were directed to brokers because of research services they
provided to the Fund.
As of the fiscal year ended June 30, 1997, the Fund held no securities of its
regular brokers or dealers or of the parents of those brokers or dealers that
derived more than 15% of gross revenue from securities-related activities.
The portfolio turnover rate was 33% in the fiscal year ended June 30, 1997, and
52% in fiscal year 1996.
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH AMERICAN EXPRESS
FINANCIAL CORPORATION
Affiliates of American Express Company (American Express) (of which AEFC is a
wholly-owned subsidiary) may engage in brokerage and other securities
transactions on behalf of the Fund according to procedures adopted by the Fund's
board and to the extent consistent with applicable provisions of the federal
securities laws. AEFC will use an American Express affiliate only if (i) AEFC
determines that the Fund will receive prices and executions at least as
favorable as those offered by qualified independent brokers performing similar
brokerage and other services for the Fund and (ii) the affiliate charges the
Fund commission rates consistent with those the affiliate charges comparable
unaffiliated customers in similar transactions and if such use is consistent
with terms of the Investment Management Services Agreement.
AEFC may direct brokerage to compensate an affiliate. AEFC will receive research
on South Africa from New Africa Advisors, a wholly-owned subsidiary of Sloan
Financial Group. AEFC owns 100% of IDS Capital Holdings Inc. which in turn owns
40% of Sloan Financial Group. New Africa Advisors will send research to AEFC and
in turn AEFC will direct trades to a particular broker. The broker will have an
agreement to pay New Africa Advisors. All transactions will be on a best
execution basis. Compensation received will be reasonable for the services
rendered.
No brokerage commissions were paid to brokers affiliated with AEFC for the three
most recent fiscal years.
<PAGE>
PERFORMANCE INFORMATION
The Fund may quote various performance figures to illustrate past performance.
Average annual total return and current yield quotations used by the Fund are
based on standardized methods of computing performance as required by the SEC.
An explanation of the methods used by the Fund to compute performance follows
below.
Average annual total return
The Fund may calculate average annual total return for a class for certain
periods by finding the average annual compounded rates of return over the period
that would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)n = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of a period, at the
end of the period (or fractional portion thereof)
Aggregate total return
The Fund may calculate aggregate total return for a class for certain periods
representing the cumulative change in the value of an investment in the Fund
over a specified period of time according to the following formula:
ERV - P
P
where:
P = a hypothetical initial payment of $1,000
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of a period, at the end of
the period (or fractional portion thereof)
Annualized yield
The Fund may calculate an annualized yield for a class by dividing the net
investment income per share deemed earned during a 30-day period by the public
offering price per share (including the maximum sales charge) on the last day of
the period and annualizing the results.
<PAGE>
Yield is calculated according to the following formula:
Yield = 2[(a-b + 1)6 - 1]
cd
where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of
reimbursements)
c = the average daily number of shares outstanding
during the period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
The Fund's annualized yield was 4.24% for Class A, 3.71% for Class B, and 4.70%
for Class Y for the 30-day period ended June 30, 1997.
Distribution yield
Distribution yield is calculated according to the following formula:
D divided by POPF 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 5.92% for Class A, 5.46% for Class B, and
6.34% for Class Y for the 30-day period ended June 30, 1997.
Tax-Equivalent Yield
Tax-equivalent yield is calculated by dividing that portion of the yield (as
calculated above) which is tax-exempt by one minus a stated income tax rate and
adding the result to that portion, if any, of the yield that is not tax-exempt.
The following table shows the fund's tax equivalent yield, based on federal but
not state tax rates, for the 30-day period ended June 30, 1997.
<PAGE>
Marginal
Income Tax Tax-Equivalent Yield
Bracket Distribution Annualized
Class A
15.0% 6.96% 4.99%
28.0% 8.22% 5.89%
33.0% 8.84% 6.33%
Class B
15.0% 6.42% 4.36%
28.0% 7.58% 5.15%
33.0% 8.15% 5.54%
Class Y
15.0% 7.46% 5.53%
28.0% 8.81% 6.53%
33.0% 9.46% 7.01%
In its sales material and other communications, the Fund may quote, compare or
refer to rankings, yields or returns as published by independent statistical
services or publishers and publications such as The Bank Rate Monitor National
Index, Barron's, Business Week, Donoghue's Money Market Fund Report, Financial
Services Week, Financial Times, Financial World, Forbes, Fortune, Global
Investor, Institutional Investor, Investor's Daily, Kiplinger's Personal
Finance, Lipper Analytical Services, Money, Morningstar, Mutual Fund Forecaster,
Newsweek, The New York Times, Personal Investor, Stanger Report, Sylvia Porter's
Personal Finance, USA Today, U.S. News and World Report, The Wall Street Journal
and Wiesenberger Investment Companies Service.
VALUING FUND SHARES
The value of an individual share for each class is determined by using the net
asset value before shareholder transactions for the day. On July 1, 1997, the
first business day following the end of the fiscal year, the computation looked
like this:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Net assets before Shares outstanding Net asset value
shareholder transactions at end of previous day of one share
Class A $462,399,420 divided by 83,920,040 equals $5.51
Class B 31,402,157 5,699,121 5.51
Class Y 1,148 208 5.52
</TABLE>
In determining net assets before shareholder transactions, the Fund's securities
are valued as follows as of the close of business of the New York Stock Exchange
(the Exchange):
'Securities, 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.
<PAGE>
'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 the 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 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. The board is 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 Exchange, AEFC and the Fund will be closed on the following holidays: New
Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
INVESTING IN THE FUND
Sales Charge
Shares of the Fund are sold at the public offering price determined at the close
of business on the day an application is accepted. The public offering price is
the net asset value of one share 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,
<PAGE>
the public offering price for an investment of less than $50,000, made July 1,
1997, was determined by dividing the net asset value of one share, $5.51, by
0.95 (1.00-0.05 for a maximum 5% sales charge) for a public offering price of
$5.80. 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
First $ 50,000 5.0% 5.26%
Next 50,000 4.5 4.71
Next 400,000 3.8 3.95
Next 500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
Sales charges on an investment greater than $50,000 and less than $1,000,000 are
calculated for each increment separately and then totaled. The resulting total
sales charge, expressed as a percentage of the public offering price and of the
net amount invested, will vary depending on the proportion of the investment at
different sales charge levels.
For example, compare an investment of $60,000 with an investment of $85,000. The
$60,000 investment is composed of $50,000 that incurs a sales charge of $2,500
(5.0% x $50,000) and $10,000 that incurs a sales charge of $450 (4.5% x
$10,000). The total sales charge of $2,950 is 4.92% of the public offering price
and 5.17% of the net amount invested.
In the case of the $85,000 investment, the first $50,000 also incurs a sales
charge of $2,500 (5.0% x $50,000) and $35,000 incurs a sales charge of $1,575
(4.5% x $35,000). The total sales charge of $4,075 is 4.79% of the public
offering price and 5.04% of the net amount invested.
The following table shows the range of sales charges as a percentage of the
public offering price and of the net amount invested on total investments at
each applicable level.
On total investment, sales
charge as a percentage of
Public Net
Offering Price Amount Invested
Amount of Investment ranges from:
First $ 50,000 5.00% 5.26%
More than 50,000 to 100,000 5.00-4.50 5.26-4.71
More than 100,000 to 500,000 4.50-3.80 4.71-3.95
More than 500,000 to 999,999 3.80-2.00 3.95-2.04
$1,000,000 or more 0.00 0.00
<PAGE>
Class A - Reducing the Sales Charge
Sales charges are based on the total amount of your investments in the Fund. The
amount of all prior investments plus any new purchase is referred to as your
"total amount invested." For example, suppose you have made an investment of
$20,000 and later decide to invest $40,000 more. Your total amount invested
would be $60,000. As a result, $10,000 of your $40,000 investment qualifies for
the lower 4.5% sales charge that applies to investments of more than $50,000 and
up to $100,000.
The total amount invested includes any shares held in the Fund in the name of a
member of your primary household group. (The primary household group consists of
accounts in any ownership for spouses or domestic partners and their unmarried
children under 21. Domestic partners are individuals who maintain a shared
primary residence and have joint property or other insurable interests. For
instance, if your spouse already has invested $20,000 and you want to invest
$40,000, your total amount invested will be $60,000 and therefore you will pay
the lower charge of 4.5% on $10,000 of the $40,000.
Until a spouse remarries, the sales charge is waived for spouses and unmarried
children under 21 of deceased board members, officers or employees of the Fund
or AEFC or its subsidiaries and deceased advisors.
The total amount invested also includes any investment you or your immediate
family already have in the other publicly offered funds in the IDS MUTUAL FUND
GROUP where the investment is subject to a sales charge. For example, suppose
you already have an investment of $30,000 in another IDS Fund. If you invest
$40,000 more in this fund, your total amount invested in the funds will be
$70,000 and therefore $20,000 of your $40,000 investment will incur a 4.5% sales
charge.
Class A - Letter of Intent (LOI)
If you intend to invest $1 million over a period of 13 months, you can reduce
the sales charges in Class A by filing a LOI. The agreement can start at any
time and will remain in effect for 13 months. Your investment will be charged
normal sales charges until you have invested $1 million. At that time, your
account will be credited with the sales charges previously paid. Class A
investments made prior to signing an LOI may be used to reach the $1 million
total, excluding Cash Management Fund and Tax-Free Money Fund. However, we will
not adjust for sales charges on investments made prior to the signing of the
LOI. If you do not invest $1 million by the end of 13 months, there is no
penalty, you'll just miss out on the sales charge adjustment. A LOI is not an
option (absolute right) to buy shares.
Here's an example. You file a LOI to invest $1 million and make an investment of
$100,000 at that time. You pay the normal 5% sales charge on the first $50,000
and 4.5% sales charge on the next $50,000 of this investment. Let's say you make
a second investment of $900,000 (bringing the total up to $1 million) one month
before the 13-month period is up. On the date that you bring your total to $1
million, AEFC makes an adjustment to your account. The adjustment is made by
crediting your account with additional shares, in an amount equivalent to the
sales charge previously paid.
<PAGE>
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 the same class of another fund in the IDS MUTUAL FUND GROUP but cannot be
split to make purchases in two or more funds. Automatic directed dividends are
available between accounts of any ownership except:
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.
<PAGE>
The Fund's investment goals are described in its prospectus along with other
information, including fees and expense ratios. Before exchanging dividends into
another fund, you should read that fund's prospectus. You will receive a
confirmation that the automatic directed dividend service has been set up for
your account.
REDEEMING SHARES
You have a right to redeem your shares at any time. For an explanation of
redemption procedures, please see the prospectus.
During an emergency, the board can suspend the computation of net asset value,
stop accepting payments for purchase of shares or suspend the duty of the Fund
to redeem shares for more than seven days. Such emergency situations would occur
if:
'The Exchange closes for reasons other than the usual weekend and holiday
closings or trading on the Exchange is restricted, or
'Disposal of the Fund's securities is not reasonably practicable or it is not
reasonably practicable for the Fund to determine the fair value of its net
assets, or
'The SEC, under the provisions of the Investment Company Act of 1940 (the 1940
Act), as amended, declares a period of emergency to exist.
Should the Fund stop selling shares, the board may make a deduction from the
value of the assets held by the Fund to cover the cost of future liquidations of
the assets so as to distribute fairly these costs among all shareholders.
The Fund has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates the Fund to redeem shares in cash, with respect to any one shareholder
during any 90-day period, up to the lesser of $250,000 or 1% of the net assets
of the Fund at the beginning of the period. Although redemptions in excess of
this limitation would normally be paid in cash, the Fund reserves the right to
make these payments in whole or in part in securities or other assets in case of
an emergency, or if the payment of a redemption in cash would be detrimental to
the existing shareholders of the Fund as determined by the board. In these
circumstances, the securities distributed would be valued as set forth in the
prospectus. Should the Fund distribute securities, a shareholder may incur
brokerage fees or other transaction costs in converting the securities to cash.
PAY-OUT PLANS
You can use any of several pay-out plans to redeem your investment in regular
installments. If you redeem Class B shares you may be subject to a contingent
deferred sales charge as discussed in the prospectus. While the plans differ on
how the pay-out is figured, they all are based on the redemption of your
investment. Net investment income dividends and any capital gain distributions
will automatically be reinvested, unless you elect to receive them in cash.
Applications for a systematic investment in a class of any fund subject to a
sales charge normally will not be accepted while a pay-out plan for any of those
funds is in effect. Occasional investments, however, may be accepted.
<PAGE>
To start any of these plans, please write American Express Shareholder Service,
P.O. Box 534, Minneapolis, MN 55440-0534, or call American Express Financial
Advisors Telephone Transaction Service at 800-437-3133 (National/Minnesota) or
612-671-3800 (Mpls./St. Paul). Your authorization must be received in the
Minneapolis headquarters at least five days before the date you want your
payments to begin. The initial payment must be at least $50. Payments will be
made on a monthly, bimonthly, quarterly, semiannual or annual basis. Your choice
is effective until you change or cancel it.
The following pay-out plans are designed to take care of the needs of most
shareholders in a way AEFC can handle efficiently and at a reasonable cost. If
you need a more irregular schedule of payments, it may be necessary for you to
make a series of individual redemptions, in which case you'll have to send in a
separate redemption request for each pay-out. The Fund reserves the right to
change or stop any pay-out plan and to stop making such plans available.
Plan #1: Pay-out for a fixed period of time
If you choose this plan, a varying number of shares will be redeemed at regular
intervals during the time period you choose. This plan is designed to end in
complete redemption of all shares in your account by the end of the fixed
period.
Plan #2: Redemption of a fixed number of shares
If you choose this plan, a fixed number of shares will be redeemed for each
payment and that amount will be sent to you. The length of time these payments
continue is based on the number of shares in the account.
Plan #3: Redemption of a fixed dollar amount
If you decide on a fixed dollar amount, whatever number of shares is necessary
to make the payment will be redeemed in regular installments until the account
is closed.
Plan #4: Redemption of a percentage of net asset value
Payments are made based on a fixed percentage of the net asset value of the
shares in your account computed on the day of each payment. Percentages range
from 0.25% to 0.75%. For example, if you are on this plan and arrange to take
0.5% each month, you will get $50 if the value of your account is $10,000 on the
payment date.
CAPITAL LOSS CARRYOVER
For federal income tax purposes, the Fund had capital loss carryover of $824,794
at June 30, 1997, that will expire in 2005.
It is unlikely that the board will authorize a distribution of any net realized
capital gains until the available capital loss carryover has been offset or has
expired.
<PAGE>
TAXES
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.
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,
1997, 99% 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.
The Fund may purchase tax-exempt securities at a discount from the price at
which they were originally issued, especially during periods of rising interest
rates. For federal income tax purposes, some or all of this market discount will
be included in the Fund's ordinary income and will be taxable income when it is
distributed to you.
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.
<PAGE>
Under federal tax law, and an election made by the Fund under federal tax rules,
by the end of a calendar year the Fund must declare and pay dividends
representing 98% of ordinary income through Dec. 31 and 98% of net capital gains
(both long-term and short-term) for the 12-month period ending Oct. 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
First $1.0 0.450%
Next 1.0 0.425
Next 1.0 0.400
Next 3.0 0.375
Over 6.0 0.350
On June 30, 1997, the daily rate applied to the Fund's net assets was equal to
0.450% on an annual basis. The fee is calculated for each calendar day on the
basis of net assets as of the close of business two business days prior to the
day for which the calculation is made.
The management fee is paid monthly. Under the agreement, the total amount paid
was $2,269,770 for the fiscal year ended June 30, 1997, $2,346,243 for fiscal
year 1996, and $2,560,188 for fiscal year 1995.
Under the agreement, the Fund also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees; audit and certain legal
fees; fidelity bond premiums; registration fees for shares; office expenses;
consultants' fees; compensation of board members, officers and employees;
corporate filing fees; organizational expenses; expenses incurred in connection
with lending securities of the Fund; and expenses properly payable by the Fund,
approved by the board. Under the agreement, the Fund paid nonadvisory expenses
of $130,318 for the fiscal year ended June 30, 1997, $213,545 for fiscal year
1996, and $155,247 for fiscal year 1995.
<PAGE>
Administrative Services Agreement
The Fund has an Administrative Services Agreement with AEFC. Under this
agreement, the Fund pays AEFC for providing administration and accounting
services. The fee is calculated as follows:
Assets Annual rate
(billions) each asset level
First $1.0 0.040%
Next 1.0 0.035
Next 1.0 0.030
Next 3.0 0.025
Over 6.0 0.020
On June 30, 1997, the daily rate applied to the Fund's net assets was equal to
0.040% on an annual basis. The fee is calculated for each calendar day on the
basis of net assets as of the close of business two business days prior to the
day for which the calculation is made. Under the agreement, the Fund paid fees
of $201,757 for the fiscal year ended June 30, 1997.
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 per year and dividing by the
number of days in the year. The rate for Class A and Class Y is $15.50 per year
and for Class B is $16.50 per year. The fees paid to AEFC may be changed from
time to time upon agreement of the parties without shareholder approval. Under
the agreement, the Fund paid fees of $235,790 for the year ended June 30, 1997.
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 $1,002,387 for the fiscal year ended June 30, 1997. After paying
commissions to personal financial advisors, and other expenses, the amount
retained was $115,180. The amounts were $1,300,606 and $66,902 for the fiscal
year ended June 30, 1996, and $1,522,191 and $451,555 for the fiscal year ended
1995.
<PAGE>
<TABLE>
<CAPTION>
Additional information about commissions and compensation for the fiscal year
ended June 30, 1997 is contained in the following table:
<S> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Net Compensation
Name of Underwriting on Redemption
Principal Discounts and and Brokerage Other
Underwriter Commissions Repurchases Commissions Compensation
AEFC None None None $195,038*
American
Express
Financial
Advisors $1,002,387 None None None
</TABLE>
*Distribution fees paid pursuant to the Plan and Agreement of Distribution.
Shareholder Service Agreement
The Fund pays a fee for service provided to shareholders by financial advisors
and other servicing agents. The fee is calculated at a rate of 0.175% of average
daily net assets for Class A and Class B and 0.10% for Class Y.
Plan and Agreement of Distribution
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, including a majority of the
disinterested board members, if it is to continue for more than a year. At least
quarterly, the board must review written reports concerning the amounts expended
under the Plan and the purposes for which such expenditures were made. The Plan
and any agreement related to it may be terminated at any time by vote of a
majority of 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 board members, including a majority
of the board members who are not interested
<PAGE>
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 board members is the responsibility of disinterested board
members. No board member who is not an interested person, has any direct or
indirect financial interest in the operation of the Plan or any related
agreement. For the fiscal year ended June 30, 1997, under the agreement, the
Fund paid fees of $195,038.
Custodian Agreement
The Fund's securities and cash are held by First Bank National Association, 180
E. Fifth St., St. Paul, MN 55101-1631, through a custodian agreement. The
custodian is permitted to deposit some or all of its securities in central
depository systems as allowed by federal law. For its services, the Fund pays
the custodian a maintenance charge and a charge per transaction in addition to
reimbursing the custodian's out-of-pocket expenses.
Total fees and expenses
The Fund paid total fees and nonadvisory expenses of $3,902,589 for the fiscal
year ended June 30, 1997.
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.
ORGANIZATIONAL INFORMATION
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.
BOARD MEMBERS AND OFFICERS
The following is a list of the Fund's board members. They serve 15 Master Trust
portfolios and 47 IDS and IDS Life funds (except for William H. Dudley, who does
not serve on the nine IDS Life fund boards.)
All shares have cumulative voting rights with respect to the election of board
members.
H. Brewster Atwater, Jr.
Born in 1931
4900 IDS Tower
Minneapolis, MN
Former chairman and chief executive officer, General Mills, Inc. Director,
Merck & Co., Inc. and Darden Restaurants, Inc.
<PAGE>
Lynne V. Cheney'
Born in 1941
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W.
Washington, D.C.
Distinguished Fellow AEI. Former Chair of National Endowment of the Humanities.
Director, The Reader's Digest Association Inc., Lockheed-Martin, Union Pacific
Resources, and FPL Group, Inc. (holding company for Florida Power and Light).
William H. Dudley**
Born in 1932
2900 IDS Tower
Minneapolis, MN
Senior advisor to the chief executive officer, AEFC.
Robert F. Froehlke+
Born in 1922
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+**
Born in 1943
2900 IDS Tower
Minneapolis, MN
President and chief executive officer of AEFC since August 1993, and director of
AEFC. Previously, senior vice president, finance and chief financial officer of
AEFC.
Heinz F. Hutter+'
Born in 1929
P.O. Box 2187
Minneapolis, MN
Former president and chief operating officer, Cargill, Incorporated (commodity
merchants and processors).
Anne P. Jones
Born in 1935
5716 Bent Branch Rd.
Bethesda, MD
Attorney and telecommunications consultant. Former partner, law firm of
Sutherland, Asbill & Brennan. Director, Motorola, Inc. and C-Cor Electronics,
Inc.
<PAGE>
Melvin R. Laird
Born in 1922
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. Former nine-term U.S. Congressman, U.S. Secretary of Defense
and Presidential Counsellor. Director, 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).
William R. Pearce+*
Born in 1927
901 S. Marquette Ave.
Minneapolis, MN
Chairman of the Board, Board Services Corporation (provides administrative
services to boards). Director, trustee and officer of registered investment
companies whose boards are served by the company. Former vice chairman of the
board, Cargill, Incorporated (commodity merchants and processors).
Alan K. Simpson
Born in 1931
1201 Sunshine Ave.
Cody, WY
Former three-term United States Senator for Wyoming. Former Assistant Republican
Leader, U.S. Senate. Director, PacifiCorp (electric power).
Edson W. Spencer+
Born in 1926
4900 IDS Center
80 S. 8th St.
Minneapolis, MN
President, Spencer Associates Inc. (consulting). Former chairman of the board
and chief executive officer, Honeywell Inc. Director, Boise Cascade Corporation
(forest products). Member of International Advisory Council of NEC (Japan).
John R. Thomas**
Born in 1937
2900 IDS Tower
Minneapolis, MN
Senior vice president and director of AEFC.
<PAGE>
Wheelock Whitney+
Born in 1926
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN
Chairman, Whitney Management Company (manages family assets).
C. Angus Wurtele'
Born in 1934
Valspar Corporation
Suite 1700
Foshay Tower
Minneapolis, MN
Chairman of the board and retired chief executive officer, The Valspar
Corporation (paints). Director, Bemis Corporation (packaging), Donaldson Company
(air cleaners & mufflers) and General Mills, Inc.
(consumer foods).
+ Member of executive committee.
' Member of joint audit committee.
* Interested person by reason of being an officer and employee of the Fund.
**Interested person by reason of being an officer, board member, employee and/or
shareholder of AEFC or American Express.
The board also has appointed officers who are responsible for day-to-day
business decisions based on policies it has established.
In addition to Mr. Pearce, who is president, the Fund's other officers are:
Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN
President, treasurer and corporate secretary of Board Services Corporation. Vice
president, general counsel and secretary for the Fund.
Officers who also are officers and/or employees of AEFC
Peter J. Anderson
Born in 1942
IDS Tower 10
Minneapolis, MN
Director and senior vice president-investments of AEFC. Vice
president-investments for the Fund.
<PAGE>
Melinda S. Urion
Born in 1953
IDS Tower 10
Minneapolis, MN
Director, senior vice president and chief financial officer of AEFC. Director,
executive vice president and controller of IDS Life Insurance Company. Treasurer
for the Fund.
COMPENSATION FOR FUND BOARD MEMBERS
Members of the board who are not officers of the Fund or AEFC receive an annual
fee of $100 and the chair of the Contracts Committee receives an additional $86.
Board members receive a $50 per day attendance fee for board meetings. The
attendance fee for meetings of the Contracts and Investment Review Committees is
$50; for meetings of the Audit Committee and Personnel Committee $25 and for
traveling from out-of-state $1. Expenses for attending meetings are reimbursed.
During the fiscal year ended June 30, 1997, the members of the board, for
attending up to 31 meetings, received the following compensation:
<TABLE>
<CAPTION>
Compensation Table
<S> <C> <C> <C> <C>
Pension or Estimated Total cash compensation
Aggregate Retirement annual from the IDS MUTUAL FUND
compensation benefits accrued benefit upon GROUP and the Preferred
Board member from the Fund as Fund expenses* retirement Master Trust Group
- ---------------------- ---------------- ---------------------- -------------------- -------------------------
H. Brewster Atwater, Jr$ 225 $0 $0 $ 68,900
(part of year)
Lynne V. Cheney 431 0 0 92,000
Robert F. Froehlke 490 0 0 99,800
Heinz F. Hutter 543 0 0 99,900
Anne P. Jones 456 0 0 107,600
Melvin R. Laird 384 0 0 93,700
Alan K. Simpson 8 0 0 46,300
(part of year)
Edson W. Spencer 525 0 0 122,900
Wheelock Whitney 500 0 0 104,600
C. Angus Wurtele 543 0 0 104,200
</TABLE>
On June 30, 1997, the Fund's board members and officers as a group owned less
than 1% of the outstanding shares.
INDEPENDENT AUDITORS
The financial statements contained in the Annual Report to shareholders for the
fiscal year ended June 30, 1997, were audited by independent auditors, KPMG Peat
Marwick LLP, 4200 Norwest Center, 90 S. Seventh St., Minneapolis, MN 55402-3900.
The independent auditors also provide other accounting and tax-related services
as requested by the Fund.
<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 Annual Report to shareholders for the fiscal year ended June
30, 1997, 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, 1997, is hereby
incorporated in this SAI by reference.
<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 is 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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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 the Fund objectives and
policies. When assessing the risk involved in each nonrated security, the Fund
will consider the financial condition of the issuer or the protection afforded
by the terms of the security.
Short-term Tax-exempt Securities
A portion of the Fund's assets are in cash and short-term securities for
day-to-day operating purposes. The investments will usually be in short-term
municipal bonds and notes. These include:
(1) Tax anticipation notes sold to finance working capital needs of
municipalities in anticipation of receiving taxes on a future date.
(2) Bond anticipation notes sold on an interim basis in anticipation of a
municipality issuing a longer term bond in the future.
(3) Revenue anticipation notes issued in anticipation of revenues from sources
other than taxes, such as federal revenues available under the Federal Revenue
Sharing Program.
(4) Tax and revenue anticipation notes issued in anticipation of revenues from
taxes and other sources of revenue, except bond placements.
(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.
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(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
enough 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 the Fund's investments may be in
short-term taxable securities. These include:
(1) Obligations of the U.S. government, its agencies and instrumentalities
resulting principally from lending programs of the U.S. government;
(2) U.S. Treasury bills with maturities up to one year. The difference
between the purchase price and the maturity value or resale price is the
interest income to the Fund;
(3) Certificates of deposit or receipts with fixed interest rates issued by
banks in exchange for deposit of funds;
<PAGE>
(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, the Fund receives a fixed rate of return that is insulated from
market rate changes while it holds the security.
<PAGE>
APPENDIX B
OPTIONS AND INTEREST RATE FUTURES CONTRACTS
The Fund may buy or write options traded on any U.S. or foreign exchange or in
the over-the-counter market. The Fund may enter into interest rate futures
contracts traded on any U.S. or foreign exchange. The Fund also may buy or write
put and call options on these futures. Options in the over-the-counter market
will be purchased only when the investment manager believes a liquid secondary
market exists for the options and only from dealers and institutions the
investment manager believes present a minimal credit risk. Some options are
exercisable only on a specific date. In that case, or if a liquid secondary
market does not exist, the Fund could be required to buy or sell securities at
disadvantageous prices, thereby incurring losses.
OPTIONS. An option is a contract. A person who buys a call option for a security
has the right to buy the security at a set price for the length of the contract.
A person who sells a call option is called a writer. The writer of a call option
agrees to sell the security at the set price when the buyer wants to exercise
the option, no matter what the market price of the security is at that time. A
person who buys a put option has the right to sell a security at a set price for
the length of the contract. A person who writes a put option agrees to buy the
security at the set price if the purchaser wants to exercise the option, no
matter what the market price of the security is at that time. An option is
covered if the writer owns the security (in the case of a call) or sets aside
the cash (in the case of a put) that would be required upon exercise.
The price paid by the buyer for an option is called a premium. In addition the
buyer generally pays a broker a commission. The writer receives a premium, less
a commission, at the time the option is written. The cash received is retained
by the writer whether or not the option is exercised. A writer of a call option
may have to sell the security for a below-market price if the market price rises
above the exercise price. A writer of a put option may have to pay an
above-market price for the security if its market price decreases below the
exercise price.
Options can be used to produce incremental earnings, protect gains and
facilitate buying and selling securities for investment purposes. The use of
options and futures contracts may benefit the Fund and its shareholders by
improving the Fund's liquidity and by helping to stabilize the value of its net
assets.
Buying options. Put and call options may be used as a trading technique to
facilitate buying and selling securities for investment reasons. Options are
used as a trading technique to take advantage of any disparity between the price
of the underlying security in the securities market and its price on the options
market. It is anticipated the trading technique will be utilized only to effect
a transaction when the price of the security plus the option price will be as
good or better than the price at which the security could be 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.
<PAGE>
Put and call options also may be held by the Fund for investment purposes.
Options permit the Fund to experience the change in the value of a security with
a relatively small initial cash investment. The risk the Fund assumes when it
buys an option is the loss of the premium. To be beneficial to the Fund, the
price of the underlying security must change within the time set by the option
contract. Furthermore, the change must be sufficient to cover the premium paid,
the commissions paid both in the acquisition of the option and in a closing
transaction or in the exercise of the option and subsequent sale (in the case of
a call) or purchase (in the case of a put) of the underlying security. Even then
the price change in the underlying security does not ensure a profit since
prices in the option market may not reflect such a change.
Writing covered options. The Fund will write covered options when it feels it is
appropriate and will follow these guidelines:
'Underlying securities will continue to be bought or sold solely on the basis of
investment considerations consistent with the Fund's goal.
'All options written by the Fund will be covered. For covered call options if a
decision is made to sell the security, the Fund will attempt to terminate the
option contract through a closing purchase transaction.
Net premiums on call options closed or premiums on expired call options are
treated as short-term capital gains. 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.
Options on many securities are listed on options exchanges. If the Fund writes
listed options, it will follow the rules of the options exchange. Options are
valued at the close of the New York Stock Exchange. An option listed on a
national exchange, Chicago Board Options Exchange (CBOE) or NASDAQ will be
valued at the last-quoted sales price or, if such a price is not readily
available, at the mean of the last bid and asked prices.
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
<PAGE>
the sale exceeds the price in the offsetting purchase, the Fund immediately is
paid the difference and realizes a gain. If the offsetting purchase price
exceeds the sale price, the Fund pays the difference and realizes a loss.
Similarly, closing out a futures contract purchase is effected by the Fund
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase price, the Fund realizes a gain, and if the offsetting sale price is
less than the purchase price, the Fund realizes a loss. At the time a futures
contract is made, a good-faith deposit called initial margin is set up within a
segregated account at the Fund's custodian bank. The initial margin deposit is
approximately 1.5% of a contract's face value. Daily thereafter, the futures
contract is valued and the payment of variation margin is required so that each
day the Fund would pay out cash in an amount equal to any decline in the
contract's value or receive cash equal to any increase. At the time a futures
contract is closed out, a nominal commission is paid, which is generally lower
than the commission on a comparable transaction in the cash markets.
The purpose of a futures contract, in the case of a portfolio holding long-term
debt securities, is to gain the benefit of changes in interest rates without
actually buying or selling long-term debt securities. For example, if the Fund
owned long-term bonds and interest rates were expected to increase, it might
enter into futures contracts to sell securities which would have much the same
effect as selling some of the long-term bonds it owned.
Futures contracts are based on types of debt securities referred to above, which
have historically reacted to an increase or decline in interest rates in a
fashion similar to the debt securities the Fund owns. If interest rates did
increase, the value of the debt securities in the portfolio would decline, but
the value of the Fund's futures contracts would increase at approximately the
same rate, thereby keeping the net asset value of the Fund from declining as
much as it otherwise would have. If, on the other hand, the Fund held cash
reserves and interest rates were expected to decline, the Fund might enter into
interest rate futures contracts for the purchase of securities. If short-term
rates were higher than long-term rates, the ability to continue holding these
cash reserves would have a 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.
<PAGE>
OPTIONS ON FUTURES CONTRACTS. Options on futures contracts give the holder a
right to buy or sell futures contracts in the future. Unlike a futures contract,
which requires the parties to the contract to buy and sell a security on a set
date, an option on a futures contract merely entitles its holder to decide on or
before a future date (within nine months of the date of issue) whether to enter
into such a contract. If the holder decides not to enter into the contract, all
that is lost is the amount (premium) paid for the option. Furthermore, because
the value of the option is fixed at the point of sale, there are no daily
payments of cash to reflect the change in the value of the underlying contract.
However, since an option gives the buyer the right to enter into a contract at a
set price for a fixed period of time, its value does change daily and that
change is reflected in the net asset value of the Fund.
RISKS. There are risks in engaging in each of the management tools described
above. The risk the Fund assumes when it buys an option is the loss of the
premium paid for the option. Purchasing options also limits the use of monies
that might otherwise be available for long-term investments.
The risk involved in writing options on futures contracts the Fund owns, or on
securities held in its portfolio, is that there could be an increase in the
market value of such contracts or securities. If that occurred, the option would
be exercised and the asset sold at a lower price than the cash market price. To
some extent, the risk of not realizing a gain could be reduced by entering into
a closing transaction. The Fund could enter into a closing transaction by
purchasing an option with the same terms as the one it had previously sold. The
cost to close the option and terminate the Fund's obligation, however, might be
more or less than the premium received when it originally wrote the option.
Furthermore, the Fund might not be able to close the option because of
insufficient activity in the options market.
A risk in employing futures contracts to protect against the price volatility of
portfolio securities is that the prices of securities subject to futures
contracts may not correlate perfectly with the behavior of the cash prices of
the Fund's securities. The correlation may be distorted because the futures
market is dominated by short-term traders seeking to profit from the difference
between a contract or security price and their cost of borrowed funds. Such
distortions are generally minor and would diminish as the contract approached
maturity.
Another risk is that the Fund's investment manager could be incorrect in
anticipating as to the direction or extent of various interest rate movements or
the time span within which the movements take place. For example, if the Fund
sold futures contracts for the sale of securities in anticipation of an increase
in interest rates, and interest rates declined instead, the Fund would lose
money on the sale.
TAX TREATMENT. As permitted under federal income tax laws, the Fund intends to
identify futures contracts as mixed straddles and not mark them to market, that
is, not treat them as having been sold at the end of the year at market value.
Such an election may result in the Fund being required to defer recognizing
losses incurred by entering into futures contracts and losses on underlying
securities identified as being hedged against.
<PAGE>
Federal income tax treatment of gains or losses from transactions in options on
futures contracts and indexes will depend on whether such option is a section
1256 contract . If the option is a non-equity option, the Fund will either make
a 1256(d) election and treat the option as a mixed straddle or mark to market
the option at fiscal year end and treat the gain/loss as 40% short-term and 60%
long-term. Certain provisions of the Internal Revenue Code may also limit the
Fund's ability to engage in futures contracts and related options transactions.
For example, at the close of each quarter of the Fund's taxable year, at least
50% of the value of its assets must consist of cash, government securities and
other securities, subject to certain diversification requirements. 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 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.
<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.
<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.
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.
<PAGE>
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 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.
<PAGE>
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 also guarantees a
variety of non-municipal structured obligations, such as mortgage-backed
securities. It also is authorized to write surety insurance. Moody's and
Standard & Poor's have rated the claims-paying ability of Financial Guaranty Aaa
and AAA, respectively.
Financial Guaranty is 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 about Financial Guaranty contained above has been furnished by
the Corporation. No representation is made as to the accuracy or adequacy of
this information.
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.
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.
<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 technique does not ensure a profit and does not protect against a
loss if the market declines, it is an effective way for many shareholders who
can continue investing on a regular basis through changing market conditions,
including times when the price of their shares falls or the market declines, to
accumulate shares in a fund to meet long-term goals.
Dollar-cost averaging
- ----------------------------------------------------------------
Regular Market Price Shares
Investment of a Share Acquired
- ----------------------------------------------------------------
$100 $6.00 16.7
100 4.00 25.0
100 4.00 25.0
100 6.00 16.7
100 5.00 20.0
- ------ -------- ------
$500 $25.00 103.4
Average market price of a share over 5 periods:
$5.00 ($25.00 divided by 5).
The average price you paid for each share:
$4.84 ($500 divided by 103.4).
<PAGE>
Independent auditors' report
The board and shareholders IDS California Tax-Exempt Trust IDS Special
Tax-Exempt Series Trust:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments in securities, of IDS California
Tax-Exempt Fund (a fund within IDS California Tax-Exempt Trust) and 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
(funds within IDS Special Tax-Exempt Series Trust) as of June 30, 1997 and
the related statements of operations for the year then ended and the
statements of changes in net assets for each of the years in the two-year
period then ended and the financial highlights for each of the years in
the eight-year period ended June 30, 1997, the six months ended June 30,
1989 and each of the years in the two-year period ended December 31, 1988,
of IDS California Tax-Exempt Fund, IDS Minnesota Tax-Exempt Fund and IDS
New York Tax-Exempt Fund, and for each of the years in the ten-year period
ended June 30, 1997, of IDS Massachusetts Tax-Exempt Fund, IDS Michigan
Tax-Exempt Fund and IDS Ohio Tax-Exempt Fund. These financial statements
and the financial highlights are the responsibility of fund management.
Our responsibility is to express an opinion on these financial statements
and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and the
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Investment securities held in
custody are confirmed to us by the custodian. As to securities purchased
and sold but not received or delivered, we request confirmations from
brokers, and where replies are not received, we carry out other
appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of IDS 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 at June 30, 1997, and the results of its
operations and the financial highlights for the periods stated in the
first paragraph above, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
August 1, 1997
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statements of assets and liabilities
IDS California Tax-Exempt Trust
IDS Special Tax-Exempt Series Trust
June 30, 1997
Assets
California Massachusetts Michigan
Tax-Exempt Tax-Exempt Tax-Exempt
<S> <C> <C> <C>
Fund Fund Fund
Investments in securities, at value (Note 1)
(identified cost $219,017,594, $69,401,754
and $73,211,161) $238,094,586 $74,064,134 $79,000,976
Cash in bank on demand deposit -- 25,711 69,859
Accrued interest receivable 4,410,897 1,528,581 1,299,188
Receivable for investment securities sold 3,125 26,563 1,563
----- ------ -----
Total assets 242,508,608 75,644,989 80,371,586
----------- ---------- ----------
Liabilities
Disbursements in excess of cash on demand deposit 136,618 -- --
Dividends payable to shareholders 155,908 42,961 48,278
Payable for investment securities purchased 10,000 946,016 3,125
Accrued investment management services fee 9,365 2,886 3,101
Accrued distribution fee 621 500 224
Accrued service fee 3,487 1,075 1,155
Accrued transfer agency fee 724 350 312
Accrued administrative services fee 797 246 264
Other accrued expenses 30,286 29,035 34,123
------ ------ ------
Total liabilities 347,806 1,023,069 90,582
------- --------- ------
Net assets applicable to outstanding shares $242,160,802 $74,621,920 $80,281,004
============ =========== ===========
Represented by
Shares of beneficial interest -- $.01 par value,
unlimited number of shares authorized $ 462,097 $ 137,722 $ 147,472
Additional paid-in capital 229,581,668 71,058,314 75,771,618
Undistributed (excess of distributions over) net investment income 310,708 -- 479
Accumulated net realized gain (loss) (Notes 1 and 6) (7,220,611) (1,222,907) (1,413,071)
Unrealized appreciation (depreciation) on investments (Note 5) 19,026,940 4,648,791 5,774,506
- ---------- --------- ---------
Total-- representing net assets applicable to outstanding shares $242,160,802 $74,621,920 $80,281,004
============ =========== ===========
Net assets applicable to outstanding shares: Class A $232,102,600 $66,508,071 $76,650,521
Class B $ 10,058,202 $ 8,113,849 $ 3,630,483
Outstanding shares of beneficial interest: Class A shares 44,289,909 12,274,597 14,080,312
Class B shares 1,919,755 1,497,590 666,891
Net asset value per share: Class A $ 5.24 $ 5.42 $ 5.44
Class B $ 5.24 $ 5.42 $ 5.44
See accompanying notes to financial statements.
<PAGE>
Statements of assets and liabilities
IDS California Tax-Exempt Trust
IDS Special Tax-Exempt Series Trust
June 30, 1997
Assets
Minnesota New York Ohio
Tax-Exempt Tax-Exempt Tax-Exempt
Fund Fund Fund
Investments in securities, at value (Note 1)
(identified cost $370,020,219, $107,120,101
and $64,706,778) $393,801,571 $115,023,727 $69,191,185
Cash in bank on demand deposit 881,505 -- 35,232
Accrued interest receivable 8,265,587 2,485,221 984,208
Receivable for investment securities sold 121,250 4,688 1,579
------- ----- -----
Total assets 403,069,913 117,513,636 70,212,204
----------- ----------- ----------
Liabilities
Disbursements in excess of cash on demand deposit -- 296,793 --
Dividends payable to shareholders 234,973 68,805 42,982
Payable for investment securities purchased 4,118,453 1,954,416 2,829
Accrued investment management services fee 15,107 4,461 2,711
Accrued distribution fee 1,374 458 218
Accrued service fee 5,739 1,661 1,009
Accrued transfer agency fee 1,700 504 299
Accrued administrative services fee 1,251 380 231
Other accrued expenses 23,539 30,388 19,134
------ ------ ------
Total liabilities 4,402,136 2,357,866 69,413
--------- --------- ------
Net assets applicable to outstanding shares $398,667,777 $115,155,770 $70,142,791
============ ============ ===========
Represented by
Shares of beneficial interest -- $.01 par value,
unlimited number of shares authorized $ 752,692 $ 223,440 $ 130,499
Additional paid-in capital 383,697,800 110,305,222 67,213,157
Undistributed (excess of distributions over) net investment income 9,570 711 22,242
Accumulated net realized gain (loss) (Notes 1 and 6) (9,495,418) (3,177,889) (1,693,924)
Unrealized appreciation (depreciation) on investments (Note 5) 23,703,133 7,804,286 4,470,817
- ---------- --------- ---------
Total-- representing net assets applicable to outstanding shares $398,667,777 $115,155,770 $70,142,791
============ ============ ===========
Net assets applicable to outstanding shares: Class A $376,468,903 $107,604,673 $66,603,460
Class B $ 22,198,874 $ 7,551,097 $ 3,539,331
Outstanding shares of beneficial interest: Class A shares 71,077,793 20,878,902 12,391,446
Class B shares 4,191,393 1,465,084 658,475
Net asset value per share: Class A $ 5.30 $ 5.15 $ 5.38
Class B $ 5.30 $ 5.15 $ 5.38
See accompanying notes to financial statements.
<PAGE>
Statements of operations
IDS California Tax-Exempt Trust
IDS Special Tax-Exempt Series Trust
Year ended June 30, 1997
Investment income
California Massachusetts Michigan
Tax-Exempt Tax-Exempt Tax-Exempt
Fund Fund Fund
Income:
Interest $15,487,124 $4,577,544 $5,042,077
----------- ---------- ----------
Expenses (Note 2):
Investment management services fee 1,136,825 349,582 382,131
Distribution fee-- Class B 61,667 50,354 23,438
Transfer agency fee 91,027 44,076 40,093
Incremental transfer agency fee-- Class B 325 276 143
Service fee
Class A 403,439 117,243 134,983
Class B 14,022 11,749 5,345
Administrative services fees and expenses 96,751 28,771 32,522
Compensation of board members 17,078 7,732 7,508
Compensation of officers -- -- 305
Custodian fees 29,978 9,368 5,224
Postage 15,268 9,062 7,989
Registration fees 26,086 27,606 22,702
Reports to shareholders 6,893 310 4,246
Audit fees 17,000 15,500 15,500
Other 6,860 3,140 5,877
----- ----- -----
Total expenses 1,923,219 674,769 688,006
Earnings credits on cash balances (Note 2) (40,056) (8,184) (3,149)
- ------- ------ ------
Total net expenses 1,883,163 666,585 684,857
--------- ------- -------
Investment income-- net 13,603,961 3,910,959 4,357,220
---------- --------- ---------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 466,187 (8,568) (109,521)
Financial futures contracts 962,668 252,709 288,241
------- ------- -------
Net realized gain (loss) on investments 1,428,855 244,141 178,720
Net change in unrealized appreciation (depreciation) of investments 3,063,495 1,390,465 1,046,406
--------- --------- ---------
Net gain (loss) on investments 4,492,350 1,634,606 1,225,126
--------- --------- ---------
Net increase (decrease) in net assets resulting from operations $18,096,311 $5,545,565 $5,582,346
=========== ========== ==========
See accompanying notes to financial statements.
<PAGE>
Statements of operations
IDS California Tax-Exempt Trust
IDS Special Tax-Exempt Series Trust
Year ended June 30, 1997
Investment income
Minnesota New York Ohio
Tax-Exempt Tax-Exempt Tax-Exempt
Fund Fund Fund
Income:
Interest $26,420,518 $7,513,877 $4,492,346
----------- ---------- ----------
Expenses (Note 2):
Investment management services fee 1,856,870 555,919 335,881
Distribution fee-- Class B 144,457 45,744 20,664
Transfer agency fee 216,722 64,976 38,230
Incremental transfer agency fee-- Class B 845 284 140
Service fee
Class A 665,929 194,228 118,535
Class B 33,682 10,494 4,821
Administrative services fees and expenses 153,661 47,312 28,586
Compensation of board members 7,785 3,288 7,871
Compensation of officers 1,395 6,322 315
Custodian fees 972 14,030 9,724
Postage 34,388 10,350 5,748
Registration fees 14,687 18,398 19,582
Reports to shareholders 6,739 5,589 2,181
Audit fees 18,000 17,000 15,500
Other 6,484 8,619 8,621
----- ----- -----
Total expenses 3,162,616 1,002,553 616,399
Earnings credits on cash balances (Note 2) (45,776) (18,709) (13,707)
- ------- ------- -------
Total net expenses 3,116,840 983,844 602,692
--------- ------- -------
Investment income-- net 23,303,678 6,530,033 3,889,654
---------- --------- ---------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 191,203 184,680 204,013
Financial futures contracts 1,541,555 976,466 266,162
--------- ------- -------
Net realized gain (loss) on investments 1,732,758 1,161,146 470,175
Net change in unrealized appreciation (depreciation) of investments 6,062,416 939,832 744,941
--------- ------- -------
Net gain (loss) on investments 7,795,174 2,100,978 1,215,116
--------- --------- ---------
Net increase (decrease) in net assets resulting from operations $31,098,852 $8,631,011 $5,104,770
=========== ========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
IDS California Tax-Exempt Trust
IDS Special Tax-Exempt Series Trust
Year ended June 30,
Operations and distributions 1997 1996 1997 1996
California Massachusetts
Tax-Exempt Fund Tax-Exempt Fund
<S> <C> <C> <C> <C>
Investment income-- net $ 13,603,961 $ 13,093,048 $ 3,910,959 $ 3,831,143
Net realized gain (loss) on investments 1,428,855 553,259 244,141 95,554
Net change in unrealized appreciation
(depreciation) on investments 3,063,495 323,151 1,390,465 202,491
--------- ------- --------- -------
Net increase (decrease) in net assets resulting
from operations 18,096,311 13,969,458 5,545,565 4,129,188
---------- ---------- --------- ---------
Distributions to shareholders from:
Net investment income
Class A (12,900,026) (12,910,408) (3,608,592) (3,652,208)
Class B (394,958) (184,985) (308,683) (172,619)
Net realized gain
Class A (518,965) (1,353,180) -- --
Class B (17,699) (20,647) -- --
------- -------
Total distributions (13,831,648) (14,469,220) (3,917,275) (3,824,827)
----------- ----------- ---------- ----------
Share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 19,424,292 23,553,539 6,908,468 11,006,959
Class B shares 4,411,205 5,187,208 3,032,071 4,389,565
Reinvestment of distributions at net asset value
Class A shares 9,248,935 10,071,476 2,774,110 2,835,422
Class B shares 327,596 184,290 269,072 149,356
Payments for redemptions
Class A shares (34,815,979) (38,384,549) (12,428,315) (14,679,805)
Class B shares (Note 2) (1,214,600) (960,392) (889,801) (790,581)
---------- -------- -------- --------
Increase (decrease) in net assets from
share transactions (2,618,551) (348,428) (334,395) 2,910,916
---------- -------- -------- ---------
Total increase (decrease) in net assets 1,646,112 (848,190) 1,293,895 3,215,277
Net assets at beginning of year 240,514,690 241,362,880 73,328,025 70,112,748
----------- ----------- ---------- ----------
Net assets at end of year $242,160,802 $240,514,690 $74,621,920 $73,328,025
============ ============ =========== ===========
Undistributed (excess of distributions over)
net investment income $ 310,708 $ 1,254 $ -- $ 6,316
------------ ------------ ----------- -----------
See accompanying notes to financial statements.
<PAGE>
Statements of changes in net assets
IDS California Tax-Exempt Trust
IDS Special Tax-Exempt Series Trust
Year ended June 30,
Operations and distributions 1997 1996 1997 1996
Michigan Minnesota
Tax-Exempt Fund Tax-Exempt Fund
Investment income-- net $ 4,357,220 $ 4,347,534 $ 23,303,678 $ 23,264,721
Net realized gain (loss) on investments 178,720 316,845 1,732,758 512,083
Net change in unrealized appreciation
(depreciation) on investments 1,046,406 274,473 6,062,416 20,022
--------- ------- --------- ------
Net increase (decrease) in net assets resulting
from operations 5,582,346 4,938,852 31,098,852 23,796,826
--------- --------- ---------- ----------
Distributions to shareholders from:
Net investment income
Class A (4,220,612) (4,267,967) (22,346,136) (22,792,680)
Class B (145,774) (83,171) (975,607) (470,510)
Net realized gain on securities
Class A (19,158) (1,011,054) -- (300,981)
Class B (747) (21,404) -- (6,713)
---- ------- ------- ------
Total distributions (4,386,291) (5,383,596) (23,321,743) (23,570,884)
---------- ---------- ----------- -----------
Share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 4,657,190 7,791,545 37,612,445 43,579,588
Class B shares 1,464,265 1,729,504 7,437,173 12,784,665
Reinvestment of distributions at net asset value
Class A shares 3,050,415 3,972,959 17,393,622 18,480,882
Class B shares 108,932 85,004 781,646 401,374
Payments for redemptions
Class A shares (11,286,452) (9,793,095) (78,924,930) (72,296,842)
Class B shares (Note 2) (582,299) (166,982) (2,465,251) (1,011,844)
-------- -------- ---------- ----------
Increase (decrease) in net assets from
share transactions (2,587,949) 3,618,935 (18,165,295) 1,937,823
---------- --------- ----------- ---------
Total increase (decrease) in net assets (1,391,894) 3,174,191 (10,388,186) 2,163,765
Net assets at beginning of year 81,672,898 78,498,707 409,055,963 406,892,198
---------- ---------- ----------- -----------
Net assets at end of year $80,281,004 $81,672,898 $398,667,777 $409,055,963
=========== =========== ============ ============
Undistributed (excess of distributions over)
net investment income $ 479 $ (3,116) $ 9,570 $ 11,951
----------- ----------- ------------ ------------
See accompanying notes to financial statements.
<PAGE>
Statements of changes in net assets
IDS California Tax-Exempt Trust
IDS Special Tax-Exempt Series Trust
Year ended June 30,
Operations and distributions 1997 1996 1997 1996
New York Ohio
Tax-Exempt Fund Tax-Exempt Fund
Investment income-- net $ 6,530,033 $ 6,762,893 $ 3,889,654 $ 4,040,372
Net realized gain (loss) on investments 1,161,146 (312,952) 470,175 (450,527)
Net change in unrealized appreciation
(depreciation) of investments 939,832 (271,393) 744,941 579,615
------- -------- ------- -------
Net increase (decrease) in net assets resulting
from operations 8,631,011 6,178,548 5,104,770 4,169,460
--------- --------- --------- ---------
Distributions to shareholders from:
Net investment income
Class A (6,237,111) (6,587,853) (3,739,886) (3,934,670)
Class B (294,055) (175,051) (129,674) (69,847)
Net realized gain
Class A -- -- (7,128) (133,992)
Class B -- -- (297) (3,014)
--------- --------- --------- ---------
Total distributions (6,531,166) (6,762,904) (3,876,985) (4,141,523)
--------- --------- --------- ---------
Share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 11,232,398 9,808,292 5,210,610 6,884,856
Class B shares 3,038,506 3,827,013 1,817,909 1,761,407
Reinvestment of distributions at net asset value
Class A shares 4,709,717 5,179,063 2,867,182 3,192,485
Class B shares 250,963 158,781 98,384 64,381
Payments for redemptions
Class A shares (25,606,182) (18,878,694) (14,289,613) (11,876,308)
Class B shares (Note 2) (800,957) (862,141) (607,746) (316,974)
-------- -------- -------- --------
Increase (decrease) in net assets from
share transactions (7,175,555) (767,686) (4,903,274) (290,153)
---------- -------- ---------- --------
Total increase (decrease) in net assets (5,075,710) (1,352,042) (3,675,489) (262,216)
Net assets at beginning of year 120,231,480 121,583,522 73,818,280 74,080,496
----------- ----------- ---------- ----------
Net assets at end of year $115,155,770 $120,231,480 $70,142,791 $73,818,280
============ ============ =========== ===========
Undistributed (excess of distributions over)
net investment income $ 711 $ (11) $ 22,242 $ 695
------------ ------------ ----------- -----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
IDS California Tax-Exempt Trust
IDS Special Tax-Exempt Series Trust
1
Summary of significant
accounting policies
IDS California Tax-Exempt Trust and IDS Special Tax-Exempt Series Trust
were organized as Massachusetts business trusts. IDS California Tax-Exempt
Trust includes only IDS California Tax-Exempt Fund. IDS Special Tax-Exempt
Series Trust is a "series fund" that is currently composed of individual
state tax-exempt funds and one insured national tax-exempt fund, including
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 and IDS Insured Tax-Exempt Fund. The Funds are
non-diversified, open-end management investment companies as defined in
the Investment Company Act of 1940 (as amended).
Each Fund's goal is to provide a high level of income generally exempt
from federal income tax as well as from the respective state and local
income tax. A portion of each Fund's assets may be invested in bonds whose
interest is subject to the alternative minimum tax computation. The Funds,
excluding IDS Insured Tax-Exempt Fund, concentrate their investments in a
single state and therefore may have more credit risk related to the
economic conditions of the respective state than Funds that have a broader
geographical diversification.
Each Fund offers Class A and Class B shares. Class A shares are sold with
a front-end sales charge. Class B shares may be subject to a contingent
deferred sales charge. Class B shares automatically convert to Class A
after eight years.
All classes of shares have identical voting, dividend, liquidation and
other rights, and the same terms and conditions, except that the level of
distribution fee, transfer agency fee and service fee (class specific
expenses) differs among classes. Income, expenses (other than
class-specific expenses) and realized and unrealized gains or losses on
investments are allocated to each class of shares based upon its relative
net assets.
The significant accounting policies followed by the Funds are summarized
as follows:
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increase and decrease in
net assets from operations during the period. Actual results could differ
from those estimates.
Valuation of securities
All securities are valued at the close of each business day. Securities
for which market quotations are not readily available are valued at fair
value according to methods selected in good faith by the board.
Determination of fair value involves, among other things, reference to
market indexes, matrixes and data from independent brokers. Short-term
securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current
interest rates; those maturing in 60 days or less are valued at amortized
cost.
Option transactions
In order to produce incremental earnings, protect gains and facilitate
buying and selling of securities for investment purposes, the Funds may
buy and sell put and call options and write covered call options on
portfolio securities and may write cash-secured put options. The risk in
writing a call option is that the Funds give up the opportunity for profit
if the market price of the security increases. The risk in writing a put
option is that the Funds may incur a loss if the market price of the
security decreases and the option is exercised. The risk in buying an
option is that the Funds pay a premium whether or not the option is
exercised. The Funds also have the additional risk of not being able to
enter into a closing transaction if a liquid secondary market does not
exist. The Funds also may write over-the-counter options where the
completion of the obligation is dependent upon the credit standing of the
other party.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. Each
Fund will realize a gain or loss upon expiration or closing of the option
transaction. When options on debt securities or futures are exercised, the
Fund will realize a gain or loss. When other options are exercised, the
proceeds on sales for a written call option, the purchase cost for a
written put option or the cost of a security for a purchased put or call
option is adjusted by the amount of the premium received or paid.
Futures transactions
In order to gain exposure to or protect itself from changes in the market,
the Funds may buy and sell financial futures contracts. Risks of entering
into futures contracts and related options include the possibility that
there may be an illiquid market and that a change in the value of the
contract or option may not correlate with changes in the value of the
underlying securities.
Upon entering into a futures contract, the Funds may be required to
deposit either cash or securities in an amount (initial margin) equal to a
certain percentage of the contract value. Subsequent payments (variation
margin) are made or received by the Funds each day. The variation margin
payments are equal to the daily changes in the contract value and are
recorded as unrealized gains and losses. The Funds recognize a realized
gain or loss when the contract is closed or expires.
Illiquid securities
At June 30, 1997, investments in securities for IDS Minnesota Tax-Exempt
Fund includes an issue that is illiquid. The Fund currently limits
investments in illiquid securities to 10% of the net assets, at market
value, at the time of purchase. The aggregate value of such securities at
June 30, 1997 was $1,767,174 representing 0.4% of IDS Minnesota Tax-Exempt
Fund's net assets. Pursuant to guidelines adopted by the board, certain
unregistered securities are determined to be illiquid and are not included
within the 10% limitation specified above.
Federal income taxes
Since each Fund intends to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to shareholders, no provision for
income or excise taxes is required. Each Fund is treated as a separate
entity for federal income tax purposes.
Net investment income (loss) and net realized gains (losses) may differ
for financial statement and tax purposes primarily because of the deferral
of losses on certain futures contracts and losses deferred due to "wash
sale" transactions. The character of distributions made during the year
from net investment income or net realized gains may differ from their
ultimate characterization for federal income tax purposes. The effect on
dividend distributions of certain book-to-tax differences is presented as
"excess distributions" in the statement of changes in net assets. Also,
due to the timing of dividend distributions, the fiscal year in which
amounts are distributed may differ from the year that the income or
realized gains (losses) were recorded by the Funds.
On the statement of assets and liabilities, as a result of permanent
book-to-tax differences, accumulated net realized gain (loss) and
undistributed net investment income have been increased (decreased),
resulting in net reclassification adjustments to additional paid-in
capital by the following:
<TABLE>
<CAPTION>
California Massachusetts Michigan Minnesota New York Ohio
Tax-Exempt Tax-Exempt Tax-Exempt Tax-Exempt Tax-Exempt Tax-Exempt
Fund Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Accumulated net realized gain (loss) (477) -- (12,756) (17,583) (1,855) (1,453)
Undistributed net investment income 477 -- 12,761 15,684 1,855 1,453
- --------------------------------------------------------------------------------------------------------------------------------
Additional paid-in capital increase (decrease) -- -- (5) 1,899 -- --
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Dividends to shareholders
Dividends from net investment income, declared daily and paid monthly, are
reinvested in additional shares of each Fund at net asset value or payable
in cash. Capital gains, when available, are distributed along with the
last income dividend at the end of the calendar year.
Other
Security transactions are accounted for on the date securities are
purchased or sold. Interest income, including level-yield amortization of
premium and discount, is accrued daily.
2
Expenses and
sales charges
Effective March 20, 1995, each Fund entered into an agreement with AEFC
for managing its portfolio, providing administrative services and serving
as transfer agent.
Under its Investment Management Services Agreement, AEFC determines which
securities will be purchased, held or sold. The management fee is a
percentage of each Fund's average daily net assets in reducing percentages
from 0.47% to 0.38% annually.
Under its Administrative Services Agreement, each Fund pays AEFC a fee for
administration and accounting services at a percentage of the Fund's
average daily net assets in reducing percentages from 0.04% to 0.02%
annually. Additional administrative service expenses paid by the Fund are
office expenses, consultants' fees and compensation of officers and
employees. Under this agreement, the Fund also pays taxes, audit and
certain legal fees, registration fees for shares, compensation of board
members, corporate filing fees, and any other expenses properly payable by
the Fund and approved by the board.
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:
oClass A $15.50
oClass B $16.50
Also effective March 20, 1995, each Fund entered into agreements with
American Express Financial Advisors Inc. for distribution and shareholder
servicing-related services. Under a Plan and Agreement of Distribution,
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.
Under a 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.
Sales charges received by American Express Financial Advisors Inc. for
distributing the Funds' shares for the year ended June 30, 1997, are as
follows:
Fund Class A Class B
IDS California $435,840 $11,470
IDS Massachusetts 209,807 7,304
IDS Michigan 128,154 3,875
IDS Minnesota 785,957 29,864
IDS New York 235,029 9,154
IDS Ohio 104,351 3,108
During the year ended June 30, 1997, the Funds' custodian and transfer
agency fees were reduced as a result of earnings credits from overnight
cash balances as follows:
Fund Reduction
IDS California $40,056
IDS Massachusetts 8,184
IDS Michigan 3,149
IDS Minnesota 45,776
IDS New York 18,709
IDS Ohio 13,707
3
Securities
transactions
For the year ended June 30, 1997, cost of purchases and proceeds from
sales (other than short-term obligations) aggregated for each Fund are as
follows:
Fund Purchases Proceeds
IDS California $33,886,695 $36,248,092
IDS Massachusetts 6,099,756 6,768,012
IDS Michigan 16,395,142 17,576,040
IDS Minnesota 54,229,350 71,939,676
IDS New York 14,151,185 17,523,775
IDS Ohio 6,450,116 12,788,350
Net realized gains and losses on investment sales are determined on an
identified cost basis.
4
<TABLE>
<CAPTION>
Capital share
transactions
Transactions in shares of each Fund for the periods indicated are as
follows:
California Tax-Exempt Fund
Year ended June 30, 1997
Class A Class B
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sold 3,727,951 847,908
Issued for reinvested distributions 1,775,984 62,918
Redeemed (6,684,505) (234,000)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (1,180,570) 676,826
- ----------------------------------------------------------------------------------------------------------------------------
Year ended June 30, 1996
Class A Class B
- ----------------------------------------------------------------------------------------------------------------------------
Sold 4,511,208 995,477
Issued for reinvested distributions 1,925,937 35,294
Redeemed (7,378,222) (184,480)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (941,077) 846,291
- ----------------------------------------------------------------------------------------------------------------------------
<PAGE>
Massachusetts Tax-Exempt Fund
Year ended June 30, 1997
Class A Class B
- ----------------------------------------------------------------------------------------------------------------------------
Sold 1,287,516 564,106
Issued for reinvested distributions 517,304 50,175
Redeemed (2,316,120) (166,069)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (511,300) 448,212
- ----------------------------------------------------------------------------------------------------------------------------
Year ended June 30, 1996
Class A Class B
- ----------------------------------------------------------------------------------------------------------------------------
Sold 2,049,431 819,429
Issued for reinvested distributions 529,225 27,882
Redeemed (2,742,630) (147,842)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (163,974) 699,469
- ----------------------------------------------------------------------------------------------------------------------------
<PAGE>
Michigan Tax-Exempt Fund
Year ended June 30, 1997
Class A Class B
- ----------------------------------------------------------------------------------------------------------------------------
Sold 859,824 270,029
Issues for reinvested distributions 563,716 20,129
Redeemed (2,086,380) (107,455)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (662,840) 182,703
- ----------------------------------------------------------------------------------------------------------------------------
Year ended June 30, 1996
Class A Class B
- ----------------------------------------------------------------------------------------------------------------------------
Sold 1,429,150 315,865
Issued for reinvested distributions 725,994 15,490
Redeemed (1,794,375) (30,500)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) 360,769 300,855
- ----------------------------------------------------------------------------------------------------------------------------
<PAGE>
Minnesota Tax-Exempt Fund
Year ended June 30, 1997
Class A Class B
- ----------------------------------------------------------------------------------------------------------------------------
Sold 7,159,020 1,414,781
Issued for reinvested distributions 3,311,994 148,821
Redeemed (15,031,003) (469,087)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (4,559,989) 1,094,515
- ----------------------------------------------------------------------------------------------------------------------------
Year ended June 30, 1996
Class A Class B
- ----------------------------------------------------------------------------------------------------------------------------
Sold 8,270,935 2,429,988
Issued for reinvested distributions 3,510,209 76,278
Redeemed (13,742,113) (192,219)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (1,960,969) 2,314,047
- ----------------------------------------------------------------------------------------------------------------------------
<PAGE>
New York Tax-Exempt Fund
Year ended June 30, 1997
Class A Class B
- ----------------------------------------------------------------------------------------------------------------------------
Sold 2,196,024 593,838
Issued for reinvested distributions 921,975 49,118
Redeemed (5,008,087) (156,652)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (1,890,088) 486,304
- ----------------------------------------------------------------------------------------------------------------------------
Year ended June 30, 1996
Class A Class B
- ----------------------------------------------------------------------------------------------------------------------------
Sold 1,906,925 744,701
Issued for reinvested distributions 1,006,844 30,877
Redeemed (3,672,303) (166,438)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (758,534) 609,140
- ----------------------------------------------------------------------------------------------------------------------------
<PAGE>
Ohio Tax-Exempt Fund
Year ended June 30, 1997
Class A Class B
- ----------------------------------------------------------------------------------------------------------------------------
Sold 974,586 339,467
Issued for reinvested distributions 537,160 18,433
Redeemed (2,679,134) (113,803)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (1,167,388) 244,097
- ----------------------------------------------------------------------------------------------------------------------------
Year ended June 30, 1996
Class A Class B
- ----------------------------------------------------------------------------------------------------------------------------
Sold 1,279,987 327,095
Issued for reinvested distributions 596,171 12,022
Redeemed (2,225,461) (59,086)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (349,303) 280,031
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
5
Interest rate
futures contracts
Investments in securities at June 30, 1997, included securities that were
valued and pledged as collateral to cover initial margin deposits (see
Summary of significant accounting policies) as follows:
Open Open
Market purchase sales
Fund value contracts contracts
IDS California $3,265,125 32 10
IDS Massachusetts 1,772,123 9 5
IDS Michigan 2,119,206 10 5
IDS Minnesota 6,535,000 51 20
IDS New York 3,708,997 63 15
IDS Ohio 2,180,123 9 5
The market value of the open purchase contracts at June 30, 1997, was as
follows:
Net
Market unrealized
Fund value gain (loss)
IDS California $3,728,000 $ (55,000)
IDS Massachusetts 1,048,500 (15,468)
IDS Michigan 1,165,000 (17,188)
IDS Minnesota 5,941,500 (87,656)
IDS New York 7,339,500 (105,938)
IDS Ohio 1,048,500 (15,469)
The market value of the open sales contracts at June 30, 1997, was as
follows:
Net
Market unrealized
Fund value gain (loss)
IDS California $1,165,000 $4,948
IDS Massachusetts 582,500 1,879
IDS Michigan 582,500 1,879
IDS Minnesota 2,330,000 9,437
IDS New York 1,747,500 6,598
IDS Ohio 582,500 1,879
The Funds maintain, in a segregated account with its custodian, advanced
refunded bonds with at least a market value equal to the value of these
open long futures contracts. Advanced refunded bonds are highly liquid,
usually covered by government securities, which will be refunded at the
bond's first call date.
6
Capital loss
carryover
For federal income tax purposes, capital loss carryovers were as follows
at June 30, 1997:
Expiration
Fund Carryover date
IDS California $1,643,088 2006
IDS Massachusetts 268,549 1999-2005
IDS Michigan 147,263 2005
IDS Minnesota 972,605 2005
IDS New York 1,956,275 2003-2005
IDS Ohio 527,216 2005
It is unlikely the board will authorize a distribution of any net realized
capital gains for a Fund until the respective capital loss carryover has
been offset or expires.
7
Financial highlights
"Financial highlights" showing per share data and selected information are
presented on pages 8-19 of the prospectus.
<PAGE>
Investments in securities
<TABLE>
<CAPTION>
IDS California Tax-Exempt Fund
June 30, 1997
(Percentages represent value of
investments compared to net assets)
Municipal bonds (97.7%)
Name of issuer Coupon Maturity Principal Value(a)
and title of issue (b, c, d) rate year amount
<S> <C> <C> <C> <C>
Aliso Viejo Orange County District Community Facilities
District #88-1 Special Tax Bonds Series 1992A 7.35% 2018 $3,000,000 $ 3,464,910
ABAG Finance Authority for Nonprofit Corporations
Certificate of Participation International School Project
Series 1996 7.375 2026 2,200,0000 2,116,092
Anaheim Public Finance Authority Revenue Bonds
2nd Series Electric Utilities San Juan (FGIC Insured) 5.75 2022 11,100,000 11,160,939
Brea Redevelopment Agency Tax Allocation Refunding Bonds
Redevelopment Project AB (MBIA Insured) 5.50 2017 1,800,000 1,771,956
Burbank Redevelopment Agency Tax Allocation Bonds
Golden State Series 1993A 6.00 2023 2,000,000 2,011,680
Chapman College Educational Facilities Authority
Revenue Bonds Series 1989B 7.50 2018 500,000 555,980
Clearlake Redevelopment Agency
Highlands Park Community Development
Tax Allocation Bonds Series 1993 6.40 2023 1,420,000 1,442,535
Eastern Municipal Water District Riverside County
Water & Sewer Revenue Certificates of Participation
Series 1991 6.00 2023 1,000,000 1,013,550
Eastern Municipal Water District Riverside County
Water & Sewer Pre-Refunded Revenue Certificate of
Participation Series 1991(FGIC Insured) 6.50 2020 3,000,000 3,296,760
El Camino Hospital District Hospital Pre-Refunded Revenue
Certificate of Participation Series A 8.50 2017 1,500,000 1,541,505
Encinitas Unified School District
Unlimited General Obligation Bonds
Series 1996 Zero Coupon (MBIA Insured) 5.85 2015-16 3,500,000(h) 1,258,880
Fontana Redevelopment Agency
Refunding Certificate of Participation
Police Facility Series 1993 5.625 2016 4,500,000 4,435,515
Fontana Unified School District
Unlimited General Obligation Bonds
Series C (FGIC Insured) 6.15 2020 3,470,000 3,651,655
Fontana Unified School District
Unlimited Tax General Obligation Bonds
Series C Zero Coupon (FGIC Insured) 6.28 2022 2,000,000(e) 1,703,760
Foothill/Eastern Transportation Corridor Agency Toll Road
Senior Lien Revenue Bonds Series 1995A 6.00 2034 1,775,000 1,780,094
Garden Grove Agency Community Development
Tax Allocation Refunding Bonds
Garden Grove Community 5.875 2023 3,000,000 2,969,970
Garden Grove Certificate of Participation
Bahia Village/Emerald Isle
(FSA Insured) 5.70 2023 2,660,000 2,666,677
Huntington Beach Certificate of Participation Revenue Bonds
Civic Center Refinancing (AMBAC Insured) 5.50 2016 1,715,000 1,685,090
Indian Wells Improvement Bonds
Assessment District #13 7.50 2008 350,000(g) 360,885
Irwindale Redevelopment Agency Sub Lien
Tax Allocation Bonds Series 1996 7.00 2019 1,700,000 1,805,094
Janesville Union School District
Lassen County General Obligation Bonds
Series 1996 Election Bank Qualified 6.45 2021 875,000 882,516
Lake Elsinore School Financing Authority
Revenue Bonds Series 1997 6.125 2019 1,235,000 1,238,335
Long Beach Harbor Revenue Bonds
Series 1989A A.M.T. 7.25 2019 7,000,000(g) 7,308,630
Los Angeles Convention & Exhibition Center
Pre-Refunded Certificate of Participation
Series 1989A 7.00 2020 5,000,000 5,369,700
Los Angeles Convention & Exhibition Center
Pre-Refunded Certificate of Participation Series 1989A 7.30 2009 1,000,000 1,079,990
Los Angeles Convention & Exhibition Center
Pre-Refunded Certificate of Participation Series 1989A 7.375 2018 2,900,000 3,136,379
Los Angeles County Transportation Commission
Sales Tax Refunding Revenue Bonds Series A 7.00 2019 4,150,000 4,425,809
Los Angeles County Transportation Commission
Sales Tax Pre-Refunded Revenue Bonds Series A 8.00 2016 2,000,000 2,040,220
Los Angeles County Transportation Commission
Sales Tax Pre-Refunded Revenue Bonds
Series 1988A 7.875 2008 500,000 529,465
Los Angeles County Transportation Commission
Sales Tax Refunding Revenue Bonds
Series 1989A 7.40 2015 2,000,000 2,152,900
Los Angeles Department of Water & Power
Electric Plant Revenue Bonds Series 1990 7.125 2030 6,500,000 7,036,185
Los Angeles Department of Water & Power
Waterworks Refunding Revenue Bonds
Second Issue (Secondary FGIC Insured) 4.50 2018 3,000,000 2,557,110
Los Angeles International Airport Revenue Bonds
Series D (FGIC Insured) A.M.T. 5.50 2015 1,000,000 995,430
Los Angeles Multi-family Housing Revenue Bonds
Park Parthenia Series 1986A
(GNMA Insured) A.M.T. 7.40 2022 1,000,000 1,031,770
Los Angeles Single Family Home Mortgage Revenue Bonds
Series 1991A (GNMA & FNMA Insured) A.M.T. 6.875 2025 810,000 846,806
Los Angeles State Building Authority
Lease Pre-Refunded Revenue Bonds
State Department of General Services Lease
Series 1988A 7.25 2006 1,500,000 1,563,645
Los Angeles State Building Authority
Lease Pre-Refunded Revenue Bonds
State Department of General Services Lease
Series 1988A 7.50 2011 1,500,000 1,566,090
Los Angeles State Harbor Revenue Bonds
Series 1996B (MBIA Insured) A.M.T. 5.375 2019-23 3,300,000 3,156,084
Los Angeles State Harbor Revenue Bonds
Escrowed to Maturity 7.60 2018 1,000,000 1,242,690
Los Angeles Wastewater System
Pre-Refunded Revenue Bonds Series 1987 8.125 2017 1,000,000 1,034,070
Los Angeles Wastewater System
Refunding Revenue Bonds Series D (FGIC Insured) 4.70 2017 1,000,000 882,630
Modesto Certificate of Participation Pre-Refunded Bonds
Community Center 8.10 2015 1,000,000 1,033,990
Mount Diablo Hospital District Hospital
Pre-Refunded Revenue Bonds
Series 1990A (AMBAC Insured) 7.00 2017 3,000,000 3,317,910
North City West Community School Facility
Authority Special Tax
Refunding Revenue Bonds Series 1995B (CGIC Insured) 5.75 2015 1,000,000 1,022,250
Northern California Public Power Authority Power
Pre-Refunded Revenue Bonds Hydroelectric
Series 1986B-3 8.00 2024 2,000,000 2,082,280
Northern California Public Power Authority Power
Pre-Refunded Revenue Bonds Hydroelectric #1
Series 1986B-1 8.00 2024 2,100,000 2,186,394
Northern California Transmission Agency
California-Oregon Transmission
Pre-Refunded Revenue Bonds
Series 1990A (MBIA Insured) 7.00 2024 2,000,000 2,177,020
Northern California Transmission
Select Auction Variable Rate Security &
Residual Interest Revenue Bonds Inverse Floater
(MBIA Insured) 5.50 2024 4,500,000(f) 4,340,745
Novato Community Facility District #1 Vintage Oaks
Public Improvement Special Tax Refunding Bonds 7.25 2021 2,000,000 2,115,600
Pleasanton Joint Powers Financing Authority Reassessment
Revenue Bonds Series 1993A 6.15 2012 1,880,000 1,949,391
Port of Oakland Refunding Revenue Bonds
Series 1997G (MBIA Insured) A.M.T. 5.375 2025 3,080,000 2,931,544
Rancho Cucamonga Redevelopment Agency
1990 Tax Allocation Pre-Refunded Bonds
(MBIA Insured) 7.125 2019 3,540,000 3,831,094
Rancho Mirage Joint Powers Finance Authority
Certificate of Participation Eisenhower Memorial Hospital7.00 2022 4,250,000 4,788,560
Redding Redevelopment Agency Tax Allocation
Refunding Bonds Canby Hilltop Cypress
Series D (CGIC Insured) 5.00 2023 4,700,000 4,266,895
Richmond Elementary School District
Lassen County General Obligation Bonds
Series 1996 Election Bank Qualified 6.50 2021 649,000 662,311
Richmond Joint Powers Financing Authority Leases and
Gas Tax Refunding Revenue Bonds Series 1995A 5.25 2013 3,540,000 3,435,924
Sacramento Cogeneration Authority
Cogeneration Revenue Bonds
Procter & Gamble Series 1995 6.375 2010 1,000,000 1,058,740
Sacramento Municipal Utility District Series R 6.00 2015-17 7,500,000 7,501,845
Sacramento Municipal Utility District Pre-Refunded Series V 7.50 2018 2,775,000 2,887,471
Sacramento Municipal Utility District Pre-Refunded Series W 7.50 2018 1,980,000 2,060,249
Sacramento Municipal Utility District Pre-Refunded Series Y
(MBIA Insured) 6.75 2019 3,400,000 3,778,454
Sacramento Power Authority Cogeneration
Revenue Bonds Series 1995 6.00 2022 1,000,000 1,012,040
San Diego County Capital Asset Lease
Certificate of Participation
Series 1993 Inverse Floater (AMBAC Insured) 7.02 2007 3,200,000(f) 3,476,000
San Diego Regional Transportation Commission Sales Tax
Pre-Refunded Revenue Bonds Limited Tax Series 1989A 6.25 2008 5,030,000 5,218,474
San Joaquin County Pre-Refunded Certificate of Participation
Human Services Facility Series 1989 (BIG Insured) 6.70 2009 3,500,000 3,733,205
San Joaquin County Certificate of Participation
Jail & Sheriffs Operation Center (MBIA Insured) 6.75 2015 2,000,000 2,158,780
San Jose Redevelopment Agency Merged Area
RedevelopmentTax Allocation Bonds
Series 1993 (MBIA Insured) 4.75 2024 3,055,000 2,660,569
San Jose Redevelopment Agency Merged Area
Tax Allocation Bonds Series 1993 Inverse Floater
(MBIA Insured) 6.973 2014 3,000,000(f) 2,898,750
San Mateo County Transit District Limited Tax
Pre-Refunded Bonds Series 1990A (MBIA Insured) 6.50 2020 1,500,000 1,565,310
Santa Clara County Mountain View-
Los Altos Union High School District Unlimited Tax
General Obligation Bonds Series A 5.75 2015 1,200,000 1,211,820
Santa Cruz Certificate of Participation 8.375 2007 1,220,000 1,248,292
Southern California Home Financing Authority
Single Family Mortgage Revenue Bonds 1990B
(GNMA Insured) A.M.T. 7.75 2024 575,000 607,309
Southern California Public Power Authority Transmission
Special Bonds 6.00 2012 2,700,000 2,786,994
South Tahoe Joint Powers Financing Authority
Refunding Revenue Bonds Series 1995B 6.25 2020 2,700,000 2,746,683
State Department Water Resources Water System
Pre-Refunded Revenue Bonds Central Valley
Series D 7.70 2024 2,400,000 2,474,376
State Department Water Resource Water System
Revenue Bonds Central Valley Series L 5.50 2023 3,000,000 2,914,440
State Education Facility Authority Revenue Bonds
Pomona College 6.00 2017 3,000,000 3,087,150
State Education Facility Authority
Revenue Bonds Series 1997B 6.30 2021 1,000,000 1,018,170
State Health Facility Finance Authority
Pre-Refunded Revenue Bonds
St. Joseph Health System Series 1989A 6.90 2014 3,500,000 3,753,225
State Housing Finance Agency Home Mortgage
Revenue Bonds Series 1986B 6.90 2016 1,770,000 1,806,515
State Pollution Control Finance Authority Pollution Control
Revenue Bonds Southern California Edison
Series 1988A A.M.T. 6.90 2006 2,000,000 2,123,080
State Public Works Board Lease Revenue Bonds
California Community Colleges Series 1994B 7.00 2019 2,000,000 2,333,840
State Public Works Board Lease Revenue Bonds
Department of Corrections
Substance Abuse Treatment Facility &
State Prison at Corcoran
Series 1996A (AMBAC Insured) 5.25 2021 1,870,000 1,789,740
State Public Works Board University of California Lease
Pre-Refunded Revenue Bonds Series 1990A 7.00 2015 2,250,000 2,477,228
State Rural Home Mortgage Financing Authority
Single Family Mortgage Revenue Bonds
Series 1997A-3 (GNMA & FNMA Insured) A.M.T. 6.25 2029 1,500,000 1,632,855
State University Refunding Revenue Bonds
Series C (AMBAC Insured) 5.00 2023 2,000,000 1,815,700
State Unlimited Tax General Obligation Bonds
(Secondary FGIC Insured) 4.75 2023 1,325,000(g) 1,156,420
Statewide Community Development Authority
Health Facilities Revenue Bonds
Unihealth America Series 1993A
Inverse Floater (AMBAC Insured) 7.11 2011 5,000,000(f) 5,293,750
Statewide Community Development Authority Revenue
Certificate of Participation
St. Joseph Health System Group 6.50 2015 5,500,000 5,961,560
Stockton Single Family Mortgage Revenue Bonds
Series 1990A (GNMA Insured) A.M.T. 7.50 2023 110,000 116,075
University of Southern California Educational
Facilities Authority Pre-Refunded Revenue Bonds
Series 1989B 6.75 2015 5,000,000 5,359,750
Upland Certificate of Participation Water System
Refunding Bonds (FGIC Insured) 6.60 2016 1,000,000 1,084,700
Vacaville Limited Obligation Improvement Bonds
Water Rights Assessment District 8.00 2007 750,000 773,138
Total municipal bonds
(Cost: $217,417,594) $236,494,586
See accompanying notes to investments in securities.
Short-term securities (0.7%)
Issuer (d,i) Effective Amount Value(a)
yield payable at
maturity
Municipal notes
Irvine Ranch Water District
Series 1985 V.R.
10-01-05 3.75% $ 400,000 $ 400,000
Tustin California Improvement Bonds
Series 1995-2 V.R.
09-02-13 3.75 1,200,000 1,200,000
Total short-term securities
(Cost $1,600,000) $ 1,600,000
Total investments in securities
(Cost: $219,017,594)(j) $238,094,586
See accompanying notes to investments in securities.
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b) Investments in bonds, by rating category as a percentage of total bonds, are as follows:
(Unaudited)
Rating 6-30-97 6-30-96
AAA 61% 59%
AA 19 19
A 9 13
BBB 8 7
BB and below 3 2
Non-rated -- --
Total 100% 100% (c) The following abbreviations are used in portfolio
descriptions to identify the insurer of the issue:
AMBAC -- American Municipal Bond Association Corporation
BIG -- Bond Investors Guarantee
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guarantee Insurance Corporation
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
MBIA -- Municipal Bond Investors Assurance
(d) The following abbreviations are used in portfolio descriptions:
A.M.T. -- Alternative Minimum Tax -- As of June 30, 1997, the value of securities subject to alternative minimum tax
represented 8.6% of net assets.
V.R. -- Variable Rate
(e) For those zero coupon bonds that become coupon paying at a future date, the
interest rate disclosed represents the annualized effective yield from the date
of acquisition to interest reset date disclosed.
(f) Inverse floaters represent securities that pay interest at a rate that
increases (decreases) in the same magnitude as, or in a multiple of, a decline
(increase) in market short-term rates. Interest rate disclosed is the rate in
effect on June 30, 1997. Inverse floaters in the aggregate represent 6.6% of the
Fund's net assets as of June 30, 1997.
(g) Partially pledged as initial deposit on the following open interest rate
futures contracts (see Note 5 to the financial statements):
Type of security Notional amount
Purchase contracts
- ---------------------------------------------------
Municipal Bonds Index Sept. 1997 $3,200,000
- ---------------------------------------------------
Sale contracts
- ---------------------------------------------------
Municipal Bonds Index Sept. 1997 $1,000,000
- ---------------------------------------------------
(h) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(i) The Fund is entitled to receive principal amount from issuer or corporate
guarantor, if indicated in parenthesis, after a day or a week's notice. The
maturity date disclosed represents the final maturity. Interest rate varies to
reflect current market conditions; rate shown is the effective rate on June 30,
1997.
(j) At June 30, 1997, the cost of securities for federal income tax purposes was
$218,758,032 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation ............................$19,426,756
Unrealized depreciation ................................(90,202)
- -----------------------------------------------------------------
Net unrealized appreciation........................ $19,336,554
- -----------------------------------------------------------------
<PAGE>
IDS Massachusetts Tax-Exempt Fund
June 30, 1997
(Percentages represent value of
investments compared to net assets)
Municipal bonds (97.4%)
Name of issuer Coupon Maturity Principal Value(a)
and title of issue (b, c, d) rate year amount
Bay Transit Authority Series A (Secondary CGIC Insured) 5.50% 2021 $ 500,000 $ 484,525
Bay Transportation Authority General Transportation System
Refunding Bonds Series 1992B 6.20 2016 1,500,000 1,630,635
Boston City Hospital Refunding Revenue Bonds
Series B (FHA Insured) 5.75 2023 3,000,000(f) 2,952,360
Boston City Hospital Pre-Refunded Revenue Bonds
Series A (FHA Insured) 7.625 2021 1,000,000 1,113,070
Boston General Obligation Bonds
Series 1991A (MBIA Insured) 6.75 2011 500,000 551,680
Boston General Obligation Refunding Bonds
Series 1993A (AMBAC Insured) 5.65 2009 1,500,000(f) 1,548,435
Boston Industrial Development Financing Authority
Revenue Bonds Massachusetts College of Pharmacy
Series 1993A (Connie Lee Insured) 5.25 2026 1,000,000 916,330
Boston Water & Sewer Commission
General Pre-Refunded Revenue Bonds
Senior Series 1991A (FGIC Insured) 7.00 2018 1,000,000 1,119,370
Boston Water & Sewer Commission
General Subordinate Revenue Bonds Series A
(MBIA Insured) 6.00 2008 500,000 506,280
Commonwealth General Obligation Consolidated Loan
Pre-Refunded Bonds
Series 1990A (FGIC Insured) 7.25 2009 500,000 546,110
Fall River General Obligation Refunding Bonds
Series 1996 (MBIA Insured) 5.25 2010 1,000,000 990,710
Greater Lawrence Sanitary District North Andover
General Obligation Bonds 8.50 2005 455,000 476,653
Haverhill City Unlimited Tax General Obligation Bonds
Series 1997 (FGIC Insured) 5.00 2017 1,000,000 939,850
Health & Educational Facilities Authority Refunding
Revenue Bonds Beth Israel Hospital Series 1989E 7.00 2009-14 550,000 582,779
Health & Educational Facilities Authority Revenue Bonds
Berkshire Health Systems Series A (MBIA Insured) 7.50 2008 500,000 531,030
Health & Educational Facilities Authority Revenue Bonds
Berkshire Health Systems Series C 5.90 2011 1,000,000 968,920
Health & Educational Facilities Authority Pre-Refunded
Revenue Bonds Beverly Hospital Series D (MBIA Insured) 7.30 2019 400,000 431,184
Health & Educational Facilities Authority Revenue Bonds
Boston College Series J (FGIC Insured) 6.625 2021 2,000,000 2,164,580
Health & Educational Facilities Authority Revenue Bonds
Boston College Series K 5.25 2023 1,000,000 938,110
Health & Educational Facilities Authority Revenue Bonds
Brigham & Women's Hospital Series C 6.75 2021 500,000 526,685
Health & Educational Facilities Authority Revenue Bonds
Brigham & Women's Hospital Series 1991D 6.75 2024 1,000,000 1,075,790
Health & Educational Facilities Authority Revenue Bonds
Cape Cod Health System Series A (Connie Lee Insured) 5.25 2021 2,500,000 2,349,475
Health & Educational Facilities Authority Revenue Bonds
Charlton Memorial Hospital Series 1991B 7.25 2013 1,750,000 1,905,978
Health & Educational Facilities Authority Revenue Bonds
Holyoke Hospital Series B 6.50 2015 1,000,000 1,006,690
Health & Educational Facilities Authority Pre-Refunded
Revenue Bonds Lahey Clinic Medical Center
Series A (MBIA Insured) 7.625 2018 500,000 527,940
Health & Educational Facilities Authority Revenue Bonds
Melrose-Wakefield Hospital Series 1992B 6.375 2016 1,000,000 1,037,360
Health & Educational Facilities Authority
Pre-Refunded Revenue Bonds Mount Auburn Hospital
Series A (MBIA Insured) 7.875 2018 205,000 216,935
Health & Educational Facilities Authority Revenue Bonds
New England Deaconess Hospital Series 1992D 6.625 2012 1,000,000 1,051,710
Health & Educational Facilities Authority Revenue Bonds
Newton Wellesley Hospital Series 1991D (MBIA Insured) 7.00 2015 1,000,000 1,111,280
Health & Educational Facilities Authority
Pre-Refunded Revenue Bonds Northeastern University
Series 1989C (AMBAC Insured) 7.10 2006 1,000,000 1,075,120
Health & Educational Facilities Authority
Pre-Refunded Revenue Bonds Northeastern University
Series E (MBIA Insured) 6.55 2022 1,000,000 1,088,590
Health & Educational Facilities Authority Revenue Bonds
North Adams Regional Hospital Series 1 6.625 2018 1,000,000 1,013,160
Health & Educational Facilities Authority Revenue Bonds
South Shore Hospital Series 1992D (MBIA Insured) 6.50 2022 1,000,000 1,076,220
Health & Educational Facilities Authority
Pre-Refunded Revenue Bonds
Stonehill College Series 1990D (AMBAC Insured) 7.70 2020 1,000,000 1,112,730
Health & Educational Facilities Authority Revenue Bonds
Suffolk University Series B (Connie Lee Insured) 6.35 2022 2,495,000 2,612,465
Health & Educational Facilities Authority
Pre-Refunded Revenue Bonds
Wentworth Institute of Technology
Series A (AMBAC Insured) 7.40 2010 750,000 823,642
Health & Educational Facilities Authority Revenue Bonds
Valley Regional Health System
Series C (Connie Lee Insured) 5.75 2018 1,000,000 997,580
Industrial Finance Agency Assumption College Revenue Bonds
Series 1996 (Connie Lee Insured) 6.00 2026 1,000,000 1,022,630
Industrial Finance Agency Hampshire College Revenue Bonds
Series 1997 5.80 2017 1,105,000 1,077,905
Industrial Finance Agency Pollution Control
Refunding Revenue Bonds
Eastern Edison Series 1993 5.875 2008 2,000,000 1,980,160
Industrial Finance Agency Resource Recovery Revenue Bonds
Ogden Haverhill Series 1986A (AMBAC Insured) A.M.T. 7.375 2011 175,000 178,973
Industrial Finance Agency Resource Recovery Revenue Bonds
SEMASS Series 1991A 9.00 2015 1,500,000 1,684,290
Industrial Finance Agency Revenue Bonds
Museum of Science
Series 1989 (FSA Insured) 7.30 2009 1,000,000 1,086,830
Leominster General Obligation Bonds (MBIA Insured) 7.50 2009 1,000,000 1,100,760
Mansfield General Obligation Bonds (AMBAC Insured) 6.70 2011 1,000,000 1,090,230
Municipal Wholesale Electric Power Supply System
Pre-Refunded Revenue Bonds Series 1992B 6.75 2017 1,395,000 1,559,875
Municipal Wholesale Electric Power Supply System
Refunding Revenue Bonds Series B (MBIA Insured) 4.75 2011 1,750,000 1,632,715
Municipal Wholesale Electric Power
Supply System Revenue Bonds
Special Pars & Inflows (AMBAC Insured) 5.45 2018 1,600,000 1,536,256
Nantucket General Obligation Bonds 6.80 2011 1,000,000 1,089,940
New Bedford General Obligation Bonds
Series 1995 (AMBAC Insured) 5.50 2015 700,000 700,049
North Andover General Obligation Bonds (MBIA Insured) 7.35 2008 310,000 342,773
North Attleborough Unlimited General Obligation Bonds
Series 1997 (AMBAC Insured) 5.25 2017 1,675,000 1,644,649
Port Authority Revenue Bonds
Series 1990A (FGIC Insured) A.M.T. 7.50 2020 1,000,000 1,087,910
Southeastern University Building Refunding Revenue Bonds
Series A (AMBAC Insured) 5.75 2016 1,250,000 1,267,700
Southern Berkshire Regional School District Unlimited Tax
General Obligation Pre-Refunded Bonds (AMBAC Insured) 7.55 2010 1,000,000 1,106,500
State Education Loan Authority
Educational Loan Revenue Bonds
Issue E Series B (AMBAC Insured) A.M.T. 6.00 2012 975,000 1,006,453
State General Obligation Consolidated Loan Bonds
Series 1991A (FGIC Insured) 6.00 2011 1,095,000 1,158,609
State Housing Finance Agency Single Family Housing
Revenue Bonds Series 13 A.M.T. 7.95 2023 430,000 454,673
State Housing Finance Authority Residential
Development Bonds Series 1992A (FNMA Insured) 6.875 2011 1,000,000 1,068,490
State Housing Finance Authority
Single Family Mortgage Housing Revenue Bonds
Series 4 7.375 2014 430,000(f) 441,128
State Housing Finance Authority
Single Family Mortgage Housing Revenue Bonds
Series 7 A.M.T. 8.10 2020 245,000 252,784
State Water Resource Authority Revenue Bonds
Series A (Secondary MBIA Insured) 5.50 2022 1,100,000 1,066,538
University of Lowell Building Authority Facilities
Revenue Bonds 4th Series A 7.40 2007 125,000 128,951
University of Lowell Building Authority Facilities
Revenue Bonds 4th Series A 7.60 2012 50,000 51,613
University of Massachusetts Building Authority
Revenue Bonds Series A (FSA Insured) 7.50 2014 500,000 524,755
University of Massachusetts Building Authority
Revenue Bonds Series A Escrowed to Maturity 7.50 2011 115,000 131,505
Water Resource Authority General
Pre-Refunded Revenue Bonds Series 1990A 7.625 2014 500,000 551,985
Water Resource Authority General
Pre-Refunded Revenue Bonds Series 1991A 6.50 2019 1,000,000 1,101,240
Water Resource Authority General Revenue Bonds
Series 1993B (MBIA Insured) 5.00 2022 1,365,000 1,240,840
Water Resource Authority General Revenue Bonds
Series 1993C 5.25 2020 1,400,000 1,307,054
Worcester General Obligation Refunding Bonds
Series 1995G (MBIA Insured) 5.30 2015 1,000,000 985,410
Total municipal bonds
(Cost: $68,001,754) $72,664,134
Short-term security (1.9%)
Issuer (d,e) Effective Amount Value(a)
yield payable at
maturity
Municipal note
State General Obligation Series B V.R.
12-01-97 4.00% $1,400,000 $ 1,400,000
Total short-term security
(Cost: $1,400,000) $ 1,400,000
Total investments in securities
(Cost: $69,401,754)(g) $74,064,134
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b) Investments in bonds, by rating category as a percentage of total bonds, are as follows:
(Unaudited)
Rating 6-30-97 6-30-96
AAA 64% 66%
AA 9 9
A 16 16
BBB 9 7
BB and below 2 2
Non-rated -- --
- --------------------------------------------------------------
Total 100% 100%
- --------------------------------------------------------------
(c) The following abbreviations are used in portfolio descriptions to identify the insurer of the issue:
AMBAC -- American Municipal Bond Association Corporation
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guarantee Insurance Corporation
FHA -- Federal Housing Authority
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
MBIA -- Municipal Bond Investors Assurance
(d) The following abbreviations are used in portfolio descriptions:
A.M.T. -- Alternative Minimum Tax-- As of June 30, 1997, the value of securities subject to alternative
tax represented 4.0% of net assets.
V.R. -- Variable Rate
(e) The Fund is entitled to receive principal amount from issuer or corporate
guarantor, if indicated in parenthesis, after a day or a week's notice. The
maturity date disclosed represents the final maturity. Interest rate varies to
reflect current market conditions; rate shown is the effective rate on June 30,
1997.
(f) Partially pledged as initial deposit on the following open interest rate
futures contracts (see Note 5 to the financial statements):
Type of security Notional amount
Purchase contracts
- ---------------------------------------------------------
Municipal Bonds Index Sept. 1997 $900,000
- ---------------------------------------------------------
Sale contracts
- ---------------------------------------------------------
Municipal Bonds Index Sept. 1997 $500,000
- ---------------------------------------------------------
(g) At June 30, 1997, the cost of securities for federal income tax purposes was
$69,382,621 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation ...................$4,789,739
Unrealized depreciation .....................(108,226)
- ------------------------------------------------------
Net unrealized appreciation............... $4,681,513
- ------------------------------------------------------
<PAGE>
IDS Michigan Tax-Exempt Fund
June 30, 1997
(Percentages represent value of
investments compared to net assets)
Municipal bonds (98.3%)
Name of issuer Coupon Maturity Principal Value(a)
and title of issue (b, c, d) rate year amount
Auburn Hills Limited Tax General Obligation
Street Improvement Bonds 6.00% 2004 $ 200,000(f) $ 205,906
Battle Creek Calhoun County
Downtown Development Authority Bonds Series 1994 7.65 2022 1,250,000 1,435,537
Battle Creek Water Supply System
Pre-Refunded Revenue Bonds Series 1990B 6.375 2008-10 1,640,000 1,715,637
Buena Vista School District Saginaw County
School Building & Site Unlimited Tax
General Obligation Pre-Refunded Bonds Series 1991 7.20 2016 1,500,000(f) 1,674,300
Central Michigan University Revenue Bonds
Series 1997 (FGIC Insured) 5.50 2026 750,000 733,920
Chelsea General Obligation Pre-Refunded Bonds (MBIA Insured) 8.20 2006 145,000 150,904
Chippewa Valley School District Unlimited Tax
General Obligation Bonds (FGIC Insured) 5.00 2021 1,000,000 911,710
Comstock Park Public School Kent County Unlimited Tax
General Obligation Pre-Refunded Bonds Series 1989 6.00 2016 400,000 419,688
Comstock Park Public School Kent County Unlimited Tax
General Obligation Pre-Refunded Bonds Series 1989 6.875 2010 260,000 276,775
Detroit General Obligation Pre-Refunded Bonds
Distributable State Aid Series 1989 (AMBAC Insured) 7.20 2009 1,000,000 1,072,040
Detroit Sewer Disposal Pre-Refunded Revenue Bonds 8.00 2008 500,000 510,055
Detroit Sewer Disposal Revenue Bonds (FGIC Insured) 5.70 2023 2,000,000(f) 1,973,300
Detroit Unlimited Tax General Obligation Bonds
Pre-Refunded Series A 7.25 2009 1,000,000 1,070,580
Detroit Unlimited Tax General Obligation Bonds
Pre-Refunded Series 1988A 7.875 2008 700,000 734,566
Detroit Unlimited Tax General Obligation Bonds
Series A (FGIC Insured) 5.50 2016 1,000,000 990,680
Detroit Unlimited Tax General Obligation Bonds
Series 1995A 6.80 2015 1,000,000 1,140,610
Detroit Downtown Development Authority
Development Area Project #1 Junior Lien
Refunded Tax Increment Series 1996D 6.50 2025 1,000,000 1,033,340
Detroit Water Supply System Second Lien
Revenue Bonds Series 1995A (MBIA Insured) 5.50 2025 1,500,000 1,452,165
Detroit Water Supply System Pre-Refunded Revenue Bonds
Series 1988 (MBIA Insured) 7.875 2008 400,000 423,408
East Lansing School District School Building & Site
Unlimited Tax General Obligation
Pre-Refunded Bonds Series 1991 6.625 2014 1,000,000 1,094,230
Farmington Hills Hospital Finance Authority
Revenue Bonds Botsford General Hospital
Series 1992A (MBIA Insured) 6.50 2022 1,500,000 1,608,570
Ferris State University Board of Trustees
General Revenue & Refunding Bonds
Series 1995 (MBIA Insured) 5.25 2020 1,000,000 944,790
Forest Hills School District Unlimited Tax
General Obligation Pre-Refunded Bonds 7.375 2015 1,000,000 1,089,500
Frenchtown Resort Drainage District Monroe County Drain
Pre-Refunded Revenue Bonds Series 1987 7.50 2011-12 615,000 662,760
Garden City School District Authority
Pre-Refunded Revenue Bonds 7.80 2010 305,000 323,794
Genesee County General Obligation Bonds
Sewer Disposal System Series A (AMBAC Insured) 5.40 2015 1,400,000 1,391,502
Grand Ledge Public Schools Unlimited Tax General Obligation
Refunding Bonds Counties of Eaton, Clinton & Ionia
Series 1995 (MBIA Insured) 5.375 2024 2,000,000 1,926,980
Grand Rapids Community College Limited Tax
General Obligation Bonds Series 1996 (MBIA Insured) 5.375 2019 1,000,000 971,770
Grand Rapids Tax Increment Revenue Bonds
Series 1994 (MBIA Insured) 6.875 2024 380,000 423,784
Grand Rapids Water Supply System Improvement
Pre-Refunded Revenue Bonds Series 1988 7.875 2018 700,000 727,923
Grand Rapids Water Supply System Improvement
Pre-Refunded Revenue Bonds Series 1990 (FGIC Insured) 7.25 2020 1,250,000 1,360,025
Hillman Cmmunity Schools General Obligation Bonds
Series 1997 (FGIC Insured) 5.25 2023 1,000,000 951,110
Inkster School District Unlimited Tax General Obligation
Pre-Refunded Bonds (AMBAC Insured) 7.00 2018 450,000 488,187
Iosco County Water Supply System Limited Tax
General Obligation Bonds (AMBAC Insured) 5.50 2008-10 575,000 588,342
Kent County Hospital Pre-Refunded Revenue Bonds
Butterworth Hospital Series 1989A 7.25 2013 500,000 532,390
Kent County Refuse Disposal System Limited Tax
General Obligation Refunding Bonds Series 1987 8.40 2010 150,000 155,799
Lake Orion School District General Obligation Bonds
(AMBAC Insured) 5.50 2020 1,000,000 978,300
Lincoln Park School Distict Wayne County School Building & Site
Unlimited Tax General Obligation Bonds (FGIC Insured) 5.90 2026 1,000,000 1,021,590
Marquette Hospital Finance Authority Pre-Refunded Revenue Bonds
Marquette General Hospital Series 1989C 7.50 2007-19 825,000 885,802
Monroe County Pollution Control Revenue Bonds
Detroit Edison Fermi Plants
Series 1990I (FGIC Insured) A.M.T. 7.65 2020 1,000,000 1,095,640
Monroe County Pollution Control Revenue Bonds
Detroit Edison Fermi 2 Plants
Series CC (AMBAC Insured) A.M.T. 7.50 2019 1,750,000 1,905,960
Muskegon Hospital Finance Authority
Refunding Revenue Bonds
Hackley Hospital Series 1988A 8.00 2008 400,000 415,112
Northville Public Schools Unlimited Tax
General Obligation Bonds Series 1991B 7.00 2008 1,500,000 1,640,910
Ovid-Elsie School District Unlimited Tax
General Obligation Bonds (Secondary MBIA Insured) 5.60 2021 1,000,000 986,960
Redford General Obligation Bonds (MBIA Insured) 5.25 2016 1,450,000 1,396,292
Richmond Limited Obligation Refunding Revenue Bonds
K mart Series A 6.625 2007 530,000 543,526
Rochester Hill Unlimited Tax General Obligation Bonds
Series 1990A 6.00 2009-10 735,000 756,339
Rockford Public Schools Kent County Unlimited Tax
General Obligation Pre-Refunded Revenue Bonds 7.375 2019 1,000,000 1,087,540
Romulus Township School District Unlimited Tax
General Obligation Refunding Bonds (FGIC Insured) 5.75 2022 2,500,000 2,513,850
St. Louis Public Schools Unlimited Tax
General Obligation Refunding Revenue Bonds
Counties of Gratiot, Midland & Isabella
Series 1995 (FGIC Insured) 5.25 2024 755,000 714,464
Schoolcraft Community School District
County of Kalamazoo School Building
and Site Unlimited General Obligation Bonds
Series 1996 (FGIC Insured) 5.375 2026 1,000,000 967,910
South Lake District Unlimited Tax General Obligation
Pre-Refunded Bonds 6.80 2010 355,000 390,706
South Redford School District Unlimited General Obligation Bonds
Series 1996 (FGIC Insured) 5.50 2022 1,000,000 980,020
State Building Authority Refunding Revenue Bonds Series 1991I6.25 2020 2,200,000 2,295,524
State Hospital Finance Authority Revenue Bonds
St. Johns Hospital & Medical Center (AMBAC Insured) 5.25 2026 1,400,000 1,314,950
State Hospital Finance Authority Revenue Bonds
Central Michigan Community Hospital 6.25 2027 1,000,000 1,001,560
State Hospital Finance Authority
Hospital Pre-Refunded Revenue Bonds
Detroit Medical Center Series 1988A 8.125 2012 310,000 329,890
State Hospital Finance Authority
Hospital Pre-Refunded Revenue Bonds
McLaren Obligated Group Series 1991A 7.50 2021 1,750,000 1,984,605
State Hospital Finance Authority
Hospital Refunding Revenue Bonds
Detroit Medical Center Series A 6.25 2013 1,200,000 1,249,476
State Hospital Finance Authority
Hospital Refunding Revenue Bonds
Detroit Medical Center Series 1988A 8.125 2012 90,000 95,122
State Hospital Finance Authority
Hospital Pre-Refunded Revenue Bonds
Detroit Medical Center Series 1988B 8.00 2008 500,000 531,410
State Hospital Finance Authority
Hospital Refunding Revenue Bonds
Sinai Hospital of Greater Detroit Series 1995 6.70 2026 1,000,000 1,058,590
State Hospital Finance Authority
Pre-Refunded Revenue Bonds
Oakwood Hospital Group Series 1990A (FGIC Insured) 7.10 2018 1,000,000 1,095,100
State Hospital Finance Authority
Pre-Refunded Revenue Bonds
Henry Ford Hospital Series 1990A 7.00 2010 1,000,000 1,092,310
State Hospital Finance Authority Revenue Bonds
Presbyterian Villages of Michigan Obligated Group
Series 1995 6.50 2025 1,000,000 1,013,740
State Hospital Finance Authority Revenue Bonds
Presbyterian Villages of Michigan Obligated Group
Series 1997 6.375 2025 700,000 699,370
State Public Power Agency Belle River
Refunding Revenue Bonds Series A 5.25 2018 1,000,000 952,960
State Strategic Fund Limited Tax Obligation Refunding
Revenue Bonds Detroit Edison
Series 1990BB (MBIA Insured) 7.00 2008 1,000,000 1,168,100
State Strategic Fund Limited Tax Obligation Refunding
Revenue Bonds Detroit Edison Series 1992BB
(FGIC Insured) 6.50 2016 1,500,000 1,618,230
State Strategic Fund Limited Tax Obligation Refunding
Revenue Bonds Escrowed to Maturity Oxford Institute 7.875 2005 150,000 170,205
State Strategic Fund Limited Tax Obligation Refunding
Revenue Bonds Ford Motor Series 1991A 7.10 2006 1,650,000(f) 1,900,338
State Strategic Fund Limited Tax Obligation Revenue Bonds
Great Lakes Pulp & Fibre A.M.T. 10.25 2016 1,000,000(g) 479,020
State Trunk Line Bonds Series A (FGIC Insured) 5.75 2020 1,065,000 1,071,816
State University Revenue Bonds Series A 5.50 2022 560,000 540,753
Taylor Tax Increment Finance Authority Bonds
Series 1989A (MBIA Insured) 6.00 2007-09 1,205,000 1,232,488
Troy City Downtown Development Authority
County of Oakland Development Bonds
Series 1995A (Asset Guaranty) 6.375 2018 1,500,000 1,597,425
Van Buren Township Tax Increment Revenue Bonds
Series 1994 8.40 2016 1,000,000 1,130,850
Waterford School District Unlimited Tax General
Obligation Bonds Series Q 6.25 2013 340,000 353,233
Wayne County Airport Revenue Bonds
Detroit Metropolitan Airport
Series 1990A (AMBAC Insured) A.M.T. 7.00 2020 1,080,000 1,167,437
Wyandotte Electric Pre-Refunded Revenue Bonds
Series 1987 (AMBAC Insured) 7.875 2017 300,000 308,976
Total municipal bonds
(Cost: $73,111,161) $78,900,976
Short-term security (0.1%)
Issuer (d,e) Effective Amount Value(a)
yield payable at
maturity
Municipal note
State Strategic Fund Consumer Power Company
Series 1988A V.R.
04-15-18 4.05% $100,000 $ 100,000
Total short-term security
(Cost: $100,000) $ 100,000
Total investments in securities
(Cost: $73,211,161)(h) $79,000,976
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b) Investments in bonds, by rating category as a percentage of total bonds, are as follows:
(Unaudited)
Rating 6-30-97 6-30-96
- ----------------------------------------------------------------
AAA 74% 71%
AA 11 12
A 5 6
BBB 9 9
BB and below 1 2
Non-rated -- --
Total 100% 100%
(c) The following abbreviations are used in portfolio descriptions to identify the insurer of the issue:
AMBAC -- American Municipal Bond Association Corporation
FGIC -- Financial Guarantee Insurance Corporation
MBIA -- Municipal Bond Investors Assurance
(d) The following abbreviations are used in portfolio descriptions:
A.M.T. -- Alternative Minimum Tax-- As of June 30, 1997, the value of securities subject to
alternative minimum tax represented 5.8% of net assets.
V.R. -- Variable Rate
(e) The Fund is entitled to receive principal amount from issuer or corporate
guarantor, if indicated in parenthesis, after a day or a weeks notice. The
maturity date disclosed represents the final maturity. Interest rate varies to
reflect current market conditions; rate shown is the effective rate on June 30,
1997.
(f) Partially or fully pledged as initial deposit on the following open interest
rate futures contracts (see Note 5 to the financial statements):
Type of security Notional amount
Purchase contracts
- --------------------------------------------------------
Municipal Bond Index Sept. 97 $1,000,000
- --------------------------------------------------------
Sale contracts
- --------------------------------------------------------
Municipal Bond Index Sept. 97 $ 500,000
- --------------------------------------------------------
(g) Non income producing. Item identified is in default as to payment of interest and/or principal.
(h) At June 30, 1997, the cost of securities for federal income tax purposes was
$73,160,033 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation ................$6,372,505
Unrealized depreciation ..................(531,562)
- ----------------------------------------------------
Net unrealized appreciation............ $5,840,943
- ----------------------------------------------------
<PAGE>
IDS Minnesota Tax-Exempt Fund
June 30, 1997
(Percentages represent value of
investments compared to net assets)
Municipal bonds (97.7%)
Name of issuer Coupon Maturity Principal Value(a)
and title of issue (b, c, d) rate year amount
Anoka County General Obligation Capital Improvement
Revenue Bonds Series 1989B 7.00 % 2007-10 $7,950,000 $8,240,652
Anoka County Resource Recovery Revenue Bonds
Northern States Power Series 1985 7.15 2008 3,750,000 3,995,550
Becker Pollution Control Revenue Bonds
Northern States Power Sherburne County
Generating Station Units 1 & 2 Series 1987A 7.25 2005 2,000,000 2,004,740
Becker Solid Waste Disposal Facility
Revenue Bonds Liberty Paper Series 1994B A.M.T. 9.00 2015 3,825,000 3,998,081
Bemidji Hospital Facilities 1st Mortgage Revenue Bonds
North Country Health Services Series 1991 7.00 2021 1,755,000 1,958,369
Bloomington Community Development
Refunding Revenue Bonds Note 24th Avenue Motel 8.50 2005 1,758,382(i) 1,767,174
Brooklyn Center Tax Credit Investor Refunding Revenue Bonds
Four Courts Apartment Project Series 1995B A.M.T. 7.58 2009 2,450,000 2,475,259
Burnsville Multi-family Housing
Refunding Revenue Bonds Summit Park Apartments
Series 1993 (FHA Insured) 6.00 2033 4,000,000 4,030,280
Cambridge Independent School District #911
Unlimited Tax General Obligation
School Building Bonds Series 1997A
(MBIA Insured) 5.25 2018 1,900,000 1,855,255
Columbia Heights Multi-family Housing Revenue Bonds
Crestview Lutheran Home Royce Place Series 1991 10.00 2032 555,000 594,183
Columbia Heights Multi-family Housing Revenue Bonds
Crestview Lutheran Home Royce Place
Series 1991 (FHA Insured) 7.75 2032 2,725,000 2,849,914
Duluth Economic Development Authority
Health Care Facility Pre-Refunded Revenue Bonds
Benedictine Health System
St. Mary's Medical Center Series 1990 8.375 2020 2,000,000 2,236,580
Duluth Hospital Facilities St. Lukes Hospital
Pre-Refunded Revenue Bonds Series 1988 9.00 2018 2,500,000 2,653,300
Duluth Housing and Redevelopment Authority 1st Mortgage
Revenue Bonds Lakeshore Lutheran Home 8.25 2009 125,000 125,234
Eden Prairie Housing Development Refunding Revenue Bonds
Eden Commons Series 1990 (FHA Insured) 8.25 2025 6,195,000 6,344,423
Edina Hospital System Revenue Bonds
Fairview Hospital & Health Care Services
Series 1989A 7.125 2019 2,500,000 2,688,575
Edina Multi-family Housing Revenue Bonds
Walker Assisted Living Series 1991 9.00 2031 6,700,000 7,343,468
Faribault Rice & Goodhue County
Independent School District #656
General Obligation School Building Bonds
Series 1995 (FSA Insured) 5.75 2015 6,900,000 7,013,643
Faribault Single Family Mortgage
Refunding Revenue Bonds Series 1991A 7.50 2011 1,655,000 1,739,637
Fergus Falls Health Care Facilities Revenue Bonds
LRHC Long-Term Care Facility Series 1995 6.50 2025 1,500,000 1,542,645
Hennepin County Lease Revenue
Certificate of Participation
Series 1991 6.80 2017 7,250,000 7,839,280
Hopkins Revenue Bonds Blake School 6.70 2024 3,120,000 3,457,802
Hubbard County Solid Waste Disposal Revenue Bonds
Potlatch Series 1989 A.M.T. 7.375 2013 5,610,000 5,962,869
International Falls Solid Waste Disposal
Revenue Bonds Boise Cascade
Series 1990 A.M.T. 7.75 2015 4,000,000 4,190,720
Little Canada Multi-family Housing Revenue Bonds
Provinces of Little Canada
Series 1996 A.M.T. 7.00 2027 3,885,000 3,899,646
Mahtomedi Multi-family Housing
Briarcliff Revenue Bonds A.M.T. 7.35 2036 2,280,000 2,326,079
Maplewood Care Institute Series 1994 7.75 2024 3,830,000 3,955,624
Maplewood Multi-family Housing
Revenue Bonds Maplewood (FHA Insured) A.M.T. 7.75 2021 2,045,000 2,053,630
Maplewood Multi-family Housing
Carefree Cottages of Maplewood III
Refunding Revenue Bonds Series 1995 A.M.T. 7.20 2032 2,900,000 2,904,756
Minneapolis & St. Paul Housing Board
Multi-family Mortgage Revenue Bonds
Collateral Mortgage Revenue Loan
Riverside Plaza Series 1988 (GNMA Insured) A.M.T. 8.25 2030 3,945,000 4,111,558
Minneapolis Community Development Agency
Limited Tax Supported Development
Revenue Common Bond Fund
Series 1996-01 6.00 2011 980,000 983,969
Minneapolis General Obligation Bonds
Sports Arena Series 1996 5.20 2024 4,940,000 4,698,088
Minneapolis Hospital Facility
Pre-Refunded Revenue Bonds
Lifespan Incorporated Series 1989A 7.00 2014 5,000,000 5,416,350
Minneapolis & St. Paul Housing &
Redevelopment Authority
Health Care System Revenue Bonds
Healthspan Series 1993 (AMBAC Insured) 4.75 2018 13,500,000 11,941,155
Minneapolis Nursing Home Revenue Bonds
Walker Cityview & Southview
Series 1992 8.50 2022 5,405,000 5,833,130
Minneapolis Special School District #1
Certificates of Participation
Series 1997A (MBIA Insured) 5.375 2017 2,400,000 2,386,944
Minnetonka Multi-family Housing
Refunding Revenue Bonds Cedar Hill West
(FHA Insured) 7.75 2026 5,485,000 5,664,908
Minnetonka Multi-family Housing Revenue Bonds
The Cedar Hills Series 1985 7.50 2017 500,000 515,660
New Brighton Tax Credit Investor Revenue Bonds
Polynesian Village Apartments Series 1995B A.M.T. 7.75 2009 2,355,000 2,402,053
Northern Municipal Power Agency Electric System
Refunding Revenue Bonds
Series 1989A 7.25 2016 5,475,000 5,786,418
Northern Municipal Power Agency Electric System
Pre-Refunded Revenue Bonds
Series 1989A (AMBAC Insured) 7.40 2018 1,000,000 1,067,040
Northern Municipal Power Agency Electric System
Pre-Refunded Revenue Bonds
Series 1989B (AMBAC Insured) 7.40 2018 1,800,000 1,910,070
North St. Paul General Obligation School Bonds 5.125 2025 6,310,000 5,958,722
Owatanna Public Utilities
Pre-Refunded Revenue Bonds Series 1991 6.75 2016 1,000,000 1,079,220
Plymouth Multi-family Housing Revenue Bonds
Harbor Lane Apartments Series 1993
(Asset Guaranty Insured) A.M.T. 5.90 2013 2,325,000 2,339,741
Richfield Independent School District #280
Unlimited Tax General Obligation
School Building Bonds Series 1993C
Inverse Floater (FGIC Insured) 6.875 2010 3,300,000(f) 3,316,500
Richfield Independent School District #280
Unlimited Tax General Obligation
School Building Bonds Series 1993C Trust
Inverse Floater (FGIC Insured) 5.975 2012 2,510,000(f) 2,503,725
Richfield Multi-family Housing
Refunding Revenue Bonds
Village Shores Apartments Project
Series 1996 7.625 2031 2,990,000 3,036,704
Robbinsdale Hospital Pre-Refunded Revenue Bonds
North Memorial Medical Center
Series 1989 (AMBAC Insured) 7.375 2019 2,200,000 2,345,706
Robbinsdale Multi-family Housing Revenue Bonds
Series 1996A 7.35 2031 3,260,000 3,255,632
Rochester Health Care Facility Revenue Bonds
Mayo Foundation Series A 4.951 2019 5,000,000 4,506,200
Rochester Multi-family Housing Development
Revenue Bonds Civic Square
Series 1991 (FHA Insured) A.M.T. 7.45 2031 4,390,000 4,640,230
St. Cloud Hospital Facility Refunding Revenue Bonds
Series 1996B (AMBAC Insured) 5.00 2020 3,000,000 2,765,160
St. Cloud Hospital Facility Refunding Revenue Bonds
Series B (AMBAC Insured) 5.00 2012 2,900,000 2,793,309
St. Cloud Hospital Facility Revenue Bonds
St. Cloud Hospital Series 1990B
(AMBAC Insured) 7.00 2020 5,000,000(h) 5,562,250
St. Cloud Hospital Facility Refunding Revenue Bonds
Series C (AMBAC Insured) 5.30 2020 1,515,000 1,437,326
St. Louis Park Health Care Facilities Revenue Bonds
Healthsystem Minnesota Obligated Group
Series 1993 (AMBAC Insured) 5.20 2023 5,000,000 4,669,500
St. Louis Park Health Care Facilities Revenue Bonds
Healthsystem Minnesota Obligated Group Series 1993B
Inverse Floater (AMBAC Insured) 5.475 2013 7,000,000(f) 6,317,500
St. Louis Park Health Care Facilities
Pre-Refunded Revenue Bonds
Park Nicollet Medical Center Series 1990A 9.25 2020 4,000,000 4,536,480
St. Louis Park Health Care Facilities
Pre-Refunded Revenue Bonds
Park Nicollet Medical Center Series 1991A 8.625 2021 2,000,000 2,272,800
St. Louis Park Multi-family Housing
Revenue Refunding Bonds
Park Blvd Towers Series 1996A 7.00 2031 3,970,000 4,026,255
St. Paul & Minneapolis Housing &
Redevelopment Authority Health Care
Facility Revenue Bonds Group Health Plan Series 1992 6.75 2013 10,500,000(h) 11,387,355
St. Paul Housing & Development Bonds
Highland Retirement (FHA Insured) 7.013 2026 5,210,000(j) 5,157,900
St. Paul Housing & Redevelopment Authority
Commercial Development
Refunding Revenue Bonds Beverly Enterprises
Series 1992 7.75 2002 2,355,000 2,392,091
St. Paul Housing & Redevelopment Authority
Health Care Facility Revenue Bonds
Lyngblomsten Care Center Series 1993A 7.125 2017 1,880,000 1,946,947
St. Paul Housing & Redevelopment Authority
Health Care Facility Revenue Bonds
Lyngblomsten Care Center Series 1993A 7.125 2006 950,000 975,774
St. Paul Housing & Redevelopment Authority
Health Care Facility
Multi-family Rental Housing Revenue Bonds
Lynblomsten 1993B 7.00 2024 1,890,000 1,878,358
St. Paul Housing & Redevelopment Authority
Sales Tax Revenue Bonds
Civic Center (Secondary MBIA Insured) 5.55 2023 7,500,000 7,488,000
St. Paul Housing & Redevelopment Authority
Single Family Mortgage
Refunding Revenue Bonds Middle Income Phase II
Mortgage Backed (FNMA Insured) 6.80 2028 3,460,000 3,689,363
St. Paul Port Authority Unlimited Tax
General Obligation Bonds 5.125 2024 4,770,000 4,476,597
Shoreview Senior Housing Revenue Bonds
Series 1996 7.25 2026 2,700,000 2,683,638
Southern Minnesota Municipal Power Agency
Power Supply System
Revenue Bonds Zero Coupon
Series 1994A (MBIA Insured) 6.67 2019 19,500,000(g) 5,762,835
Southern Minnesota Municipal Power Agency
Power Supply System
Revenue Bonds Zero Coupon (MBIA Insured) 6.08 2024 5,150,000(g) 1,132,279
Southern Minnesota Municipal Power Agency
Power Supply System
Revenue Bonds Zero Coupon
Series 1994A (MBIA Insured) 6.88 2022 12,000,000(g) 2,966,280
Southern Minnesota Municipal Power Agency
Pre-Refunded Bonds Series 1988A 8.125 2018 1,315,000 1,369,047
Southern Minnesota Municipal Power Agency
Pre-Refunded Bonds Series 1988B 8.125 2018 1,000,000 1,041,100
Southern Minnesota Municipal Power Agency
Pre-Refunded Revenue Bonds
Escrowed to Maturity Series A (Secondary MBIA Insured) 5.75 2018 1,970,000 1,990,007
Southern Minnesota Municipal Power Agency
Revenue Bonds (Secondary MBIA Insured) 4.75 2016 6,415,000 5,784,855
Southern Minnesota Municipal Power Agency
Un-Refunded Balance Power Revenue Bonds Series A 5.75 2018 1,895,000 1,885,961
Spring Park Health Care Facility
Revenue Bonds Twin Birch Health Care Center
Series 1991 8.25 2011 1,780,000 1,904,636
State Agricultural and Economic Development Board
Health Care System Fairview Hospital & Healthcare Service
Series 1997A (MBIA Insured) 5.75 2026 2,000,000 1,999,840
State General Obligation Various Purpose
Pre-Refunded Bonds Series 1990 7.00 2009 6,250,000 6,657,312
State General Obligation Various Purpose
Pre-Refunded Bonds Series 1991 6.70 2011 8,000,000 8,699,600
State Higher Education Facilities Authority
Augsburg College Mortgage Revenue Bonds
Series 4-F1 6.25 2023 1,750,000 1,808,258
State Higher Education Facilities Authority
MacAlester College Revenue Bonds Series 1997 4-J 5.55 2017 1,000,000 998,730
State Higher Education Facility Authority
Mortgage Pre-Refunded Revenue Bonds
St. Mary's College Series 2-M 8.375 2017 1,000,000 1,072,450
State Housing Facility Authority
Housing Finance Agency Housing Development
Single Family Mortgage Bonds Series B 7.25 2016 325,000 329,092
State Housing Finance Agency
Single Family Mortgage Bonds
Series 1989A A.M.T. 8.00 2029 1,210,000 1,257,396
State Housing Finance Agency
Single Family Mortgage Revenue Bonds
Series 1997D A.M.T. 5.85 2019 3,000,000 3,004,980
State Housing Finance Agency
Single Family Mortgage Bonds
Series 1990A A.M.T. 7.95 2022 3,165,000 3,344,171
State Housing Finance Agency
Single Family Mortgage Bonds
Series 1991A A.M.T. 7.45 2022 3,575,000 3,764,582
State Housing Finance Agency
Single Family Mortgage Bonds Series 1992A 6.95 2016 2,930,000 3,092,556
State Housing Finance Agency
Single Family Mortgage Revenue Bonds
Series L A.M.T. 6.70 2020 1,045,000 1,092,453
State Public Facilities Authority
Water Pollution Control Revenue Bonds
Series 1989A 7.00 2009 7,850,000 8,467,873
State University Board of Regents
General Obligation Bonds Inverse Floater
Series 1993A Bonds 5.564 2003 5,000,000(f) 5,062,500
State University Board of Regents
General Obligation Pre-Refunded Bonds
Series 1989A 6.00 2011 4,625,000 4,977,379
State University Board of Regents
General Obligation Bonds Series 1996A 5.50 2021 12,500,000 12,516,500
State University Board State University System
Pre-Refunded Revenue Bonds
Series 1989A (MBIA Insured) 7.40 2019 2,250,000 2,391,187
Vadnais Heights Multi-family Housing
Cottages of Vadnais Heights
Refunding Revenue Bonds
Series 1995 A.M.T. 7.00 2031 3,190,000 3,189,745
Vadnais Heights Multi-family Housing
Cottages of Vadnais Heights
Tax Credit Revenue Bonds
Series 1997 A.M.T. 7.00 2009 1,080,000 1,073,887
Washington County General Obligation
Capital Improvement Bonds
Series 1989A 7.00 2009-10 4,425,000 4,586,778
Washington County Housing & Redevelopment Authority
Woodbury Multi-family Housing
Refunding Revenue Bonds Series 1996 6.95 2023 1,985,000 1,992,603
Western Minnesota Municipal Power Agency
Revenue Bonds
Escrowed to Maturity (AMBAC Insured) 6.75 2016 5,935,000 6,392,648
Western Minnesota Municipal Power Agency
Supply Refunding Revenue Bonds
Series A (Secondary MBIA Insured) 5.50 2015 11,250,000 11,199,712
White Bear Lake Industrial Development
Revenue Bonds
Taylor Series 1988A A.M.T. 8.75 2008 2,250,000 2,388,645
Total municipal bonds
(Cost: $365,620,219) $389,401,571
See accompanying notes to investments in securities.
Short-term securities (1.1%)
Issuer (d,e) Effective Amount Value(a)
yield payable at
maturity
Municipal note
Duluth Health Facilities
Revenue Bond V.R.
06-01-19 4.25% $ 100,000 $ 100,000
Minneapolis & St. Paul Housing &
Redevelopment Authority Health Care
Revenue Bond
Series B V.R.
08-15-25 4.30 4,300,000 4,300,000
Total short-term securities
(Cost: $4,400,000) $ 4,400,000
Total investments in securities
(Cost: $370,020,219)(k) $393,801,571
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b) Investments in bonds, by rating category as a percentage of total bonds, are as follows:
(Unaudited)
Rating 6-30-97 6-30-96
- ---------------------------------------------------------
AAA 44% 48%
AA 22 18
A 13 15
BBB 9 7
BB and below 12 10
Non-rated -- 2
- ---------------------------------------------------------
Total 100% 100%
- ---------------------------------------------------------
(c) The following abbreviations are used in portfolio descriptions to identify
the insurer of the issue: AMBAC -- American Municipal Bond Association
Corporation FGIC -- Financial Guarantee Insurance Corporation FNMA -- Federal
National Mortgage Association FHA -- Federal Housing Authority FSA -- Financial
Security Assurance GNMA -- Government National Mortgage Association MBIA --
Municipal Bond Investors Assurance
(d) The following abbreviations are used in portfolio descriptions:
A.M.T. -- Alternative Minimum Tax -- As of June 30, 1997, the value of securities subject to
alternative minimum tax represented 15.2% of net assets.
V.R. -- Variable Rate
(e) The Fund is entitled to receive principal amount from issuer or corporate
guarantor, if indicated in parenthesis, after a day or week's notice. The
maturity date disclosed represents the final maturity. Interest rate varies to
reflect current market conditions; rate shown is the effective rate on June 30,
1997.
(f) Inverse floaters represent securities that pay interest at a rate that
increases (decreases) in the same magnitude as, or in a multiple of, a decline
(increase) in market short-term rates. Interest rate disclosed is the rate in
effect on June 30, 1997. Inverse floaters in the aggregate represent 4.3% of the
Fund's net assets as of June 30, 1997.
(g) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(h) Partially pledged as initial deposit on the following open interest rate
futures contracts (see Note 5 to the financial statements): Type of security
Notional amount Purchase contracts
- -------------------------------------------------
Municipal Bonds Index Sept. 1997 $5,100,000
- -------------------------------------------------
Sales contracts
- -------------------------------------------------
Municipal Bonds Index Sept. 1997 $2,000,000
- -------------------------------------------------
(i) Identifies issues considered to be illiquid as to their marketability (see
Note 1 to the financial statements). Information concerning such security
holdings at June 30, 1997, is as follows:
Acquisition Purchase
Security date cost
- --------------------------------------------------------------------------------------
Bloomington Community Development
Refunding Revenue Note 24th Avenue Motel 03-31-88 $1,758,382
(j) Non-income producing. Item identified is in default as to payment of
interest and/or principal.
(k) At June 30, 1997, the cost of securities for federal income tax purposes was
$369,560,056 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation ...........................$24,335,871
Unrealized depreciation ...............................(94,356)
- ---------------------------------------------------------------
Net unrealized appreciation....................... $24,241,515
- --------------------------------------------------------------
<PAGE>
IDS New York Tax-Exempt Fund
June 30, 1997
(Percentages represent value of
investments compared to net assets)
Municipal bonds (99.9%)
Name of issuer Coupon Maturity Principal Value(a)
and title of issue (b, c, d) rate year amount
Albany County Airport Authority Revenue Bonds
Series 1997 (FSA Insured) A.M.T. 5.50 % 2019 $ 250,000 (g) $ 241,250
Broome County Certificates of Partication
Public Safety Facility Series 1994 (MBIA Insured) 5.25 2022 2,650,000 2,495,929
Buffalo Municipal Water Agency Authority Water System
Revenue Bonds Series 1995 (FGIC Insured) 5.00 2025 1,000,000 918,310
City of Buffalo School Serial Bonds
Series 1997B (AMBAC Insured) 5.375 2016 500,000 493,900
Erie County Unlimited Tax General Obligation Bonds
Series B (FGIC Insured) 5.50 2025 700,000 684,348
Erie County Water Authority Fourth Resolution Water
Refunding Revenue Bonds Zero Coupon
Series 1992 (AMBAC Insured) 7.30 2017 1,215,000(e) 281,880
Erie County Water Authority Water Works System
Revenue Bonds Escrowed to Maturity
Series 1990A (AMBAC Insured) 6.00 2008 1,765,000 1,887,403
Fallsburg Sullivan County Unlimited Tax General
Obligation Improvement Pre-Refunded Bonds
Series 1991 7.05 2011-14 1,300,000 1,450,501
Great Neck North Water Authority Water System
Pre-Refunded Revenue Bonds Series 1989A 6.00 2020 1,415,000 1,472,180
Metropolitan Transportation Authority Commuter Facilities
1987 Service Contract Refunding Bonds Series 5 6.50 2016 1,775,000 1,871,152
Monroe County Utility General Obligation
Pre-Refunded Bonds Water Improvement System 7.10 2008-09 1,000,000 1,061,500
Municipal Assistance New York City Series 59 7.75 2006 660,000 673,266
Municipal Assistance New York City Series 62 6.75 2006 2,200,000 2,244,176
Municipal Assistance Troy New York
General Revenue Bonds Series 1996A (MBIA Insured) 5.00 2022 1,250,000 1,155,263
New York & New Jersey Port Authority Special Obligation
Revenue Bonds KIAC Partners Project Series 4 A.M.T. 6.75 2019 1,500,000 1,592,805
New York City General Obligation Bonds Series 1995B 7.00 2016 1,500,000 1,632,900
New York City General Obligation Bonds Series J 5.875 2019 1,000,000 993,270
New York City Industrial Development Agency
Civil Facility Lease Revenue Bonds
Series 1997 (MBIA Insured) 5.25 2017-27 2,000,000 1,904,240
New York City Industrial Development Agency
Civil Facility Revenue Bonds Series 1993 5.375 2023 2,000,000 1,925,520
New York City Industrial Development Agency
Civil Facility Lease Revenue Bonds Series 1997 5.80 2016 1,000,000 989,930
New York City Municipal Water Finance Authority
Water & Sewer System Revenue Bonds
Series B Inverse Floater (MBIA Insured) 6.34 2009 2,000,000(f) 1,935,000
New York City Municipal Water Finance Authority
Water & Sewer System Revenue Bonds
Series B (MBIA Insured) 5.75 2026 500,000 503,375
New York City Unlimited Tax General Obligation Bonds
Series 1996G 5.75 2017 1,500,000 1,475,700
New York City Water Finance Authority
Water & Sewer System Pre-Refunded Revenue Bonds
Series A (FGIC Insured) 6.75 2014 1,185,000 1,259,904
New York City Water Finance Authority
Water & Sewer System Revenue Bonds
Series A (FGIC Insured) 6.75 2014 565,000 600,714
State Dormitory Authority City University System
Consolidated 3rd Resolution Revenue Bonds
Series 1994-2 (MBIA Insured) 6.25 2019 1,500,000 1,583,355
State Dormitory Authority City University System
Pre-Refunded Revenue Bonds 8.125 2017 3,400,000 3,468,374
State Dormitory Authority City University System
Revenue Bonds Series 1993A 5.75 2013 3,000,000 3,034,470
State Dormitory Authority College
Revenue Bonds Series 1996 (AMBAC Insured) 5.25 2016 1,140,000 1,101,445
State Dormitory Authority Revenue Bonds
NYACK Hospital Series 1996 6.25 2013 1,000,000 1,027,950
State Dormitory Authority State University Education Facility
Cooper Union Insured College Revenue Bonds
Series 1996 (AMBAC Insured) 5.375 2020 860,000 834,062
State Dormitory Authority State University Education Facility
Pre-Refunded Revenue Bonds Series 1990A 7.70 2012 1,750,000 1,943,165
State Dormitory Authority State University Education Facility
Refunding Revenue Bonds Series 1990B 7.50 2011 1,900,000 2,226,724
State Dormitory Authority State University Education Facility
Revenue Bonds (Secondary AMBAC Insured) 5.25 2015 1,000,000 993,060
State Dormitory Authority State University Education Facility
Revenue Bonds (Secondary AMBAC Insured) 5.50 2019 2,000,000 2,010,000
State Energy Research & Development Authority
Electric Facility Revenue Bonds
Consolidated Edison Series 1986A A.M.T. 7.50 2021 1,750,000 1,788,903
State Energy Research & Development Authority
Electric Facility Revenue Bonds
Consolidated Edison Series 1989A A.M.T. 7.75 2024 1,000,000 1,029,170
State Energy Research & Development Authority
Electric Facility Revenue Bonds Consolidated Edison
Series 1990A A.M.T. 7.50 2025 5,000,000(g) 5,286,900
State Energy Research & Development Authority
Gas Facilities Industrial Development
Revenue Bonds Series 1996 (MBIA Insured) 5.50 2021 2,000,000 1,961,240
State Energy Research & Development
Authority Pollution Control Refunding
Revenue Bonds Rochester Gas & Electric
(MBIA Insured) A.M.T. 6.50 2032 2,500,000 2,669,300
State Energy Research & Development Authority
Solid Waste Development Revenue Bonds
State Gas & Electric Company
Series A (MBIA Insured) A.M.T. 5.70 2028 3,000,000 2,948,190
State Environmental Facility State Water & Pollution Control
Revolving Fund Revenue Bonds New York City
Municipal Water Finance Authority Series 1990A 7.50 2012 3,000,000 3,308,010
State Local Government Assistance Bonds Series C 5.50 2022 1,500,000 1,443,015
State Local Government Assistance Pre-Refunded Bonds
Series 1991A 7.00 2016 4,000,000 4,438,440
State Medical Care Facility Finance Agency
Hospital & Nursing Home Mortgage Revenue Bonds
Montefiore Hospital
Series 1989A (FHA Insured) 7.25 2024 1,400,000 1,493,828
State Medical Care Facility Finance Agency Mental Health
Services Facility Improving Refunding Revenue Bonds
Series 1993F (Secondary FSA Insured) 5.375 2014 1,000,000 980,030
State Medical Care Facility Finance Agency Mental Health
Services Facility Improving Refunding Revenue Bonds
Series 1994A (Secondary FSA Insured) 5.25 2023 1,500,000 1,406,820
State Medical Care Facility Finance Agency Pre-Refunded Bonds
Presbyterian Hospital Series 1985B 8.00 2025 1,320,000(g) 1,352,987
State Medical Care Facility Finance Agency Revenue Bonds
Buffalo General Hospital Series 1988C (FHA Insured) 7.60 2008 1,500,000 1,589,775
State Medical Care Facility Finance Agency Revenue Bonds
Buffalo General Hospital Series 1988C (FHA Insured) 7.70 2022 1,950,000 2,068,735
State Medical Care Facility Finance Agency Secured Hospital
Revenue Bonds Series 1987A 7.10 2027 550,000 561,643
State Mortgage Agency Homeowner Mortgage Revenue Bonds
Series TT 7.50 2015 4,000,000 4,276,440
State Mortgage Agency Homeowner Mortgage Revenue Bonds
Series 27 6.90 2015 3,000,000 3,223,500
State Mortgage Agency Revenue Bonds
Series 9 A.M.T. 7.30 2017 970,000 990,758
State Thruway Authority Local Highway & Bridge Service
Contract Bonds Series 1991 6.00 2011 2,500,000 2,519,500
State Urban Development Correction Facility
Pre-Refunded Revenue Bonds Series 1 (FSA Insured) 7.50 2020 4,500,000 4,928,175
State Urban Development Correctional Capital Facilities
Refunding Revenue Bonds Series 1993A 5.25 2021 2,500,000 2,306,725
State Urban Development Correctional Capital Facilities
Revenue Bonds Series 5 (MBIA Insured) 5.50 2025 750,000 733,365
State Urban Development Revenue Bonds
Higher Education Applied Technology Grants
Series 1995 (MBIA Insured) 5.75 2015 1,000,000 1,021,610
Triborough Bridge & Tunnel Authority
General Purpose Pre-Refunded Revenue Bonds Series S 7.00 2021 3,000,000 3,299,580
Triborough Bridge & Tunnel Authority
Special Obligation Refunding Bonds
Series 1991B (FGIC Insured) 6.875 2015 2,000,000 2,162,180
United Nations Development Senior Lien
Refunding Revenue Bonds Series 1992A 6.00 2026 4,500,000 4,528,350
Utica Industrial Development Agency
Civic Facility Revenue Bonds
Series 1996A (MBIA Insured) 5.50 2016 750,000 739,537
Total municipal bonds
(Cost: $107,120,101) $115,023,727
Total investments in securities
(Cost: $107,120,101)(h) $115,023,727
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b) Investments in bonds, by rating category as a percentage of total bonds, are as follows:
(Unaudited)
Rating 6-30-97 6-30-96
- -------------------------------------------------------------------
AAA 58% 52%
AA 13 18
A 12 15
BBB 16 14
BB and below 1 1
Non-rated -- --
- -------------------------------------------------------------------
Total 100% 100%
- -------------------------------------------------------------------
(c) The following abbreviations are used in portfolio descriptions to identify the insurer of the issue:
AMBAC -- American Municipal Bond Association Corporation
FGIC -- Financial Guarantee Insurance Corporation
FHA -- Federal Housing Authority
FSA -- Financial Security Assurance
MBIA -- Municipal Bond Investors Assurance
(d) The following abbreviation is used in portfolio descriptions:
A.M.T. -- Alternative Minimum Tax-- As of June 30, 1997, the value of securities subject to
alternative minimum tax represented 14.4% of net assets.
(e) For zero coupon bonds, the interest rate disclosed represents the annualized
yield on the date of acquisition.
(f) Inverse floaters represent securities that pay interest at a rate that
increases (decreases) in the same magnitude as, or in a multiple of, a decline
(increase) in market short-term rates. Interest rate disclosed is the rate in
effect on June 30, 1997. Inverse floaters in the aggregate represent 1.7% of the
Fund's net assets as of June 30, 1997.
(g) Partially pledged as initial deposit on the following open interest rate
futures contracts (see Note 5 to the financial statements):
Type of security Notional amount
Purchase contracts
- -------------------------------------------------------
Municipal Bonds Index Sept. 1997 $6,300,000
- -------------------------------------------------------
Sales contracts
- -------------------------------------------------------
Municipal Bonds Index Sept. 1997 $1,500,000
- -------------------------------------------------------
(h) At June 30, 1997, the cost of securities for federal income tax purposes was
$107,052,857 and the gross unrealized appreciation and depreciation based on
that cost was:
Unrealized appreciation ......................$8,082,388
Unrealized depreciation ........................(111,518)
- ---------------------------------------------------------
Net unrealized appreciation.................. $7,970,870
- ---------------------------------------------------------
IDS Ohio Tax-Exempt Fund
June 30, 1997
(Percentages represent value of
investments compared to net assets)
Municipal bonds (96.4%)
Name of issuer Coupon Maturity Principal Value(a)
and title of issue (b, c, d) rate year amount
Barberton Limited Tax Various Purpose General Obligation Bonds
Series 1989-1 7.35 % 2009 $ 700,000 $ 754,768
Bellefontaine Hospital Facility
Refunding Revenue Bonds
Mary Rutan Health Association of Logan County
Series 1993 6.00 2013 1,000,000 984,160
Buckeye Valley Local School District School
Improvement Unlimited Tax
General Obligation Bonds Series 1995A (MBIA Insured) 5.25 2020 1,000,000 960,900
Butler County Hospital Facility Improvement
Refunding Revenue Bonds 7.50 2010 1,750,000 1,870,050
Carroll Water & Sewer District
Water System Improvement Unlimited Tax
General Obligation Bonds 6.25 2010 955,000 916,466
Celina Local School District
Unlimited General Obligation Bonds
Series 1996 (FGIC Insured) 5.25 2020 1,000,000 960,900
Clermont County Hospital Facility Revenue Bonds
Mercy Health System Province of Cincinnati
Series 1989A (AMBAC Insured) 7.50 2019 750,000 820,319
Cleveland Airport Systems Revenue Bonds
Series 1990A (MBIA Insured) A.M.T. 7.40 2020 500,000 537,475
Cleveland General Obligation Pre-Refunded Bonds 7.375 2003 125,000 128,489
Cleveland Public Power System 1st Mortgage
Pre-Refunded Revenue Bonds 8.375 2017 100,000(f) 102,377
Cleveland Waterworks Improvement 1st Mortgage
Refunding Revenue Bonds
Series F 1992B (AMBAC Insured) 6.25 2016 1,000,000(f) 1,062,520
Cleveland Waterworks Improvement 1st Mortgage
Revenue Bonds Series 1987E 6.00 2017 200,000 200,450
Coshocton County Solid Waste Disposal
Refunding Revenue Bonds
Stone Container Series 1992 7.875 2013 1,000,000 1,060,830
Cuyahoga County Health Care Facilities
Refunding Revenue Bonds
Judson Retirement Community Series A 7.25 2018 1,000,000 1,015,740
Cuyahoga County Hospital Improvement Revenue Bonds
Cleveland Clinic Foundation 7.00 2013 500,000 504,970
Cuyahoga County Hospital Improvement
Pre-Refunded Revenue Bonds
Cleveland Clinic Foundation Series 1987A 7.875 2010 275,000 285,018
Cuyahoga County Hospital Improvement Revenue Bonds
Mount Sinai Medical Center Series 1991
(AMBAC Insured) 6.625 2021 600,000 662,736
Cuyahoga County Hospital Improvement Revenue Bonds
University Hospitals Health System
Series 1992 (AMBAC Insured) 6.50 2011 500,000 535,790
Cuyahoga County Hospital Refunding Revenue Bonds
Cleveland Clinic Foundation Series 1992 5.50 2011 1,500,000 1,518,930
Cuyahoga County Hospital Refunding Revenue Bonds
Mount Sinai Medical Center Series 1987A 8.125 2014 400,000 414,180
Cuyahoga County Hospital Revenue Bonds
Meridia Health Series 1991 7.00 2023 1,000,000 1,070,590
Cuyahoga County Limited Tax General Obligation Bonds 5.60 2013 500,000 517,675
Cuyahoga Hospital Revenue Bonds Metrohealth System
Series 1989 (MBIA Insured) 6.00 2019 1,000,000 1,024,250
Delaware County Sewer Improvement Limited Tax
General Obligation Bonds 5.25 2015 1,000,000 973,490
Dover Limited Tax Improvement General Obligation Bonds
Municipal Sewer System 7.10 2009 1,000,000 1,065,230
Elyria Limited Tax Improvement General Obligation
Recreation Facility Bonds 7.10 2009 715,000 767,581
Erie County Hospital Improvement Refunding Revenue Bonds
Firelands Community Hospital Series 1992 6.75 2015 2,000,000(f) 2,147,260
Franklin County Convention Facilities Authority
Tax & Lease Revenue Anticipation
Pre-Refunded Bonds (MBIA Insured) 7.00 2019 1,500,000 1,654,905
Highland Heights Limited Tax Improvement
General Obligation Street Bonds 7.75 2008 400,000 425,344
Hilliard County School District Unlimited Tax
General Obligation Bonds Series A (FGIC Insured) 5.00 2020 1,000,000 935,810
Lake County Water System Limited Tax Improvement
General Obligation Pre-Refunded Bonds Series 1987-2 8.125 2010 700,000 726,117
Lakota Local School District Butler County School
Unlimited Tax Improvement Bonds 7.00 2012 500,000 532,935
Lakota Local School District Butler County School
Unlimited Tax Improvement Pre-Refunded Bonds 7.90 2011 200,000 210,686
Lakota Local School District Unlimited Tax Improvement
General Obligation Bonds (AMBAC Insured) 6.25 2014 2,000,000 2,138,800
Lima Limited Tax Improvement General Obligation
Sanitary Sewer System Pre-Refunded Bonds 8.25 2012 200,000 207,590
Lorain County Hospital Facilities Refunding Revenue Bonds
Elyria United Methodist Series C 6.875 2022 1,000,000 1,023,270
Lorain County Hospital Facilities Refunding Revenue Bonds
EMH Regional Medical Center
Series 1995 (AMBAC Insured) 5.375 2021 2,000,000 1,919,920
Lucas County Hospital Refunding Revenue Bonds
St. Vincent's Medical Center Series B (MBIA Insured) 5.25 2020 1,000,000 944,960
Marietta Sewer System Improvement Bonds (BIG Insured) 7.50 2007 200,000 206,472
Marion County Health Care Facilities Improvement
Refunding Revenue Bonds United Church Homes
Series 1993 6.375 2010 1,000,000 1,024,050
Marysville Sewer System 1st Mortgage Revenue Bonds
Series 1988 (BIG Insured) A.M.T. 7.85 2008 400,000 419,204
Marysville Water System Mortgage Revenue Bonds
Series 1991 (MBIA Insured) 7.05 2021 1,000,000 1,115,290
Medina County Hospital Revenue Bonds Medina County
Community Hospital Series 1987 (AMBAC Insured) 6.875 2016 100,000 103,255
Montgomery County Health Facilities Revenue Bonds
Friendship Village Dayton Series 1990A 9.25 2016 1,000,000 1,054,410
Montgomery County Hospital Facility
Refunding Revenue & Improvement Bonds
Ketter Medical Center
Series 1996 (MBIA Insured) 5.50 2026 1,000,000 970,410
Montgomery County Water Revenue Bonds
Greater Moraine - Beavercreek District (FGIC Insured) 6.25 2017 1,000,000 1,068,660
North Olmsted County General Obligation Bonds
(AMBAC Insured) 5.00 2016 1,500,000 1,426,575
North Olmsted County General Obligation Bonds
(AMBAC Insured) 5.00 2021 200,000 186,896
Parma Hospital Improvement Revenue Bonds
Parma Community General Hospital
Series 1989B (MBIA Insured) 7.125 2013 500,000 527,715
Pickerington Local School District Unlimited Tax
General Obligation Pre-Refunded Bonds (AMBAC Insured) 7.00 2013 1,000,000 1,103,270
Rural Loraine County Water Authority Water Resource
Improvement Pre-Refunded Revenue Bonds
Series 1991 (AMBAC Insured) 7.00 2011 1,000,000 1,108,470
Southwest Local School District Hamilton & Butler Counties
School Unlimited Tax Improvement Bonds
(AMBAC Insured) 7.65 2010 500,000 555,170
State Air Quality Development Authority
Refunding Revenue Bonds JMG Funding Limited Partnership
(AMBAC Insured) A.M.T. 6.375 2029 500,000 526,155
State Air Quality Development Authority
Refunding Revenue Bonds
Series 1994 (AMBAC Insured) A.M.T. 6.375 2029 2,000,000 2,104,620
State Air Quality Development Authority Revenue Bonds
Cleveland Electric Illuminating Series A 7.00 2009 340,000 340,105
State Air Quality Development Authority Revenue Bonds
Columbus & Southern Series A (FGIC Insured) 6.375 2020 1,000,000 1,082,310
State Building Authority Local Jail Grant Bonds
Series 1989A (MBIA Insured) 7.35 2009 500,000 548,725
State Building Authority State Facility Pre-Refunded Bonds
Columbus State Office Building Series 1985C 7.35 2005 1,000,000 1,095,860
State Higher Educational Facility Pre-Refunded Revenue Bonds
Oberlin College Series 1989 7.375 2014 500,000 542,505
State Housing Finance Agency Mortgage Revenue Bonds
Aristocrat South Board & Care
Series 1991A (FHA Insured) A.M.T. 7.30 2031 1,500,000 1,568,895
State Housing Finance Agency Single Family Mortgage
Revenue Bonds Series 1990A (GNMA Insured) A.M.T. 7.80 2030 460,000 482,494
State Housing Finance Agency Single Family Mortgage
Revenue Bonds Series 1990C (GNMA Insured) A.M.T. 7.85 2021 760,000 807,804
State Municipal Electric Generation Agency Joint Venture #5
Revenue Bonds (AMBAC Insured) 5.375 2024 2,000,000 1,914,000
State Turnpike Revenue Bonds Series A 5.75 2024 1,000,000 1,003,290
State Turnpike Revenue Bonds Series A (MBIA Insured) 5.50 2026 1,000,000 985,750
State Valley School District School Improvement Unlimited Tax
General Obligation Bonds Counties of Adams & Highland
Series 1995 (MBIA Insured) 5.25 2021 2,000,000 1,920,200
State Water & Air Quality Development Authority
Cleveland Electric Illumination
Pollution Control Refunding Revenue Bonds
Series 1995 7.70 2025 1,000,000 1,093,670
State Water Development Authority Bonds Toledo Edison
Series 1994 A.M.T. 8.00 2023 1,000,000 1,090,790
State Water Development Authority Pollution Control
Revenue Bonds Phillip Morris 7.25 2008 150,000 155,921
State Water Development Authority Water Development
Pre-Refunded Bonds Pure Water Series 1988I 7.00 2014 500,000 514,325
State Water Development Authority Water Development
Refunding Revenue Bonds Pure Water (AMBAC Insured) 5.50 2018 750,000 737,003
State Water Development Solid Waste Disposal
Northstar BHP Steel LLC-Cargill Series 1995
Revenue Bonds A.M.T. 6.30 2020 500,000(f) 524,045
Summit County Industrial Development Revenue Bonds
Century Products 7.75 2005 100,000 102,775
Summit County Limited Tax General Obligation Pre-Refunded Bonds
Human Services Facility (AMBAC Insured) 8.00 2007 95,000 98,520
Sycamore Board of Education Community School District
Hamilton County School Improvement Bonds 6.50 2009 500,000 516,635
University of Cincinnati Certificates of Participation
Student Recreation Center (MBIA Insured) 5.125 2024 1,000,000 940,920
University of Cincinnati General Receipt
Pre-Refunded Bonds Series I-1 7.10 2010 750,000 804,675
University of Toledo General Receipt
Pre-Refunded Bonds Series 1990 (MBIA Insured) 7.125 2020 500,000 547,610
Warren County Various Purpose Limited Tax
General Obligation Bonds Series 1992 6.10 2012 500,000 543,410
Whitehall City School District Franklin County Unlimited Tax
Improvement General Obligation
Pre-Refunded Revenue Bonds 7.25 2013 500,000 544,845
Total municipal bonds
(Cost: $63,106,778) $67,591,185
Short-term securities (2.3%)
Issuer (d, e) Effective Amount Value(a)
yield payable at
maturity
Municipal notes
State Air Quality Development Authority Revenue Bonds
Cincinnati Gas & Electric
Series 1985B V.R.
12-01-15 5.50% $ 500,000 $ 500,000
State Air Quality Development Authority Revenue Bonds
Cincinnati Gas & Electric
Series A V.R.
09-01-30 4.00 1,100,000 1,100,000
Total short-term securities
(Cost: $1,600,000) $ 1,600,000
Total investments in securities
(Cost: $64,706,778)(g) $69,191,185
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b) Investments in bonds, by rating category as a percentage of total bonds, are as follows:
(Unaudited)
Rating 6-30-97 6-30-96
- ----------------------------------------------------------------
AAA 64% 68%
AA 9 10
A 9 9
BBB 10 7
BB and below 8 6
Non-rated -- --
- ----------------------------------------------------------------
Total 100% 100%
- ----------------------------------------------------------------
(c) The following abbreviations are used in portfolio descriptions to identify the insurer of the issue:
AMBAC -- American Municipal Bond Association Corporation
BIG -- Bond Investors Guarantee
FGIC -- Financial Guarantee Insurance Corporation
FHA -- Federal Housing Authority
GNMA -- Government National Mortgage Association
MBIA -- Municipal Bond Investors Assurance
(d) The following abbreviations are used in portfolio descriptions:
A.M.T. -- Alternative Minimum Tax-- As of June 30, 1997, the value of securities subject to
alternative minimum tax represented 11.5% of net assets.
V.R. -- Variable Rate
(e) The Fund is entitled to receive principal from issuer or corporate
guarantor, if indicated in parenthesis, after a day or a week's notice. The
maturity date disclosed represents the final maturity. Interest rate varies to
reflect current market conditions; rate shown is the effective rate on June 30,
1997.
(f) Partially or fully pledged as initial deposit on the following open interest
rate futures contracts (see Note 5 to the financial statements):
Type of security Notional amount
Purchase contracts
- -----------------------------------------------------
Municipal Bonds Index Sept. 1997 $900,000
- -----------------------------------------------------
Sale contracts
- ------------------------------------------------------
Municipal Bonds Index Sept. 1997 $500,000
- ------------------------------------------------------
(g) At June 30, 1997, the cost of securities for federal income tax purposes was
$64,643,308 and the gross unrealized appreciation and depreciation based on that
cost was:
Unrealized appreciation .........................$4,568,086
Unrealized depreciation ............................(20,209)
- -------------------------------------------------------------
Net unrealized appreciation..................... $4,547,877
- -------------------------------------------------------------
</TABLE>
<PAGE>
Federal income tax information
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its
fiscal year. Some of the dividends listed below were reported to you on
your year-end statement, last January. Dividends paid to you since the end
of last year will be reported to you on a tax statement sent next January.
IDS California Tax-Exempt Fund
Fiscal year ended June 30, 1997
Class A
Exempt-interest dividends -- taxable status explained below.
Payable date Per share
July 26, 1996 $0.02217
Aug. 26, 1996 0.02323
Sept. 25, 1996 0.02306
Oct. 28, 1996 0.02491
Nov. 26, 1996 0.02259
Dec. 26, 1996 0.02287
Jan. 29, 1997 0.02605
Feb. 26, 1997 0.02413
March 26, 1997 0.02190
April 28, 1997 0.02644
May 28, 1997 0.02447
June 26, 1997 0.02464
Total $0.28646
Taxable dividend -- income distribution taxable as dividend income.
Payable date Per share
Dec. 26, 1996 $0.00007
Taxable dividend -- short-term capital gain taxable as dividend income.
Payable date Per share
Dec. 26, 1996 $0.00275
Taxable dividend -- taxable as long-term capital gain.
Payable date Per share
Dec. 26, 1996 $0.00886
Total distributions $0.29814
Class B
Exempt-interest dividends -- taxable status explained below.
Payable date Per share
July 26, 1996 $0.01902
Aug. 26, 1996 0.01990
Sept. 25, 1996 0.01986
Oct. 28, 1996 0.02137
Nov. 26, 1996 0.01948
Dec. 26, 1996 0.01966
Jan. 29, 1997 0.02238
Feb. 26, 1997 0.02109
March 26, 1997 0.01893
April 28, 1997 0.02292
May 28, 1997 0.02123
June 26, 1997 0.02154
Total $0.24738
Taxable dividend -- income distribution taxable as dividend income.
Payable date Per share
Dec. 26, 1996 $0.00007
Taxable dividend -- short-term capital gain taxable as dividend income.
Payable date Per share
Dec. 26, 1996 $0.00275
Taxable dividend -- taxable as long-term capital gain.
Payable date Per share
Dec. 26, 1996 $0.00886
Total distributions $0.25906
Source of distributions
100% of exempt-interest distributions during the fiscal year ended June
30, 1997 was derived from interest on California municipal securities.
Federal taxation
Exempt-interest dividends are exempt from federal income taxes and should
not be included in shareholders' gross income.
Other taxation
Exempt-interest dividends may be subject to state and local taxes. Each
shareholder should consult a tax adviser about reporting this income for
state and local tax purposes.
<PAGE>
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its
fiscal year. Some of the dividends listed below were reported to you on
your year-end statement, last January. Dividends paid to you since the end
of last year will be reported to you on a tax statement sent next January.
IDS Massachusetts Tax-Exempt Fund
Fiscal year ended June 30, 1997
Class A
Exempt-interest dividends -- taxable status explained below.
Payable date Per share
July 26, 1996 $0.02137
Aug. 26, 1996 0.02179
Sept. 25, 1996 0.02474
Oct. 28, 1996 0.02615
Nov. 26, 1996 0.02332
Dec. 26, 1996 0.02333
Jan. 29, 1997 0.02653
Feb. 26, 1997 0.02426
March 26, 1997 0.02194
April 28, 1997 0.02624
May 28, 1997 0.02325
June 26, 1997 0.02283
Total distributions $0.28575
Class B
Exempt-interest dividends -- taxable status explained below.
Payable date Per share
July 26, 1996 $0.01810
Aug. 26, 1996 0.01836
Sept. 25, 1996 0.02144
Oct. 28, 1996 0.02248
Nov. 26, 1996 0.02008
Dec. 26, 1996 0.01999
Jan. 29, 1997 0.02277
Feb. 26, 1997 0.02113
March 26, 1997 0.01884
April 28, 1997 0.02262
May 28, 1997 0.01992
June 26, 1997 0.01957
Total distributions $0.24530
Source of distributions
100% of exempt-interest distributions during the fiscal year ended June
30, 1997 was derived from interest on Massachusetts municipal securities.
Federal taxation
Exempt-interest dividends are exempt from federal income taxes and should
not be included in shareholders' gross income.
Other taxation
Exempt-interest dividends may be subject to state and local taxes. Each
shareholder should consult a tax adviser about reporting this income for
state and local tax purposes.
<PAGE>
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its
fiscal year. Some of the dividends listed below were reported to you on
Form 1099-DIV, Dividends and Distributions, last January. Dividends paid
to you since the end of last year will be reported to ou on a tax
statement sent next January.
IDS Michigan Tax-Exempt Fund
Fiscal year ended June 30, 1997
Class A
Exempt-interest dividends -- taxable status explained below.
Payable date Per share
July 26, 1996 $0.02145
Aug. 26, 1996 0.02349
Sept. 25, 1996 0.02477
Oct. 28, 1996 0.02670
Nov. 26, 1996 0.02419
Dec. 26, 1996 0.02412
Jan. 29, 1997 0.02674
Feb. 26, 1997 0.02326
March 26, 1997 0.02251
April 28, 1997 0.02644
May 28, 1997 0.02341
June 26, 1997 0.02369
Total $0.29077
Taxable dividend -- income distribution taxable as dividend income.
Payable date Per share
Dec. 26, 1996 $0.00075
Taxable dividend -- short-term capital gain taxable as dividend income.
Payable date Per share
Dec. 26, 1996 $0.00082
Taxable dividend -- taxable as long-term capital gain.
Payable date Per share
Dec. 26, 1996 $0.00051
Total distributions $0.29285
Class B
Exempt-interest dividends -- taxable status explained below.
Payable date Per share
July 26, 1996 $0.01822
Aug. 26, 1996 0.02003
Sept. 25, 1996 0.02143
Oct. 28, 1996 0.02305
Nov. 26, 1996 0.02090
Dec. 26, 1996 0.02076
Jan. 29, 1997 0.02297
Feb. 26, 1997 0.02010
March 26, 1997 0.01937
April 28, 1997 0.02282
May 28, 1997 0.02006
June 26, 1997 0.02043
Total $0.25014
Taxable dividend -- income distribution taxable as dividend income.
Payable date Per share
Dec. 26, 1996 $0.00075
Taxable dividend -- short-term capital gain taxable as dividend income.
Payable date Per share
Dec. 26, 1996 $0.00082
Taxable dividend -- taxable as long-term capital gain.
Payable date Per share
Dec. 26, 1996 $0.00051
Total distributions $0.25222
Source of distributions
100% of exempt-interest distributions during the fiscal year ended June
30, 1997 was derived from interest on Michigan municipal securities.
Federal taxation
Exempt-interest dividends are exempt from federal income taxes and should
not be included in shareholders' gross income.
Other taxation
Exempt-interest dividends may be subject to state and local taxes. Each
shareholder should consult a tax advisor about reporting this income for
state and local tax purposes.
<PAGE>
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its
fiscal year. Some of the dividends listed below were reported to you on
your year-end statement, last January. Dividends paid to you since the end
of last year will be reported to you on a tax statement sent next January.
IDS Minnesota Tax-Exempt Fund
Fiscal year ended June 30, 1997
Class A
Exempt-interest dividends -- taxable status explained below.
Payable date Per share
July 26, 1996 $0.02415
Aug. 26, 1996 0.02514
Sept. 25, 1996 0.02730
Oct. 28, 1996 0.02723
Nov. 26, 1996 0.02431
Dec. 26, 1996 0.02497
Jan. 29, 1997 0.02809
Feb. 26, 1997 0.02594
March 26, 1997 0.02349
April 28, 1997 0.02802
May 28, 1997 0.02462
June 26, 1997 0.02221
Total $0.30547
Taxable dividend -- income distribution taxable as dividend income.
Payable date Per share
Dec. 26, 1996 $0.00011
Total distributions $0.30558
Class B
Exempt-interest dividends -- taxable status explained below.
Payable date Per share
July 26, 1996 $0.02094
Aug. 26, 1996 0.02179
Sept. 25, 1996 0.02407
Oct. 28, 1996 0.02365
Nov. 26, 1996 0.02116
Dec. 26, 1996 0.02169
Jan. 29, 1997 0.02438
Feb. 26, 1997 0.02287
March 26, 1997 0.02044
April 28, 1997 0.02447
May 28, 1997 0.02137
June 26, 1997 0.01903
Total $0.26586
Taxable dividend -- income distribution taxable as dividend income.
Payable date Per share
Dec. 26, 1996 $0.00011
Total distributions $0.26597
Source of distributions
100% of exempt-interest distributions during the fiscal year ended June
30, 1997 was derived from interest on Minnesota municipal securities.
Federal taxation
Exempt-interest dividends are exempt from federal income taxes and should
not be included in shareholders' gross income.
Other taxation
Exempt-interest dividends may be subject to state and local taxes. Each
shareholder should consult a tax adviser about reporting this income for
state and local tax purposes.
<PAGE>
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its
fiscal year. Some of the dividends listed below were reported to you on
your year-end statement, last January. Dividends paid to you since the end
of last year will be reported to you on a tax statement sent next January.
IDS New York Tax-Exempt Fund
Fiscal year ended June 30, 1997
Class A
Exempt-interest dividends -- taxable status explained below.
Payable date Per share
July 26, 1996 $0.02245
Aug. 26, 1996 0.02369
Sept. 25, 1996 0.02365
Oct. 28, 1996 0.02541
Nov. 26, 1996 0.02291
Dec. 26, 1996 0.02302
Jan. 29, 1997 0.02592
Feb. 26, 1997 0.02280
March 26, 1997 0.02235
April 28, 1997 0.02606
May 28, 1997 0.02289
June 26, 1997 0.02273
Total $0.28388
Taxable dividend -- income distribution taxable as dividend income.
Payable date Per share
Dec. 26, 1996 $0.00005
Total distributions $0.28393
Class B
Exempt-interest dividends -- taxable status explained below.
Payable date Per share
July 26, 1996 $0.01933
Aug. 26, 1996 0.02043
Sept. 25, 1996 0.02051
Oct. 28, 1996 0.02192
Nov. 26, 1996 0.01984
Dec. 26, 1996 0.01983
Jan. 29, 1997 0.02232
Feb. 26, 1997 0.01982
March 26, 1997 0.01941
April 28, 1997 0.02272
May 28, 1997 0.01972
June 26, 1997 0.01964
Total $0.24549
Taxable dividend -- income distribution taxable as dividend income.
Payable date Per share
Dec. 26, 1996 $0.00005
Total distributions $0.24554
Source of distributions
100% of exempt-interest distributions during the fiscal year ended June
30, 1997 was derived from interest on New York municipal securities.
Federal taxation
Exempt-interest dividends are exempt from federal income taxes and should
not be included in shareholders' gross income.
Other taxation
Exempt-interest dividends may be subject to state and local taxes. Each
shareholder should consult a tax adviser about reporting this income for
state and local tax purposes.
<PAGE>
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its
fiscal year. Some of the dividends listed below were reported to you on
Form 1099-DIV, Dividends and Distributions, last January.Dividends paid to
you since the end of last year will be reported to you on a tax statement
sent next January.
IDS Ohio Tax-Exempt Fund
Fiscal year ended June 30, 1997
Class A
Exempt-interest dividends -- taxable status explained below.
Payable date Per share
July 26, 1996 $0.02319
Aug. 26, 1996 0.02406
Sept. 25, 1996 0.02415
Oct. 28, 1996 0.02592
Nov. 26, 1996 0.02327
Dec. 26, 1996 0.02393
Jan. 29, 1997 0.02675
Feb. 26, 1997 0.02458
March 26, 1997 0.02235
April 28, 1997 0.02496
May 28, 1997 0.02353
June 26, 1997 0.02361
Total $0.29030
Taxable dividend -- income distribution taxable as dividend income.
Payable date Per share
Dec. 26, 1996 $0.00031
Taxable dividend -- taxable as long-term capital gain.
Payable date Per share
Dec. 26, 1996 $0.00025
Total distributions $0.29086
Class B
Exempt-interest dividends -- taxable status explained below.
Payable date Per share
July 26, 1996 $0.01994
Aug. 26, 1996 0.02063
Sept. 25, 1996 0.02084
Oct. 28, 1996 0.02226
Nov. 26, 1996 0.02010
Dec. 26, 1996 0.02059
Jan. 29, 1997 0.02297
Feb. 26, 1997 0.02147
March 26, 1997 0.01925
April 28, 1997 0.02134
May 28, 1997 0.02022
June 26, 1997 0.02040
Total $0.25001
Taxable dividend -- income distribution taxable as dividend income.
Payable date Per share
Dec. 26, 1996 $0.00031
Taxable dividend -- taxable as long-term capital gain.
Payable date Per share
Dec. 26, 1996 $0.00025
Total distributions $0.25057
Source of distributions
100% of exempt-interest distributions during the fiscal year ended June
30, 1997 was derived from interest on Ohio municipal securities.
Federal taxation
Exempt-interest dividends are exempt from federal income taxes and should
not be included in shareholders' gross income.
Other taxation
Exempt-interest dividends may be subject to state and local taxes. Each
shareholder should consult a tax advisor about reporting this income for
state and local tax purposes.
IDS State Tax-Exempt Funds
IDS Tower 10
Minneapolis, MN 55440-0010
<PAGE>
Independent auditors' report
The board and shareholders
IDS Special Tax-Exempt Series Trust:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments in securities, of IDS Insured
Tax-Exempt Fund (a fund within IDS Special Tax-Exempt Series Trust) as of
June 30, 1997, and the related statement of operations for the year then
ended and the statements of changes in net assets for each of the years in
the two-year period then ended, and the financial highlights for each of
the years in the eight-year period ended June 30, 1997, the six months
ended June 30, 1989 and each of the years in the two-year period ended
December 31, 1988. These financial statements and the financial highlights
are the responsibility of fund management. Our responsibility is to
express an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and the
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Investment securities held in
custody are confirmed to us by the custodian. As to securities purchased
and sold but not received or delivered, we request confirmations from
brokers, and where replies are not received, we carry out other
appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of IDS Insured Tax-Exempt
Fund at June 30, 1997, and the results of its operations, changes in its
net assets and the financial highlights for the periods stated in the
first paragraph above, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
August 1, 1997
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
IDS Insured Tax-Exempt Fund
June 30, 1997
Assets
<S> <C>
Investments in securities, at value (Note 1)
(identified cost $454,600,456) $490,904,655
Accrued interest receivable 8,662,530
Receivable for investment securities sold 62,500
------
Total assets 499,629,685
-----------
Liabilities
Disbursements in excess of cash on demand deposit 175,587
Dividends payable to shareholders 347,694
Payable for investment securities purchased 5,332,884
Accrued investment management services fee 18,269
Accrued distribution fee 1,931
Accrued service fee 7,221
Accrued transfer agency fee 1,819
Accrued administrative services fee 1,624
Other accrued expenses 47,640
------
Total liabilities 5,934,669
---------
Net assets applicable to outstanding shares $493,695,016
============
Represented by
Shares of beneficial interest-- $.01 par value, unlimited number of shares authorized $ 896,194
Additional paid-in capital 469,997,454
Undistributed net investment income 438,514
Accumulated net realized gain (loss) (Notes 1 and 6) (14,063,415)
Unrealized appreciation (depreciation) of investments (Note 5) 36,426,269
- ----------
Total-- representing net assets applicable to outstanding shares $493,695,016
============
Net assets appicable to outstanding shares: Class A $462,300,946
Class B $ 31,392,921
Class Y $ 1,149
Net asset value per share of outstanding shares: Class A shares 83,920,040 $ 5.51
Class B shares 5,699,121 $ 5.51
Class Y shares 208 $ 5.52
See accompanying notes to financial statements.
<PAGE>
Statement of operations
IDS Insured Tax-Exempt Fund
Year ended June 30, 1997
Investment income
Income:
Interest $31,085,631
-----------
Expenses (Note 2):
Investment management services fee 2,269,770
Distribution fee-- Class B 195,038
Transfer agency fee 234,793
Incremental transfer agency fee--- Class B 997
Service fee
Class A 824,693
Class B 45,223
Administrative services fees and expenses 201,757
Compensation of board members 9,932
Compensation of officers 2,083
Custodian fees 39,370
Postage 39,915
Registration fees 32,120
Reports to sharehoders 39,286
Audit fees 18,000
Other 4,887
-----
Total expenses 3,957,864
Earnings credits on cash balances (Note 2) (55,275)
- -------
Total net expenses 3,902,589
---------
Investment income -- net 27,183,042
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 1,809,931
Financial futures contracts (2,986,838)
----------
Net realized gain (loss) on investments (1,176,907)
Net change in unrealized appreciation (depreciation) of investments 8,442,998
---------
Net gain (loss) on investments 7,266,091
---------
Net increase (decrease) in net assets resulting from operations $34,449,133
===========
See accompanying notes to financial statements.
</TABLE>
(This annual report is not part of the prospectus.)
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
IDS Insured Tax-Exempt Fund
Year ended June 30,
<S> <C> <C>
Investment income-- net $ 27,183,042 $ 26,786,000
Net realized gain (loss) on investments (1,176,907) 1,470,391
Net change in unrealized appreciation (depreciation) of investments 8,442,998 2,965,393
--------- ---------
Net increase (decrease) in net assets resulting from operations 34,449,133 31,221,784
---------- ----------
Distributions to shareholders from:
Net investment income
Class A (25,736,641) (26,156,789)
Class B (1,211,996) (632,447)
Class Y (63) (56)
Net realized gain
Class A -- (1,659,685)
Class B -- (48,604)
Class Y -- (3)
---------- ----------
Total distributions (26,948,700) (28,497,584)
---------- ----------
Share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 34,091,690 42,283,689
Class B shares 13,289,699 16,779,713
Reinvestment of distributions at net asset value
Class A shares 17,755,994 19,769,773
Class B shares 932,161 541,841
Class Y shares 63 59
Payments for redemptions
Class A shares (87,518,045) (78,673,946)
Class B shares (Note 2) (3,979,528) (2,641,423)
---------- ----------
Increase (decrease) in net assets from share transactions (25,427,966) (1,940,294)
----------- ----------
Total increase (decrease) in net assets (17,927,533) 783,906
Net assets at beginning of year 511,622,549 510,838,643
----------- -----------
Net assets at end of year $493,695,016 $511,622,549
============ ============
Undistributed net investment income $ 438,514 $ 160,320
------------ ------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
IDS Insured Tax-Exempt Fund
1
Summary of
significant
accounting policies
IDS Special Tax-Exempt Series Trust was organized as a Massachusetts
business trust April 7, 1986. IDS Special Tax-Exempt Series Trust is a
"series fund" that is currently composed of six individual funds,
including IDS Insured Tax-Exempt Fund. The Fund is registered under the
Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company.
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. The Fund offers Class A, Class B and Class
Y shares. Class A shares are sold with a front-end sales charge. Class B
shares may be subject to a contingent deferred sales charge and such
shares automatically convert to Class A after eight years. Class Y shares
have no sales charge and are offered only to qualifying institutional
investors.
All classes of shares have identical voting, dividend, liquidation and
other rights, and the same terms and conditions, except that the level of
distribution fee, transfer agency fee and service fee (class specific
expenses) differs among classes. Income, expenses (other than class
specific expenses) and realized and unrealized gains or losses on
investments are allocated to each class of shares based upon its relative
net assets.
Significant accounting policies followed by the Fund are summarized below:
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increase and decrease in
net assets from operations during the period. Actual results could differ
from those estimates.
Valuation of securities
All securities are valued at the close of each business day. Securities
for which market quotations are not readily available are valued at fair
value according to methods selected in good faith by the board.
Determination of fair value involves, among other things, reference to
market indexes, matrixes and data from independent brokers. Short-term
securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current
interest rates; those maturing in 60 days or less are valued at amortized
cost.
Option transactions
In order to produce incremental earnings, protect gains, and facilitate
buying and selling of securities for investment purposes, the Fund may buy
and sell put and call options and write covered call options on portfolio
securities and may write cash-secured put options. The risk in writing a
call option is that the Fund gives up the opportunity of profit if the
market price of the security increases. The risk in writing a put option
is that the Fund may incur a loss if the market price of the security
decreases and the option is exercised. The risk in buying an option is
that the Fund pays a premium whether or not the option is exercised. The
Fund also has the additional risk of not being able to enter into a
closing transaction if a liquid secondary market does not exist. The Fund
also may write over-the-counter options where the completion of the
obligation is dependent upon the credit standing of the other party.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The
Fund will realize a gain or loss upon expiration or closing of the option
transaction. When options on debt securities or futures are exercised, the
Fund will realize a gain or loss. When other options are exercised, the
proceeds on sales for a written call option, the purchase cost for a
written put option or the cost of a security for a purchased put or call
option is adjusted by the amount of premium received or paid.
Futures transactions
In order to gain exposure to or protect itself from changes in the market,
the Fund may buy and sell financial futures contracts. Risks of entering
into futures contracts and related options include the possibility that
there may be an illiquid market and that a change in the value of the
contract or option may not correlate with changes in the value of the
underlying securities.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin)
are made or received by the Fund each day. The variation margin payments
are equal to the daily changes in the contract value and are recorded as
unrealized gains and losses. The Fund recognizes a realized gain or loss
when the contract is closed or expires.
Securities purchased on a when-issued basis
Delivery and payment for securities that have been purchased by the Fund
on a forward-commitment or when-issued basis can take place one month or
more after the transaction date. During this period, such securities are
subject to market fluctuations, and they may affect the Fund's gross
assets the same as owned securities. The Fund designates cash or liquid
high-grade short-term debt securities at least equal to the amount of its
commitment. As of June 30, 1997, the Fund had entered into outstanding
when-issued or forward commitments of $5,332,884.
Federal taxes
Since the Fund's policy is to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to share-holders, no provision for
income or excise taxes is required.
Net investment income (loss) and net realized gains (losses) may differ
for financial statement and tax purposes primarily because of the deferral
of losses on certain futures contracts and losses deferred due to "wash
sale" transactions. The character of distributions made during the year
from net investment income or net realized gains may differ from their
ultimate characterization for federal income tax purposes. Also, due to
the timing of dividend distributions, the fiscal year in which amounts are
distributed may differ from the year that the income or realized gains
(losses) were recorded by the Fund.
On the statement of assets and liabilities, as a result of permanent
book-to-tax differences, undistributed net investment income has been
increased by $43,852, and accumulated net realized loss has been increased
by $43,852.
Dividends to shareholders
Dividends from net investment income, declared daily and payable monthly,
are reinvested in additional shares of the Fund at net asset value or
payable in cash. Capital gains, when available, are distributed along with
the last income dividend of the calendar year.
Other
Security transactions are accounted for on the date securities are
purchased or sold. Interest income, including level-yield amortization of
premium and discount, is accrued daily.
At June 30, 1997, American Express Financial Corporation (AEFC) owned 208
Class Y shares.
2
Expenses and
sales charges
Effective March 20, 1995, the Fund entered into agreements with AEFC for
managing its portfolio, providing administrative services and serving as
transfer agent. Under its Investment Management Services Agreement, AEFC
determines which securities will be purchased, held or sold. The
management fee is a percentage of the Fund's average daily net assets in
reducing percentages from 0.45% to 0.35% annually.
Under an Administrative Services Agreement, the Fund pays AEFC a fee for
administration and accounting services at a percentage of the Fund's
average daily net assets in reducing percentages from 0.04% to 0.02%
annually. Additional administrative service expenses paid by the Fund are
office expenses, consultants' fees and compensation of officers and
employees. Under this agreement, the Fund also pays taxes, audit and
certain legal fees, registration fees for shares, compensation of board
members, corporate filing fees, and any other expenses properly payable by
the Fund and approved by the board.
Under a separate Transfer Agency Agreement, AEFC maintains shareholder
accounts and records. The Fund pays AEFC an annual fee per shareholder
account for this service as follows:
o Class A $15.50
o Class B $16.50
o Class Y $15.50
Also effective March 20, 1995, the Fund entered into agreements with
American Express Financial Advisors Inc. for distribution and shareholder
servicing-related services. Under a Plan and Agreement of Distribution,
the Fund pays a distribution fee at an annual rate of 0.75% of the Fund's
average daily net assets attributable to Class B shares for
distribution-related services.
Under a Shareholder Service Agreement, the Fund pays a fee for service
provided to shareholders by financial advisors and other servicing agents.
The fee is calculated at a rate of 0.175% of the Fund's average daily net
assets attributable to Class A and Class B shares and 0.10% of the Fund's
average daily net assets attributable to Class Y shares.
Sales charges received by American Express Financial Advisors Inc. for
distributing Fund shares were $968,182 for Class A and $34,205 for Class B
for the year ended June 30, 1997.
During the year ended June 30, 1997, the Fund's custodian and transfer
agency fees were reduced by $55,275 as a result of earnings credits from
overnight cash balances.
3
Securities
transactions
Cost of purchases and proceeds from sales of securities (other than
short-term obligations) aggregated $161,096,624 and $183,012,598,
respectively, for the year ended June 30, 1997. Realized gains and losses
are determined on an identified cost basis.
4
Share
transactions
Transactions in shares of the Fund for the years indicated are as follows:
Year ended June 30, 1997
Class A Class B Class Y
- --------------------------------------------------------------------------------
Sold 6,218,449 2,423,964 --
Issued for reinvested 3,241,482 170,206 11
distributions
Redeemed (15,964,818) (726,159) --
- --------------------------------------------------------------------------------
Net increase (decrease) (6,504,887) 1,868,011 11
- --------------------------------------------------------------------------------
Year ended June 30, 1996
Class A Class B Class Y
- --------------------------------------------------------------------------------
Sold 7,677,356 3,048,552 --
Issued for reinvested 3,585,244 98,195 11
distributions
Redeemed (14,339,111) (476,102) --
- --------------------------------------------------------------------------------
Net increase (decrease) (3,076,511) 2,670,645 11
- --------------------------------------------------------------------------------
5
Interest rate
futures contracts
At June 30, 1997, investments in securities included securities valued at
$6,436,747 that were pledged as collateral to cover initial margin
deposits on 200 open sales contracts. The market value of the open
contracts at June 30, 1997 was $23,300,000 with a net unrealized gain (see
Summary of significant accounting policies) of $122,070.
6
Capital loss
carryover
For federal income tax purposes, the Fund had a capital loss carryover of
$824,794 at June 30, 1997, that will expire in 2005 if not offset by
subsequent capital gains. It is unlikely the board will authorize a
distribution of any net realized gains until the available capital loss
carryover has been offset or expires.
7
Financial
highlights
"Financial highlights" showing per share data and selected information is
presented on pages 7 and 8 of the prospectus.
<PAGE>
<TABLE>
<CAPTION>
Investments in securities
IDS Insured Tax-Exempt Fund
June 30, 1997
(Percentages represent
value of investments
compared to net assets)
<S> <C> <C> <C> <C>
Municipal bonds (99.4%)
Name of issuer and Coupon Maturity Principal Value(a)
title of issue (b,c,d) rate year amount
Alabama (0.7%)
Mobile General Obligation Capital Improvement Warrants
Convention Center Pre-Refunded Bonds Series 1990
(AMBAC Insured) 7.125% 2020 $3,000,000 $3,298,620
Alaska (1.6%)
North Slope Borough Capital Appreciation
Unlimited General Obligation Bonds
Series 1995A Zero Coupon (MBIA Insured) 5.61 2006 5,300,000(e) 3,350,766
North Slope Borough General Obligation Bonds
Series 1996B Zero Coupon (MBIA Insured) 5.72 2007 8,000,000(e) 4,760,000
Total 8,110,766
Arizona (1.8%)
Chandler Water & Sewer Refunding Revenue Bonds
Series 1991 (FGIC Insured) 7.00 2012 1,250,000 1,356,562
Health Facilities Authority Hospital System
Refunding Revenue Bonds Phoenix Baptist Hospital
Series 1992 (MBIA Insured) 6.25 2011 1,650,000 1,764,312
Phoenix Civic Improvement Wastewater System Lease
Refunding Revenue Bonds (Secondary MBIA Insured) 4.75 2023 4,500,000 3,996,270
State University Research Park Development
Refunding Bonds Series 1995 (MBIA Insured) 5.00 2021 1,975,000 1,849,252
Total 8,966,396
Arkansas (0.3%)
Jonesboro Residential Housing & Health Care Facility Board
St. Bernards Regional Medical Center
Hospital Refunding Revenue & Construction Bonds
Series 1996B (AMBAC Insured) 5.90 2016 1,200,000 1,237,224
California (12.4%)
Contra Costa Water District Revenue Bonds
Series 1994G (MBIA Insured) 5.50 2019 4,675,000 4,580,565
Desert Sands Unified School District Convertible Capital
Appreciation Certificates Series 1995 Zero Coupon
(FSA Insured) 6.45 2020 3,000,000(f) 2,519,010
Eastern Municipal Water District Riverside County
Water & Sewer Pre-Refunded Revenue
Certificates of Participation Series 1991 (FGIC Insured) 6.50 2020 5,460,000 6,000,103
Fontana Unified School District San Bernardino County
General Obligation Convertible Capital Appreciation Bonds
Series 1990C Zero Coupon (FGIC Insured) 6.15 2020 6,000,000(f) 6,314,100
Fresno Health Facility Revenue Bonds Holy Cross-St. Agnes
(Secondary MBIA Insured) 6.625 2021 2,000,000 2,161,440
Long Beach Harbor Revenue Bonds
(MBIA Insured) A.M.T. 5.25 2025 3,000,000 2,796,570
Los Angeles Department of Airports Revenue Bonds
Los Angeles International Airport Series D
(FGIC Insured) A.M.T. 5.50 2015 2,000,000 1,990,860
Los Angeles Department of Water & Power Waterworks
Refunding Revenue Bonds Second Issue
(Secondary FGIC Insured) 4.50 2023 2,000,000 1,672,440
Northern California Transmission Select Auction
Variable Rate Security & Residual Interest Revenue Bonds
Inverse Floater (MBIA Insured) 5.50 2024 2,500,000(g) 2,411,525
Oceanside Certificate of Participation Refunding Bonds
Oceanside Civic Center (MBIA Insured) 5.25 2019 1,730,000 1,634,885
Placer County Certificate of Participation
Series 1997 (MBIA Insured) 5.25 2017 1,670,000 1,604,152
Rural Home Mortgage Financing Authority
Single Family Mortage Revenue Bonds
Series 1997A-3 (GNMA Insured) A.M.T. 6.25 2029 1,500,000 1,632,855
San Diego County Certificate of Participation
Regional Authority Bonds Mt. Tower
Inverse Floater Series 1991 (MBIA Insured) 6.36 2019 9,000,000(g) 9,443,700
San Jose Redevelopment Agency Merged Area
Redevelopment Tax Allocation Bonds Series 1993
(MBIA Insured) 4.75 2024 2,400,000 2,090,136
San Jose Redevelopment Agency Tax Allocation Bonds
Series 1997 (MBIA Insured) 5.50 2017 1,000,000 993,940
San Mateo County Joint Power Financing Authority
Lease Revenue Bonds San Mateo County Health Center
Series 1994A (FSA Insured) 5.75 2022 1,500,000 1,509,405
State Public Works Board Lease Revenue Bonds
Department of Correction Substance Abuse Treatment
Facility & State Prison at Corcoran Series 1996A
(AMBAC Insured) 5.25 2021 2,000,000 1,914,160
State Public Works Board Lease Revenue Bonds
University of California Series A (AMBAC Insured) 6.40 2016 2,000,000 2,232,800
State Unlimited Tax General Obligation Bonds
(Secondary FGIC Insured) 4.75 2023 2,500,000 2,181,925
Statewide Community Development Authority
Certificate of Participation
Sutter Health Obligated Group (MBIA Insured) 5.50 2022 5,750,000 5,604,467
Total 61,289,038
Colorado (1.7%)
Denver City & County Airport Revenue Bonds Series B
(MBIA Insured) A.M.T. 5.75 2017 4,290,000(h) 4,299,653
Douglas County School District General Obligation
Improvement Bonds Series 1994A (MBIA Insured) 6.50 2016 1,500,000 1,642,125
Larimer County School District R-1 Certificate of Participation
Series 1997 (MBIA Insured) 5.65 2016 1,000,000(h) 1,010,990
Larimer Weld & Boulder Counties School District R-2J
Thompson Unlimited General Obligation Capital
Appreciation Bonds Series 1997 Zero Coupon (FGIC Insured) 5.45 2011 2,000,000(e) 911,440
Larimer Weld & Boulder Counties School District R-2J
Thompson Unlimited General Obligation Capital
Appreciation Bonds Series 1997 Zero Coupon (FGIC Insured) 5.50 2012 1,400,000(e) 599,732
Total 8,463,940
Delaware (0.2%)
Health Facilities Authority Refunding Revenue Bonds
Medical Center of Delaware Series 1989 (MBIA Insured) 7.00 2015 1,000,000 1,067,650
District of Columbia (2.8%)
Howard University Revenue Bonds Series A (MBIA Insured) 8.00 2017 1,500,000 1,545,765
Metropolitan Washington Airports Authority Airport System
Revenue Bonds Series 1992A (MBIA Insured) A.M.T. 6.625 2019 9,420,000 10,168,513
Unlimited Tax General Obligation Refunding Bonds
Series B-2 (FSA Insured) 5.50 2010 2,000,000 2,010,940
Total 13,725,218
Florida (2.2%)
Alachua County Public Improvement Refunding Revenue Bonds
(FSA Insured) 5.125 2021 2,000,000 1,897,900
Department of Transportation Turnpike Revenue Bonds
Series 1991A (AMBAC Insured) 6.25 2020 1,250,000 1,313,900
Fort Myers Utility System Refunding Revenue Bonds
Series 1989A (BIG Insured) 6.00 2019 2,000,000 2,042,780
Gulf Breeze Local Government Loan Program Boca Raton
Series 1985E (FGIC Insured) 7.75 2015 2,000,000 2,186,140
Osceola County Transportation Pre-Refunded Revenue Bonds
Series 1988A (FGIC Insured) 7.70 2013 1,215,000 1,273,527
Palm Beach County Solid Waste Authority Revenue Bonds
Series 1984 (BIG Insured) 8.375 2010 500,000 515,420
State Correctional Privatization Commission
Certificate of Participation 350 Bed Youthful Columbia
Series A (AMBAC Insured) 5.00 2017 1,900,000 1,787,463
Total 11,017,130
Georgia (3.0%)
Atlanta Metropolitan Rapid Transit Authority Sales Tax
Pre-Refunded Revenue Bonds Series L (AMBAC Insured) 7.20 2020 3,000,000 3,229,980
Chatham County Hospital Authority Revenue Bonds
Memorial Medical Center Series 1990A (MBIA Insured) 7.00 2021 4,500,000 4,956,345
Fulton County Water & Sewer Revenue Bonds
(FGIC Insured) 6.375 2014 3,250,000 3,642,633
Municipal Electrical Authority Special Obligation
Refunding Bonds 2nd Crossover Series (AMBAC Insured) 7.80 2020 500,000 518,705
Richmond County Water & Sewer Refunding Revenue
Improvement Bonds Series 1996A (FGIC Insured) 5.25 2028 2,500,000 2,385,500
Total 14,733,163
Hawaii (0.2%)
Harbor System Revenue Bonds
Series 1997 (MBIA Insured) A.M.T. 5.50 2027 1,000,000 960,320
Illinois (2.8%)
Chicago O'Hare International Airport General
Revenue Bonds Series 1990A (AMBAC Insured) A.M.T. 7.50 2016 2,000,000 2,154,560
Chicago O'Hare International Airport Terminal
Revenue Bonds (MBIA Insured) A.M.T. 7.625 2010 3,000,000 3,240,570
Chicago Public Building Commission
Pre-Refunded Revenue Bonds (MBIA Insured) A.M.T. 7.70 2008 1,000,000 1,039,060
Chicago Public Building Commission
Pre-Refunded Revenue Bonds Series 1989A (FGIC Insured) 7.75 2006 1,000,000 1,071,490
Chicago Public Building Commission
Pre-Refunded Revenue Bonds Series 1990A (MBIA Insured) 7.125 2015 5,000,000 5,445,900
St. Clair County Public Community Building
Capital Appreciation Revenue Bonds
Series 1997B Zero Coupon (FGIC Insured) 5.95 2014 2,000,000(e) 751,360
Total 13,702,940
Indiana (2.2%)
Educational Facilities Authority Pre-Refunded Bonds
Valpraiso University (BIG Insured) 7.80 2008 500,000 532,960
Marion County Hospital Authority Refunding Revenue Bonds
Methodist Hospital Series 1989 (MBIA Insured) 6.50 2013 4,000,000 4,308,320
State Health Facility Finance Authority Hospital
Refunding Revenue Bonds Columbus Regional Hospital
Series 1993 (CGIC Insured) 7.00 2015 5,000,000 5,872,200
Total 10,713,480
Kentucky (0.1%)
Louisville & Jefferson County Airport Authority System
Revenue Bonds (MBIA Insured) A.M.T. 8.50 2017 300,000 306,036
Louisiana (3.1%)
Energy & Power Authority Power Refunding Revenue Bonds
Rodemacher Unit #2 Series 1991 (FGIC Insured) 6.75 2008 7,000,000(h) 7,586,950
Jefferson Parish School Board Sales & Use Tax
Revenue Bonds (AMBAC Insured) 5.00 2014 3,035,000 2,893,357
New Orleans Audubon Park Commission Aquarium
Pre-Refunded Bonds Series 1988 (MBIA Insured) 7.90 2008 500,000 514,990
New Orleans International Airport Pre-Refunded
Revenue Bonds Series A (FGIC Insured) A.M.T. 8.875 2017 565,000 578,639
Orleans Parish Parishwide School District
Unlimited Tax General Obligation Bonds
Series 1997 (AMBAC Insured) 5.375 2021 2,500,000 2,409,750
Orleans Parish School Board
Unlimited Tax General Obligation Bonds
Series 1995 (FGIC Insured) 5.375 2018 1,250,000 1,227,425
Total 15,211,111
Maine (0.4%)
State Turnpike Authority Turnpike Revenue Bonds (MBIA Insured) 6.00 2018 1,790,000 1,845,186
Massachusetts (4.8%)
Boston Water & Sewer Commission Revenue Bonds
General Subordinate Series A (BIG Insured) 6.00 2008 2,500,000 2,531,400
Health & Educational Authority Revenue Bonds
Valley Regional Health System Series C
(Connie Lee Insured) 5.75 2018 1,500,000 1,496,370
Health & Educational Facilities Authority
Pre-Refunded Revenue Bonds
Lahey Clinic Medical Center (MBIA Insured) 7.625 2018 2,200,000 2,322,936
Health & Educational Facilities Authority
Pre-Refunded Revenue Bonds Northeastern University
Series 1989C (AMBAC Insured) 7.10 2006 1,000,000 1,075,120
Health & Educational Facilities Authority
Revenue Bonds Cape Cod Health System
Series A (Connie Lee Insured) 5.25 2021 4,000,000 3,759,160
Industrial Finance Agency Revenue Bonds
Brandeis University (MBIA Insured) 6.80 2019 1,700,000 1,817,266
Municipal Wholesale Electric Power Supply System
Refunding Revenue Bonds Series B (MBIA Insured) 4.75 2011 5,250,000 4,898,145
State Bay Transportation Authority Series B
(AMBAC Insured) 5.375 2025 4,000,000 3,847,720
State Water Resource Authority Revenue Bonds
Series A (MBIA Insured) 5.50 2022 2,000,000 1,939,160
Total 23,687,277
Michigan (3.5%)
Almont Community Schools
Unlimited Tax General Obligation Bonds
Series 1996 (FGIC Insured) 5.375 2022 1,900,000 1,842,867
Genesee County Sewer Disposal System No 3
Limited Tax General Obligation Bonds
Series A (AMBAC Insured) 5.50 2016 1,400,000 1,397,760
Hillman Community Schools General Obligation Bonds
Series 1997 (FGIC Insured) 5.25 2019-23 2,820,000 2,689,464
Iron Mountain School Unlimited Tax
General Obligation Refunding Bonds (AMBAC Insured) 5.125 2021 1,500,000 1,410,510
Kalamazoo Hospital Finance Authority
Refunding & Improvement Bonds
Bronson Methodist Hospital (Secondary MBIA Insured) 6.25 2012 3,000,000 3,183,300
Lincoln Park School District County of Wayne
School Building & Site General Obligation Bonds
Series 1996 (FGIC Insured) 5.90 2026 1,500,000 1,532,385
Monroe County Pollution Control Refunding Bonds
Detroit Edison Series I-B (MBIA Insured) A.M.T. 6.55 2024 5,000,000 5,383,500
Total 17,439,786
Minnesota (2.1%)
Southern Minnesota Municipal Power Agency
Power Supply System Refunding Revenue Bonds
Zero Coupon (MBIA Insured) 6.12 2021 6,000,000(e) 1,572,300
Southern Minnesota Municipal Power Agency
Power Supply System Refunding Revenue Bonds
Series A (Secondary FGIC Insured) 4.75 2016 4,250,000 3,832,523
Western Municipal Power Agency Transmission
Pre-Refunded Revenue Bonds Series 1991 (AMBAC Insured) 6.75 2016 4,500,000 4,846,995
Total 10,251,818
Mississippi (0.2%)
Alcorn County Hospital Refunding Revenue Bonds
Magnolia Regional Hospital Center (AMBAC Insured) 5.75 2013 1,000,000 1,024,810
Montana (1.9%)
Forsyth Rosebud County Pollution Refunding Revenue Bonds
Puget Sound Power & Light (AMBAC Insured) A.M.T. 7.25 2021 4,000,000 4,372,280
State Board of Investments Payroll Tax Bonds
Worker's Compensation Program Series 1991 (MBIA Insured) 6.875 2020 4,750,000 5,252,930
Total 9,625,210
Nevada (1.0%)
Clark County Passenger Facility Charge Revenue Bonds
Las Vegas McCarren Airport Series B
(Secondary AMBAC Insured) A.M.T. 5.50 2025 5,000,000 4,760,350
New Hampshire (1.1%)
Industrial Development Authority Pollution Control
Revenue Bonds Light & Power
Series 1989 (AMBAC Insured) A.M.T. 7.375 2019 5,000,000(h) 5,386,850
New Mexico (0.2%)
Santa Fe Water Revenue Bonds (AMBAC Insured) 6.30 2024 1,000,000 1,096,630
New York (8.1%)
Dormitory Authority City University System
Consolidated 3rd Resolution Revenue Bonds
Series 1994-2 (MBIA Insured) 6.25 2019 2,500,000 2,638,925
Metropolitan Transportation Authority Commuter Facility
Service Contract Bonds Series L (AMBAC Insured) 7.50 2017 1,300,000 1,367,028
New York City General Obligation Pre-Refunded Bonds
Series A (FGIC Insured) 8.125 2007 1,145,000 1,178,320
New York City Municipal Water Finance Authority
Water & Sewer System Revenue Bonds Series A
(Secondary MBIA Insured) 5.50 2023 5,000,000 4,878,450
State Dormitory Authority State University Education Facility
Revenue Bonds (Secondary AMBAC Insured) 5.25 2015 2,700,000 2,681,262
State Energy Resource & Development Authority
Gas Facility Revenue Bonds Brooklyn Union Gas
(MBIA Insured) A.M.T. 5.60 2025 4,500,000 4,357,890
State Energy Resource & Development Authority
Pollution Control Bonds Series 1987A (MBIA Insured) 6.15 2026 3,000,000 3,094,920
State Energy Resource & Development Authority
Pollution Control Refunding Revenue Bonds
Rochester Gas & Electric (MBIA Insured) A.M.T. 6.50 2032 4,000,000 4,270,880
State Energy Resource & Development Authority
Solid Waste Disposal Revenue Bonds
New York State Electric & Gas Series A
(MBIA Insured) A.M.T. 5.70 2028 11,210,000 11,016,403
State Urban Development Corporation Correctional
Capital Facilities Lease Revenue Bonds
Series 1995-6 (AMBAC Insured) 5.375 2025 3,000,000 2,889,570
State Urban Development Correctional Facilities
Pre-Refunded Revenue Bonds Series 1 (FSA Insured) 7.50 2020 1,500,000 1,642,725
Total 40,016,373
North Carolina (2.0%)
Charlotte Pre-Refunded Certificates of Participation
Convention Facility Series 1991 (AMBAC Insured) 6.75 2021 3,150,000 3,505,635
Concord Certificate of Participation Series B (MBIA Insured) 5.75 2016 1,480,000 1,501,504
Fayetteville Financial Corporation Installment Payment
Revenue Bonds Series 1996 (MBIA Insured) 5.625 2014 300,000 304,164
Pasquotank County Certificates of Participation
Elizabeth Pasquotank Public School
Series 1995 (MBIA Insured) 5.00 2020 5,000,000 4,645,550
Total 9,956,853
North Dakota (0.8%)
Fargo Health System Meritcare Obligated Group A
Revenue Bonds (MBIA Insured) 5.375 2027 4,350,000 4,153,902
Ohio (1.3%)
Lorain County Hospital Facilities Refunding Revenue Bonds
EMH Regional Medical Center Series 1995 (AMBAC Insured) 5.375 2021 2,000,000 1,919,920
Lucas County Hospital Refunding Revenue Bonds
St. Vincent Medical Center Series 1993C (MBIA Insured) 5.25 2022 1,725,000 1,617,498
Montgomery County Hospital Facility
Refunding Revenue & Improvement Bonds
Kettering Medical Center (MBIA Insured) 5.50 2026 2,500,000 2,426,025
North Olmsted Limited General Obligation Bonds
Series 1996 (AMBAC Insured) 5.00 2016 500,000 475,525
Total 6,438,968
Oklahoma (1.1%)
McAlester Public Works Authority Oklahoma Improvement
Refunding Revenue Bonds (FSA Insured) 5.25 2017-18 2,470,000 2,374,248
Moore Public Works Authority Refunding Revenue Bonds
Series 1989 (AMBAC Insured) 7.60 2006 2,700,000 2,911,248
Total 5,285,496
Oregon (0.1%)
Port of Portland Airport Revenue Bonds
Series 1996-11 (FGIC Insured) A.M.T. 5.625 2026 500,000 491,715
Pennsylvania (4.8%)
Allegheny County Airport Revenue Bonds
Pittsburgh International Series D (FGIC Insured) A.M.T. 7.75 2019 2,300,000 2,337,444
Allegheny County Sanitation Authority
Sewer Revenue Bonds Series 1997 (MBIA Insured) 5.375 2024 5,000,000(i) 4,815,950
Harrisburg Authority Dauphin County Revenue Bonds
Series 1997-II (MBIA Insured) 5.625 2022 2,000,000 1,990,480
Pittsburgh Water & Sewer Authority System
Pre-Refunded Revenue Bonds Series 1991A (FGIC Insured) 6.50 2014 10,000,000 10,966,100
Robinson Township Municipal Authority Water & Sewer
Revenue Bonds (FGIC Insured) 6.00 2019 2,200,000 2,276,912
Turnpike Commission Pre-Refunded Revenue Bonds
Series 1989K (MBIA Insured) 7.50 2012 1,000,000 1,094,420
Total 23,481,306
Rhode Island (0.6%)
Health & Education Building Corporation Higher Education
Facility Revenue Bonds Series 1996 (MBIA Insured) 5.625 2026 3,000,000 2,943,150
South Carolina (0.2%)
Piedmont Municipal Power Agency Electric
Refunding Revenue Bonds (FGIC Insured) 6.25 2021 1,000,000 1,102,480
Tennessee (1.2%)
Knox County Health Education & Housing Facility Board
Hospital Refunding Revenue Bonds Fort Sanders
Alliance Obligation Group Series 1993 (MBIA Insured) 5.75 2014 3,750,000 3,879,712
Metropolitan Government Nashville & Davidson County
Sports Authority Public Improvement Revenue Bonds
Series 1996 (AMBAC Insured) 5.75 2017 2,160,000 2,198,772
Total 6,078,484
Texas (19.8%)
Austin Airport System Prior Lien Revenue Bonds Series 1995A
(MBIA Insured) A.M.T. 6.125 2025 3,000,000 3,086,760
Austin Combined Utilities System Refunding Revenue Bonds
Series 1994 (FGIC Insured) 5.75 2024 8,500,000 8,544,965
Austin Combined Utilities System Revenue Bonds
Series 1987 (BIG Insured) 8.625 2012-17 1,250,000 1,473,175
Austin Combined Utilities System Capital Appreciation
Refunding Revenue Bonds Series 1994 Zero Coupon
(FGIC Insured) 5.83 2017 5,900,000(e) 1,912,190
Bexar County Health Facility Development Hospital
Revenue Bonds San Antonio Baptist Memorial
Hospital System Series 1994 (MBIA Insured) 6.75 2019 5,000,000 5,692,550
Brazos River Authority Collateralized Pollution Control
Refunding Revenue Bonds Texas Utility Electric
Series 1992C (FGIC Insured) A.M.T. 6.70 2022 14,935,000 16,129,651
Colorado River Municipal Water District Water System
Pre-Refunded Revenue Bonds Series A (AMBAC Insured) 6.625 2021 8,900,000 9,554,239
Corsicana Waterworks & Sewer System
Refunding Revenue Bonds Series 1997A (FGIC Insured) 5.75 2022 2,075,000 2,089,089
Georgetown Combination Tax & Utitlities System
Limited Revenue Certificates of Obligation
Series 1997 (FGIC Insured) 5.375 2017 1,000,000 988,430
Harris County Health Facilities Development Hospital
Revenue Bonds State Children's Hospital
Series 1989A (MBIA Insured) 7.00 2019 1,500,000 1,617,585
Harris County Public Facilities Corporation
Detention Facility Mortgage Pre-Refunded Revenue Bonds
(MBIA Insured) 7.80 2011 1,000,000 1,071,990
Harris County Toll Road Senior Lien
Pre-Refunded Revenue Bonds Series A (AMBAC Insured) 6.50 2017 8,170,000 9,055,873
Hillsboro Independent School District
Unlimited Tax School Building & Refunding Revenue Bonds
Series 1997 (PSFG Insured) 5.25 2026 1,000,000 958,240
Houston Water & Sewer System
Junior Lien Refunding Revenue Bonds
Series 1997A (FGIC Insured) 5.25 2022 7,210,000 6,879,133
Kilgore Independent School District Unlimited Tax
General Obligation Refunding Revenue Bonds
Series 1997 (PSFG Insured) 5.375 2018 500,000(i) 491,105
League City General Obligation
Refunding & Improvement Bonds
Series 1990 (FGIC Insured) 6.25 2013 2,500,000 2,640,050
Matagorda County Navigation District #1
Collateralized Pollution Control Revenue Bonds
Central Power & Light Series 1984A (AMBAC Insured) 7.50 2014 2,500,000 2,742,325
Matagorda County Navigation District #1 Pollution Control
Refunding Revenue Bonds Houston Light & Power
Series E (FGIC Insured) 7.20 2018 2,150,000 2,324,301
Matagorda County Navigation District #1 Pollution Control
Revenue Bonds Central Power & Light
Series 1990 (AMBAC Insured) A.M.T. 7.50 2020 2,000,000 2,161,500
Municipal Power Agency Refunding Revenue Bonds
Series 1991A (AMBAC Insured) 6.75 2012 5,250,000 5,705,910
North Central State Health Facilities Pre-Refunded Bonds
Children's Medical Center (BIG Insured) 7.875 2018 2,000,000 2,040,220
Turnpike Authority Dallas North Tollway
Pre-Refunded Revenue Bonds Series 1990
(AMBAC Insured) 6.00 2020 5,000,000 5,137,800
Turnpike Authority Dallas North Tollway Revenue Bonds
Addison Airport Toll Tunnel Series 1994 (FGIC Insured) 6.60 2023 2,000,000 2,200,640
University of Houston System Consolidated
Pre-Refunded Revenue Bonds Series 1990A (MBIA Insured) 7.40 2006 3,160,000 3,403,762
Total 97,901,483
Utah (0.4%)
Intermountain Power Authority Power Supply
Pre-Refunded Revenue Bonds Series 1987C (AMBAC Insured) 8.375 2012 900,000 918,108
Salt Lake City-County Airport Pre-Refunded Revenue Bonds
Series 1989 (FGIC Insured) A.M.T. 7.875 2018 1,000,000 1,036,390
Total 1,954,498
Virginia (3.7%)
Chesapeake Industrial Development Authority Public
Facilities Lease Revenue Bonds Series 1996 (MBIA Insured) 5.25 2017 1,300,000 1,254,799
Hanover County Industrial Development Authority
Memorial Regional Medical Center (MBIA Insured) 5.50 2025 3,800,000 3,662,934
Loudoun County Sanitation Authority Waste & Sewer
Refunding Revenue Bonds (MBIA Insured) 5.25 2030 1,435,000 1,356,118
Portsmouth Redevelopment Housing Authority
Multi-family Housing Refunding Revenue Bonds
(FNMA Insured) 6.05 2008 5,780,000 6,033,915
Upper Occoquan Sewer Authority Regional Sewer
Revenue Bonds Series A (MBIA Insured) 4.75 2029 4,000,000 3,485,840
William County Lease Certificate of Participation Bonds
(MBIA Insured) 5.50 2020 2,590,000 2,526,623
Total 18,320,229
Washington (1.8%)
Public Power Supply System Non-Refunded Revenue Bonds
Nuclear Project #1 Series A (MBIA Insured) 7.50 2015 3,000,000 3,247,110
Public Power Supply System Pre-Refunded Revenue Bonds
Nuclear Project #3 Series 1989A (BIG Insured) 7.25 2016 1,000,000 1,077,610
Public Power Supply System Refunding Revenue Bonds
Nuclear Project #3 Series 1989A (BIG Insured) 6.00 2018 3,000,000 3,057,630
Spokane Regional Solid Waste Management System
Revenue Bonds Series 1989 (AMBAC Insured) A.M.T. 7.75 2011 300,000 318,543
Spokane Regional Solid Waste Management System
Revenue Bonds Series 1989 (AMBAC Insured) A.M.T. 7.875 2007 1,250,000 1,329,500
Total 9,030,393
West Virginia (2.7%)
Board of Regents Registration Fee Pre-Refunded Revenue Bonds
Series 1989B (MBIA Insured) 7.40 2009 2,000,000 2,146,180
School Building Authority Capital Improvement
Pre-Refunded Revenue Bonds (MBIA Insured) 7.25 2015 3,415,000 3,757,080
School Building Authority Capital Improvement
Revenue Bonds Series 1990B (MBIA Insured) 6.75 2017 5,000,000 5,431,150
State Parkway Economic Development & Tourism
Authority Parkway Pre-Refunded Revenue Bonds
Series 1989 (FGIC Insured) 7.125 2019 2,000,000 2,150,460
Total 13,484,870
Wisconsin (0.5%)
Center District Sales Tax Appreciation Senior Dedicated Bonds
Series A Zero Coupon (MBIA Insured) 6.03 2017 7,400,000(e) 2,343,506
Total municipal bonds
(Cost: $454,600,456) $490,904,655
Total investments in securities
(Cost: $454,600,456)(j) $490,904,655
See accompanying notes to investments in securities.
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b) Investments in bonds, by rating category as a percentage of total bonds, are as follows:
(Unaudited)
Rating 06-30-97 06-30-96
- --------------------------------------------------------------------------------
AAA 100% 100%
AA -- --
A -- --
BBB -- --
BB and below -- --
Non-rated -- --
Total 100% 100%
(c) The following abbreviations are used in portfolio descriptions to identify the insurer of the issue:
AMBAC -- American Municipal Bond Association Corporation
BIG -- Bond Investors Guarantee
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guarantee Insurance Corporation
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
MBIA -- Municipal Bond Investors Assurance
PSFG -- Permanent School Fund Guarantee
(d) The following abbreviation is used in the portfolio descriptions: A.M.T. --
Alternative Minimum Tax -- As of June 30, 1997, the value of securities subject
to alternative minimum tax represented 19.4% of net assets.
(e) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(f) For those zero coupon bonds that become coupon paying at a future date, the
interest rate disclosed represents the annualized effective yield from the date
of acquisition to interest reset date disclosed.
(g) Inverse floaters represent securities that pay interest at a rate that
increases (decreases) in the same magnitude as, or in a multiple of, a decline
(increase) in market short-term rates. Interest rate disclosed is the rate in
effect on June 30, 1997. Inverse floaters in the aggregate represent 2.4% of the
Fund's net assets as of June 30, 1997.
(h) Partially pledged as initial deposit on the following open interest rate
futures contracts (see Note 5 to the financial statements):
Type of security Notional amount
- -------------------------------------------------------------------------------
Sales contracts
Municipal Bonds Index Sept. 1997 $20,000,000
(i) At June 30, 1997, the cost of securities purchased on a when-issued basis
was $5,332,884.
(j) At June 30, 1997, the cost of securities for federal income tax purposes was
$454,217,436 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation.........................................$36,801,236
Unrealized depreciation............................................(114,017)
--------
Net unrealized appreciation.....................................$36,687,219
</TABLE>
===========
<PAGE>
Federal income tax information
IDS Insured Tax-Exempt Fund
The Fund is required by the Internal Revenue
Code of 1986 to tell its shareholders about the tax treatment of the
dividends it pays during its fiscal year. Some of the dividends listed
below were reported to you on your year-end statement, last January.
Dividends paid to you since the end of last year will be reported to you
on a tax statement sent next January.
IDS Insured Tax-Exempt Fund
Fiscal year ended June 30, 1997
Class A
Exempt-interest dividends -- taxable status explained below.
Payable date Per share
July 26, 1996 $0.02320
Aug. 26, 1996 0.02373
Sept. 25, 1996 0.02413
Oct. 28, 1996 0.02574
Nov. 26, 1996 0.02282
Dec. 26, 1996 0.02299
Jan. 29, 1997 0.02636
Feb. 26, 1997 0.02393
March 26, 1997 0.02165
April 28, 1997 0.02598
May 28, 1997 0.02471
June 26, 1997 0.02723
Total $0.29247
Taxable dividend -- income distribution taxable as dividend income.
Payable date Per share
Dec. 26, 1996 $0.00166
Total distributions $0.29413
<PAGE>
Class B
Exempt-interest dividends -- taxable status explained below.
Payable date Per share
July 26, 1996 $0.01986
Aug. 26, 1996 0.02023
Sept. 25, 1996 0.02076
Oct. 28, 1996 0.02198
Nov. 26, 1996 0.01951
Dec. 26, 1996 0.01957
Jan. 29, 1997 0.02250
Feb. 26, 1997 0.02074
March 26, 1997 0.01849
April 28, 1997 0.02229
May 28, 1997 0.02133
June 26, 1997 0.02394
Total $0.25120
Taxable dividend -- income distribution taxable as dividend income.
Payable date Per share
Dec. 26, 1996 $0.00166
Total distributions $0.25286
Class Y
Exempt-interest dividends -- taxable status explained below.
Payable date Per share
July 26, 1996 $0.02415
Aug. 26, 1996 0.02475
Sept. 25, 1996 0.02474
Oct. 28, 1996 0.02678
Nov. 26, 1996 0.02336
Dec. 26, 1996 0.02386
Jan. 29, 1997 0.02721
Feb. 26, 1997 0.02481
March 26, 1997 0.02230
April 28, 1997 0.02694
May 28, 1997 0.02535
June 26, 1997 0.02789
Total $0.30214
Taxable dividend -- income distribution taxable as dividend income.
Payable date Per share
Dec. 26, 1996 $0.00166
Total distributions $0.30380
Source of distributions
Distributions during the fiscal year ended June 30, 1997, were derived
exclusively from interest on tax-exempt securities.
Federal taxation
Exempt-interest dividends are exempt from federal income taxes and should
not be included in shareholders' gross income.
Other taxation
Exempt-interest dividends may be subject to state and local taxes. Each
shareholder should consult a tax advisor about reporting this income for
state and local tax purposes.
Source of income by state
Percentages of income from municipal securities earned by the Fund from
various states during the fiscal year ended June 30, 1997 are listed
below.
Alabama 0.789%
Alaska 1.059
Arizona 1.739
Arkansas 0.223
California 12.890
Colorado 2.101
Connecticut 0.204
Delaware 0.228
Florida 4.150
Georgia 2.879
Hawaii 0.044
Illinois 3.649
Indiana 2.166
Kentucky 0.115
Louisiana 2.589
Maine 0.352
Maryland 0.142
Massachusetts 4.739
Michigan 3.194
Minnesota 1.940
Mississippi 0.214
Missouri 0.776
Montana 2.005
Nevada 0.911
New Hampshire 1.197
New Mexico 0.202
New York 7.139
North Carolina 2.531
North Dakota 0.217
Ohio 1.264
Oklahoma 1.431
Oregon 0.349
Pennsylvania 3.777
Rhode Island 0.475
South Carolina 0.380
Tennessee 1.296
Texas 18.480
Utah 0.518
Virginia 3.368
Washington 1.967
Washington, DC 2.982
West Virginia 2.855
Wisconsin 0.474
IDS Insured Tax-Exempt Fund
IDS Tower 10
Minneapolis, MN 55440-0010
<PAGE>
PAGE 265
<PAGE>
PAGE 1
<PAGE>
Item 29(c). Not applicable.
Item 30. Location of Accounts and Records
American Express Financial Corporation
IDS Tower 10
Minneapolis, MN 55440
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) Not Applicable.
(b) Not Applicable.
(c) The Registrant undertakes to furnish each person
to whom a prospectus is delivered with a copy of
the Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE>
PAGE 266
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS:
Financial statements filed electronically as part of this post-effective
amendment and included in Part B for IDS California, Massachusetts,
Michigan, Minnesota, New York and
Ohio Tax-Exempt Funds:
o Independent auditors' report dated Aug. 1, 1997
o Statement of assets and liabilities, June 30, 1997
o Statement of operations, year ended June 30, 1997
o Statement of changes in net assets, for the two-year
period ended June 30, 1996 and June 30, 1997
o Notes to financial statements
o Investments in securities, June 30, 1997
o Notes to investments in securities
Financial statements filed electronically as part of this post-effective
amendment and included in Part B for IDS Insured Tax-Exempt Fund:
o Independent auditors' report dated Aug. 1, 1997
o Statement of assets and liabilities, June 30, 1997
o Statement of operations, year ended June 30, 1997
o Statement of changes in net assets, for the two-year
period ended June 30, 1996 and June 30, 1997
o Notes to financial statements
o Investments in securities, June 30, 1997
o Notes to investments in securities
(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 June 8, 1989, are filed electronically
herewith.
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. Copy of Investment Management Services Agreement between
Registrant and American Express Financial Corporation, dated
March 20, 1995, is filed electronically herewith.
6. Copy of Distribution Agreement between Registrant and American
Express Financial Advisors Inc., dated March 20, 1995, is
filed electronically herewith.
<PAGE>
PAGE 267
7. All employees are eligible to participate in a profit sharing plan.
Entry into the plan is Jan. 1 or July 1. The Registrant contributes each
year an amount up to 15 percent of their annual salaries, the maximum
deductible amount permitted under Section 404(a) of the Internal Revenue
Code.
8. Copy of Custodian Agreement between Registrant and First National Bank
of Minneapolis, dated July 23, 1986, is filed electronically herewith.
9(a). Insurance Agreement between IDS Insured Tax-Exempt Fund
and Financial Guaranty Insurance Company filed as Exhibit
9 to Pre-Effective Amendment No. 1 to Registration
Statement No. 33-5102 is incorporated herein by
reference.
9(b). Copy of Transfer Agency Agreement between Registrant and American
Express Financial Corporation, dated March 20, 1995, is filed
electronically herewith.
9(c). Copy of Shareholder Service Agreement between Registrant
and American Express Financial Advisors Inc., dated March
20, 1995 is filed electronically herewith.
9(d). Copy of Administrative Services Agreement between Registrant and
American Express Financial Corporation, dated March 20, 1995 is
filed electronically herewith.
9(e). Copy of License Agreement, dated January 25, 1988, is
filed electronically herewith.
10. Opinion and consent of counsel as to the legality of the
securities being registered is filed with Registrant's most
recent 24f-2 Notice.
11. Independent Auditors' Consent is filed electronically
herewith.
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. Copy of Plan and Agreement of Distribution between Registrant
and American Express Financial Advisors Inc., dated March 20,
1995, is filed electronically herewith.
16. Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item
22(b), filed as Exhibit 16 to Registration Statement No. 33-
5102, is incorporated herein by reference.
17. Financial Data Schedules are filed electronically herewith.
<PAGE>
PAGE 268
18. Copy of plan pursuant to Rule 18f-3 under the 1940 Act, filed
electronically as Exhibit 18 to Registrant's Post-Effective
Amendment No. 25 to Registration Statement No. 33-5102, is
incorporated herein by reference.
19(a). Trustees' Power of Attorney to sign Amendments to this Registration
Statement, dated January 8, 1997, is filed electronically herewith.
19(b). Officers' Power of Attorney to sign Amendments to this Registration
Statement, dated November 1, 1995, is filed electronically herewith.
Item 25. Persons Controlled by or Under Common Control with
Registrant
None.
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Holders as of
Title of Class Aug. 19, 1997
IDS Insured Tax-Exempt Fund
Common Stock
Class A 12,904
Class B 1,120
Class Y 1
IDS Massachusetts Tax-Exempt Fund
Common Stock
Class A 2,388
Class B 320
Class Y 1
IDS Michigan Tax-Exempt Fund
Common Stock
Class A 2,237
Class B 169
Class Y 1
IDS Minnesota Tax-Exempt Fund
Common Stock
Class A 12,234
Class B 961
Class Y 1
IDS New York Tax-Exempt Fund
Common Stock
Class A 3,519
Class B 330
Class Y 1
<PAGE>
PAGE 269
IDS Ohio Tax-Exempt Fund
Common Stock
Class A 2,137
Class B 152
Class Y 1
Class Y shares are currently not available to new investors.
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 or she 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
trustees 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.
<PAGE>
PAGE 270
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, IDS Special Tax- Exempt Series Trust,
certifies that it meets the requirements for effectiveness of this Amendment to
its Registration Statement pursuant to Rule 485(b) under the Securities Act of
1993 and has duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Minneapolis and State of Minnesota on the 28th day of August, 1997.
IDS SPECIAL TAX-EXEMPT SERIES TRUST
By /s/ William R. Pearce**
William R. Pearce, President
By
Melinda S. Urion, Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in the
capacities indicated on the 28th day of August, 1997.
Signature Capacity
/s/ William R. Pearce** President, Chief
William R. Pearce Executive Officer
and Trustee
/s/ H. Brewster Atwater, Jr. Trustee
H. Brewster Atwater, Jr.
/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
<PAGE>
PAGE 271
Signature Capacity
/s/ Anne P. Jones* Trustee
Anne P. Jones
/s/ Melvin R. Laird* Trustee
Melvin R. Laird
/s/ Alan K. Simpson* Trustee
Alan K. Simpson
/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, dated January 8, 1997, filed
electronically herewith as Exhibit 19(a), by:
Leslie L. Ogg
**Signed pursuant to Officers' Power of Attorney, dated November 1, 1995, filed
electronically herewith as Exhibit 19(b), by:
Leslie L. Ogg
<PAGE>
PAGE 272
CONTENTS OF THIS
POST-EFFECTIVE AMENDMENT NO. 29
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.
Financial statements.
PART C
Other information.
The signatures.
<PAGE>
PAGE 1
IDS SPECIAL TAX-EXEMPT SERIES TRUST
EXHIBIT INDEX
Exhibit 2. By Laws dated June 8, 1989
Exhibit 5. Investment Management Services Agreement dated
March 20, 1995
Exhibit 6. Distribution Agreement dated March 20, 1995
Exhibit 8. Custodian Agreement dated July 23, 1986
Exhibit 9(b). Transfer Agency Agreement dated March 20, 1995
Exhibit 9(c). Shareholder Service Agreement dated March 20, 1995
Exhibit 9(d). Administrative Services Agreement dated March 20,
1995
Exhibit 9(e). License Agreement dated January 25, 1988
Exhibit 11. Independent Auditors' Consent
Exhibit 15. Plan and Agreement of Distribution dated March 20,
1995
Exhibit 17. Financial Data Schedules
Exhibit 19(a). Trustees' Power of Attorney dated January 8, 1997
Exhibit 19(b). Officers' Power of Attorney dated November 1, 1995
<PAGE>
PAGE 1
Effective: April 7, 1986
Amended: 5/14/87, 6/8/89
BYLAWS
OF
IDS SPECIAL TAX-EXEMPT SERIES TRUST
These ARTICLES are the BYLAWS of IDS Special Tax-Exempt Series Trust, a
trust with transferable shares established under the laws of The Commonwealth of
Massachusetts (the "Trust"), pursuant to an Agreement and Declaration of Trust
of the Trust (the "Declaration") made the 7th day of April, 1986, and filed in
the office of the Secretary of the Commonwealth. These Bylaws have been adopted
by the Trustees pursuant to the authority granted by Section 3.1 of the
Declaration.
All words and terms capitalized in these Bylaws, unless otherwise defined
herein, shall have the same meanings as they have in the Declaration.
ARTICLE I
SHAREHOLDERS AND SHAREHOLDERS' MEETINGS
SECTION 1.1. Meetings. A meeting of the Shareholders of the Trust shall
be held whenever called by the Trustees and whenever election of a Trustee or
Trustees by Shareholders is required by the provisions of the 1940 Act. If a
meeting of Shareholders has not been held during the immediately preceding
fifteen (15) months for the purpose of electing Trustees, a Shareholder or
Shareholders holding three percent (3%) or more of the voting power of all
Shares entitled to vote may demand a meeting of Shareholders for the purpose of
electing Trustees by written notice of demand given to the Trustees. Within
thirty (30) days after receipt of such demand, the Trustees shall call and give
notice of a meeting of Shareholders for the purpose of electing Trustees. If the
Trustees shall fail to call such meeting or give notice thereof, then the
Shareholder or Shareholders making the demand may call and give notice of such
meeting at the expense of the Trust. The Trustees shall promptly call and give
notice of a meeting of Shareholders for the purpose of voting upon removal of
any Trustee of the Trust when requested to do so in writing by Shareholders
holding not less than ten percent (10%) of the Shares then outstanding. If the
Trustees shall fail to call or give notice of any meeting of Shareholders for a
period of thirty (30) days after written application by Shareholders holding at
least ten percent (10%) of the Shares then outstanding requesting that a meeting
be called for any purpose requiring action by the Shareholders as provided in
the Declaration or in these Bylaws, then Shareholders holding at least ten
percent (10%) of the Shares then outstanding may call and give notice of such
meeting. Notice of Shareholders' meetings shall be given as provided in the
Declaration.
<PAGE>
PAGE 2
SECTION 1.2. Presiding Officer; Secretary. The President shall preside
at each Shareholders' meeting as chairman of the meeting, or in the absence of
the President, the Trustees present at the meeting shall elect one of their
number as chairman of the meeting. The Trustees shall appoint a secretary to
serve as the secretary for the meeting and to record the minutes thereof.
SECTION 1.3. Authority of Chairman of Meeting to Interpret Declaration
and Bylaws. At any Shareholders' meeting the chairman of the meeting shall be
empowered to determine the construction or interpretation of the Declaration or
these Bylaws, or any part thereof or hereof, and his ruling shall be final.
SECTION 1.4. Voting. Shareholders may vote by proxy and the form of any
such proxy may be prescribed from time to time by the Trustees. At all meetings
of the Shareholders, votes shall be taken by ballot for all matters which may be
binding upon the Trustees pursuant to Section 7.1 of the Declaration. On other
matters, votes of Shareholders need not be taken by ballot unless otherwise
provided for by the Declaration or by vote of the Trustees, or as required by
the Act or the Regulations, but the chairman of the meeting may in his
discretion authorize any matter to be voted upon by ballot.
SECTION 1.5. Inspectors. At any meeting of Shareholders, the Trustees
before or at the meeting may appoint one or more Inspectors of Election or
Balloting to supervise the voting at such meeting or any adjournment thereof. If
Inspectors are not so appointed, the chairman of the meeting may, and on the
request of any Shareholder present or represented and entitled to vote shall,
appoint one or more Inspectors for such purpose. Each Inspector, before entering
upon the discharge of his duties, shall take and sign an oath faithfully to
execute the duties of Inspector of Election or Balloting, as the case may be, at
such meeting with strict impartiality and according to the best of his ability.
If appointed, Inspectors shall take charge of the polls and, when the vote is
completed, shall make a certificate of the result of the vote taken and of such
other facts as may be required by law.
SECTION 1.6. Shareholders' Action in Writing. Nothing in this Article I
shall limit the power of the Shareholders to take any action by means of written
instruments without a meeting, as permitted by Section 7.6 of the Declaration.
ARTICLE II
TRUSTEES AND TRUSTEES' MEETINGS
SECTION 2.1. Number of Trustees. There shall initially be one (1)
Trustee, and the number of Trustees shall thereafter be such number, authorized
by the Declaration, as from time to time shall be fixed by a vote adopted by a
Majority of the Trustees.
SECTION 2.2. Meetings of Trustees. An organizational meeting
shall be held as soon as convenient to a Majority of the Trustees
after the final adjournment of each meeting of
<PAGE>
PAGE 3
Shareholders at which Trustees are elected, and no notice shall be required.
Other regular and special meetings of the Trustees may be held at any time and
at any place when called by the President or by any two (2) Trustees; provided,
that notice of the time, place and purposes thereof is given to each Trustee in
accordance with Section 2.3 hereof.
SECTION 2.3. Notice of Meetings. Notice of any regular or special
meeting of the Trustees shall be sufficient if sent by mail at least five (5)
days, or if given by telephone, telegraph, or in person at least one (1) day,
before the meeting. Notice of a meeting may be waived by any Trustee by written
waiver of notice, executed by him before or after the meeting, and such waiver
shall be filed with the records of the meeting. Attendance by a Trustee at a
meeting shall constitute a waiver of notice, except where a Trustee attends a
meeting for the purpose of protesting prior thereto or at its commencement the
lack of notice.
SECTION 2.4. Quorum; Presiding Officer. At any meeting of the Trustees,
a Majority of the Trustees shall constitute a quorum. Any meeting may be
adjourned from time to time by a majority of the votes cast upon the question,
whether or not a quorum is present, and the meeting may be held as adjourned
without further notice. Unless the Trustees shall otherwise elect, generally or
in a particular case, the President shall preside at each meeting of the
Trustees as chairman of the meeting.
SECTION 2.5. Participation by Telephone. One or more of the Trustees may
participate in a meeting thereof or of any Committee of the Trustees by means of
a conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at a meeting.
SECTION 2.6. Location of Meetings. Trustees' meetings may be
held at any place, within or without Massachusetts.
SECTION 2.7. Votes. Voting at Trustees' meetings may be
conducted orally, by show of hands, or, if requested by any
Trustee, by written ballot. The results of all voting shall be
recorded by the secretary of the meeting in the minute book.
SECTION 2.8. Rulings of Chairman. All other rules of conduct adopted and
used at any Trustees' meeting shall be determined by the chairman of such
meeting, whose ruling on all procedural matters shall be final.
SECTION 2.9. Trustees' Action in Writing. Nothing in this Article II
shall limit the power of the Trustees to take action by means of a written
instrument without a meeting, as provided in Section 4.2 of the Declaration.
SECTION 2.10. Resignations. Any Trustee may resign at any time by
written instrument signed by him and delivered to the President or to a meeting
of the Trustees. Such resignation shall be effective upon receipt unless
specified to be effective at some other time.
<PAGE>
PAGE 4
ARTICLE III
OFFICERS
SECTION 3.1. Officers of the Trust. The officers of the Trust shall
consist of a President, a Treasurer and such other officers as the Trustees may
designate. Any person may hold more than one office.
SECTION 3.2. Time and Terms of Election. The President and the Treasurer
shall be elected by the Trustees at their first meeting and shall hold office
until their successors shall have been duly elected and qualified, and may be
removed at any meeting by the affirmative vote of a Majority of the Trustees.
All other officers of the Trust may be elected or appointed at any meeting of
the Trustees. Such officers shall hold office for any term, or indefinitely, as
determined by the Trustees, and shall be subject to removal, with or without
cause, at any time by the Trustees.
SECTION 3.3. Resignation and Removal. Any officer may resign at any time
by giving written notice to the Trustees. Such resignation shall take effect at
the time specified therein, and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective. If
the office of any officer or agent becomes vacant by reason of death,
resignation, retirement, disqualification, removal from office or otherwise, the
Trustees may choose a successor, who shall hold office for the unexpired term in
respect of which such vacancy occurred. Except to the extent expressly provided
in a written agreement with the Trust, no officer resigning or removed shall
have any right to any compensation for any period following such resignation or
removal, or any right to damage on account of such removal.
SECTION 3.4. Fidelity Bond. The Trustees may, in their discretion,
direct any officer appointed by them to furnish at the expense of the Trust a
fidelity bond approved by the Trustees, in such amount as the Trustees may
prescribe.
SECTION 3.5. President. The President shall be the chief executive
officer of the Trust and shall have general charge of the operations of the
Trust and such other powers and duties as the Trustees may prescribe.
SECTION 3.6. Treasurer. The Treasurer shall be the chief financial
officer of the Trust, and shall have the custody of the Trust's funds and
Securities, and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Trust and shall deposit all moneys, and
other valuable effects in the name and to the credit of the Trust, in such
depositories as may be designated by the Trustees, taking proper vouchers for
such disbursements, and shall have such other duties and powers as may be
prescribed from time to time by the Trustees.
SECTION 3.7. Execution of Deeds, etc. Except as the Trustees
may generally or in particular cases otherwise authorize or direct,
all deeds, leases, transfers, contracts, proposals,
<PAGE>
PAGE 5
bonds, notes, checks, drafts and other obligations made, accepted or endorsed by
the Trust shall be signed or endorsed on behalf of the Trust by the President,
the Treasurer or such officers as the Trustees may designate.
SECTION 3.8. Power to Vote Securities. Unless otherwise ordered by the
Trustees, the Treasurer shall have full power and authority on behalf of the
Trust to give proxies for, and/or to attend and to act and to vote at, any
meeting of stockholders of any corporation in which the Trust may hold stock,
and at any such meeting the Treasurer or his proxy shall possess and may
exercise any and all rights and powers incident to the ownership of such stock
which, as the owner thereof, the Trust might have possessed and exercised if
present. The Trustees, by resolution from time to time, or, in the absence
thereof, the Treasurer, may confer like powers upon any other person or persons
as attorneys and proxies of the Trust.
ARTICLE IV
COMMITTEES
SECTION 4.1. Power of Trustees to Designate Committees. The Trustees, by
vote of a Majority of the Trustees, may elect an Executive Committee and any
other Committees and may delegate thereto some or all of their powers except
those which by law, by the Declaration or by these Bylaws may not be delegated;
provided, that the Executive Committee shall not be empowered to elect the
President or the Treasurer, to amend the Bylaws, to exercise the powers of the
Trustees under this Section 4.1 or under Section 4.3 hereof, or to perform any
act for which the action of a Majority of the Trustees is required by law, by
the Declaration or by these Bylaws. The members of any Committee shall serve at
the pleasure of the Trustees.
SECTION 4.2. Rules for Conduct of Committee Affairs; Quorum. Except as
otherwise provided by the Trustees, each Committee elected or appointed pursuant
to this Article IV may adopt such standing rules and regulations for the conduct
of its affairs as it may deem desirable, subject to review and approval of such
rules and regulations by the Trustees at the next succeeding meeting of the
Trustees, but in the absence of any such action or any contrary provisions by
the Trustees, the business of each Committee shall be conducted, so far as
practicable, in the same manner as provided herein and in the Declaration for
the Trustees. The quorum for any Committee is two (2) members regardless of the
number of members serving on the Committee.
SECTION 4.3. Trustees May Alter, Abolish, etc., Committees. The Trustees
may at any time alter or abolish any Committee, change the membership of any
Committee, or revoke, rescind or modify any action of any Committee or the
authority of any Committee with respect to any matter or class of matters;
provided, that no such action shall impair the rights of any third parties.
<PAGE>
PAGE 6
SECTION 4.4. Minutes; Review by Trustees. Any Committee to which the
Trustees delegate any of their powers or duties may, but need not, keep records
of its meetings and shall report its actions to the Trustees.
ARTICLE V
SEAL
The seal of the Trust shall bear the word "Massachusetts," together with
the name of the Trust, the words "Trust Seal," and the year of its organization,
but, unless otherwise required by the Trustees, the seal shall not be necessary
to be placed on, and its absence shall not impair the validity of, any document,
instrument or other paper executed and delivered by or on behalf of the Trust.
ARTICLE VI
SHARES
SECTION 6.1. Issuance of Shares. The Trustees may issue Shares of any or
all Series either in certificated or uncertificated form, they may issue
certificates to the holders of Shares of a Series which was originally issued in
uncertificated form, and if they have issued Shares of any Series in
certificated form, they may at any time discontinue the issuance of Share
certificates for such Series and may, by written notice to such Shareholders of
such Series require the surrender of their Share certificates to the Trust for
cancellation, which surrender and cancellation shall not affect the ownership of
Shares for such Series.
SECTION 6.2. Uncertificated Shares. For any Series of Shares for which
the Trustees issue Shares without certificates, the Trust or the Transfer Agent
may either issue receipts therefor or may keep accounts upon the books of the
Trust for the record holders of such Shares, who shall in either case be deemed,
for all purposes hereunder, to be the holders of such Shares as if they had
received certificates therefor and shall be held to have expressly assented and
agreed to the terms hereof and of the Declaration.
SECTION 6.3. Share Certificates. For any Series of Shares for which the
Trustees shall issue Share certificates, each Shareholder of such Series shall
be entitled to a certificate stating the number of Shares owned by him in such
form as shall be prescribed from time to time by the Trustees. Such certificate
shall be signed by such officers and agents as shall, from time to time, be
designated by the Trustees. The signatures of such officers or agents may be
facsimiles. In case any officer who has signed or whose facsimile signature has
been placed on such certificate shall cease to be such officer before such
certificate is issued, it may be issued by the Trust with the same effect as if
he were such officer at the time of its issue.
<PAGE>
PAGE 7
SECTION 6.4. Lost, Stolen, etc., Certificates. If any certificate for
certificated Shares shall be lost, stolen, destroyed or mutilated, the Trustees
may authorize the issuance of a new certificate of the same tenor and for the
same number of Shares in lieu thereof. The Trustees shall require the surrender
of any mutilated certificate in respect of which a new certificate is issued,
and may, in their discretion, before the issuance of a new certificate, require
the owner of a lost, stolen or destroyed certificate, or the owner's legal
representative, to make an affidavit or affirmation setting forth such facts as
to the loss, theft or destruction as they deem necessary, and to give the Trust
a bond in such reasonable sum as the Trustees direct, in order to indemnify the
Trust.
SECTION 6.5. Record Transfer of Pledged Shares. A pledgee of Shares
pledged as collateral security shall be entitled to a new certificate in his
name as pledgee, in the case of certificated Shares, or to be registered as the
holder in pledge of such Shares in the case of uncertificated Shares; provided,
that the instrument of pledge substantially describes the debt or duty that is
intended to be secured thereby. Any such new certificate shall express on its
face that it is held as collateral security, and the name of the pledgor shall
be stated thereon, and any such registration of uncertificated Shares shall be
in a form which indicates that the registered holder holds such Shares in
pledge. After such issue or registration, and unless and until such pledge is
released, such pledgee and his successors and assigns shall alone be entitled to
the rights of a Shareholder, and entitled to vote such Shares.
ARTICLE VII
CUSTODIAN
The Trust shall at all times employ a bank or trust company having a
capital, surplus and undivided profits of at least Two Million Dollars
($2,000,000) as Custodian of the capital assets of the Trust. The Custodian
shall be compensated for its services by the Trust upon such basis as shall be
agreed upon from time to time between the Trust and the Custodian.
ARTICLE VIII
AMENDMENTS
SECTION 8.1. Bylaws Subject to Amendment. These Bylaws may be altered,
amended or repealed, in whole or in part, at any time by vote of the holders of
a majority of the Shares (or whenever there shall be more than one Series of
Shares, of the holders of a majority of the Shares of each Series) issued,
outstanding and entitled to vote. The Trustees, by vote of a Majority of the
Trustees, may alter, amend or repeal these Bylaws, in whole or in part,
including Bylaws adopted by the Shareholders, except with respect to any
provision hereof which by law, the Declaration or these Bylaws requires action
by the Shareholders; provided, that no later than the time of giving notice of
the meeting of Shareholders
<PAGE>
PAGE 8
next following the alteration, amendment or repeal of these Bylaws, in whole or
in part, notice thereof, stating the substance of such action shall be given to
all Shareholders entitled to vote. Bylaws adopted by the Trustees may be
altered, amended or repealed by the Shareholders.
SECTION 8.2. Notice of Proposal to Amend Bylaws Required. No proposal to
amend or repeal these Bylaws or to adopt new Bylaws shall be acted upon at a
meeting unless either (i) such proposal is stated in the notice or in the waiver
of notice, as the case may be, of the meeting of the Trustees or Shareholders at
which such action is taken, or (ii) all of the Trustees or Shareholders, as the
case may be, are present at such meeting and all agree to consider such proposal
without protesting the lack of notice.
ARTICLE IX
MISCELLANEOUS
6/8/89
SECTION 9.1. Fiscal Year. The fiscal year of the Trust shall
begin on the first day of July in each year and end on the
thirtieth day of June following.
SECTION 9.2. Discontinuation of Sale of Shares. If the sale of Shares
issued by the Trust shall at any time be discontinued, the Trustees may in their
discretion, pursuant to resolution, deduct from the value of the assets of the
Trust an amount equal to the brokerage commissions, transfer taxes, and charges,
if any, which would be payable on the sale of Securities if they were then being
sold.
SECTION 9.3. Business Day. A business day for the Trust
shall be each day the New York Stock Exchange is open for business.
ARTICLE X 5/14/87
INDEMNIFICATION
SECTION 10.1. Each person made or threatened to be made a party to or is
involved (including, without limitation, as a witness) in any actual or
threatened action, suit or proceeding whether civil, criminal, administrative,
arbitration, or investigative, including a proceeding by or in the right of the
Trust by reason of the former or present capacity as a Trustee or officer of the
Trust or who, while a Trustee or officer of the Trust, is or was serving at the
request of the Trust or whose duties as a Trustee or officer involve or involved
service as a director, officer, partner, trustee or agent of another
organization or employee benefit plan, whether the basis of any proceeding is
alleged action in an official capacity or in any capacity while serving as a
director, officer, partner, trustee or agent, shall be indemnified and held
harmless by the Trust to the full extent authorized by the laws of The
Commonwealth of Massachusetts, as the same or may hereafter be amended (but, in
the
<PAGE>
PAGE 9
case of any such amendment, only to the extent that such amendment permits the
Trust to provide broader indemnification rights than the law permitted the Trust
to provide prior to such amendment, or by any other applicable law as then in
effect, against judgments, penalties, fines including, without limitation,
excise taxes assessed against the person with respect to an employee benefit
plan, settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred in connection therewith and such indemnification shall
continue as to any person who has ceased to be a Trustee or officer and shall
inure to the benefit of the person's heirs, executors and administrators
provided, however, in an action brought against the Trust to enforce rights to
indemnification, the Trustee or officer shall be indemnified only if the action
was authorized by the Board of Trustees of the Trust. The right to
indemnification conferred by this Section shall be a contract right and shall
include the right to be paid by the Trust in advance of the final disposition of
a proceeding for expenses incurred in connection therewith provided, however,
such payment of expenses shall be made only upon receipt of a written
undertaking by the Trustee or officer to repay all amounts so paid if it is
ultimately determined that the Trustee or officer is not entitled to
indemnification.
SECTION 10.2. Each person who upon written request to the Trust has not
received payment within thirty days may at any time thereafter bring suit
against the Trust to recover any unpaid amount and, to the extent successful, in
whole or in part, shall be entitled to be paid the expenses of prosecuting such
suit. Each person shall be presumed to be entitled to indemnification upon
filing a written request for payment and the Trust shall have the burden of
proof to overcome the presumption that the Trustee or officer is not so
entitled. Neither the determination by the Trust, whether by the Board of
Trustees, special legal counsel or by shareholder, nor the failure of the Trust
to have made any determination shall be a defense or create the presumption that
the Trustee or officer is not entitled to Indemnification.
SECTION 10.3. The right to indemnification and to the payment of
expenses prior to any final determination shall not be exclusive of any other
right which any person may have or hereinafter acquire under any statute,
provision of the Agreement and Declaration of Trust, bylaw, agreement, vote of
shareholders or otherwise and notwithstanding any provisions in this Article X,
the Trust is not obligated to make any payment with respect to any claim for
which payment is required to be made to or on behalf of the Trustee or officer
under any insurance policy, except with respect to any excess beyond the amount
of required payment under such insurance and no indemnification will be made in
violation of the provisions of the Investment Company Act of 1940.
<PAGE>
PAGE 1
INVESTMENT MANAGEMENT SERVICES AGREEMENT
AGREEMENT made the 20th day of March, 1995, by and between IDS Special
Tax-Exempt Series Trust (the "Trust"), a Massachusetts business trust, and
American Express Financial Corporation, a
Delaware corporation.
Part One: INVESTMENT MANAGEMENT AND OTHER SERVICES
(1) The Trust hereby retains American Express Financial Corporation, and
American Express Financial Corporation hereby agrees, for the period of this
Agreement and under the terms and conditions hereinafter set forth, to furnish
the Trust continuously with suggested investment planning; to determine,
consistent with the investment objectives and policies of each fund making up
the Trust, which securities in American Express Financial Corporation's
discretion shall be purchased, held or sold and to execute or cause the
execution of purchase or sell orders; to prepare and make available to the Trust
all necessary research and statistical data in connection therewith; to furnish
all services of whatever nature required in connection with the management of
the Trust and its funds as provided under this Agreement; and to pay such
expenses as may be provided for in Part Three; subject always to the direction
and control of the Board of Trustees (the "Board"), the Executive Committee and
the authorized officers of the Trust. American Express Financial Corporation
agrees to maintain an adequate organization of competent persons to provide the
services and to perform the functions herein mentioned. American Express
Financial Corporation agrees to meet with any persons at such times as the Board
deems appropriate for the purpose of reviewing American Express Financial
Corporation's performance under this Agreement.
(2) American Express Financial Corporation agrees that the investment
planning and investment decisions will be in accordance with general investment
policies of each fund of the Trust as disclosed to American Express Financial
Corporation from time to time by the Trust and as set forth in its prospectuses
and registration statements filed with the United States Securities and Exchange
Commission (the "SEC").
(3) American Express Financial Corporation agrees that it will maintain
all required records, memoranda, instructions or authorizations relating to the
acquisition or disposition of securities for each fund of the Trust.
(4) The Trust agrees that it will furnish to American Express Financial
Corporation any information that the latter may reasonably request with respect
to the services performed or to be performed by American Express Financial
Corporation under this Agreement.
(5) American Express Financial Corporation is authorized to select the
brokers or dealers that will execute the purchases and sales of portfolio
securities for the Trust and is directed to use its best efforts to obtain the
best available price and most favorable execution, except as prescribed herein.
Subject to prior authorization by the Board of appropriate policies and
procedures,
<PAGE>
PAGE 2
and subject to termination at any time by the Board, American Express Financial
Corporation may also be authorized to effect individual securities transactions
at commission rates in excess of the minimum commission rates available, to the
extent authorized by law, if American Express Financial Corporation determines
in good faith that such amount of commission was reasonable in relation to the
value of the brokerage and research services provided by such broker or dealer,
viewed in terms of either that particular transaction or American Express
Financial Corporation's overall responsibilities with respect to the Trust and
other funds for which it acts as investment adviser.
(6) It is understood and agreed that in furnishing the Trust with the
services as herein provided, neither American Express Financial Corporation, nor
any officer, director or agent thereof shall be held liable to the Trust or its
creditors or shareholders for errors of judgment or for anything except willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
reckless disregard of its obligations and duties under the terms of this
Agreement. It is further understood and agreed that American Express Financial
Corporation may rely upon information furnished to it reasonably believed to be
accurate and reliable.
Part Two: COMPENSATION TO INVESTMENT MANAGER
(1) The Trust agrees to pay to American Express Financial Corporation,
and American Express Financial Corporation covenants and agrees to accept from
the Trust in full payment for the services furnished, a fee composed of an asset
charge equal to the total of 1/365th (1/366th in each leap year) of the amount
computed as described below. The computation shall be made for each day on the
basis of net assets as of the close of business of the full business day two (2)
business days prior to the day for which the computation is being made. In the
case of the suspension of the computation of net asset value, the asset charge
for each day during such suspension shall be computed as of the close of
business on the last full business day on which the net assets were computed.
Net assets as of the close of a full business day shall include all transactions
in shares of a fund recorded on the books of the Trust for that day.
The asset charge shall be based on the net assets of the Fund as set
forth in the following table.
<TABLE>
<CAPTION>
Asset Charge
<S> <C> <C> <C>
Assets Annual Rate at Assets Annual Rate at Each
(Billions) Each Asset Level (Billions) Asset Level
For Massachusetts, Michigan
Minnesota, New York and Ohio For Insured
First $0.25 0.470% First $1 0.450%
Next $0.25 0.445 Next $1 0.425
Next $0.25 0.420 Next $1 0.400
Next $0.25 0.405 Next $3 0.375
Over $1 0.380 Over $6 0.350
</TABLE>
<PAGE>
PAGE 3
(2) The fee shall be paid on a monthly basis and, in the event of the
termination of this Agreement, the fee accrued shall be prorated on the
basis of the number of days that this Agreement is in effect during the
month with respect to which such payment is made.
(3) The fee provided for hereunder shall be paid in cash by the Trust
to American Express Financial Corporation within five business days
after the last day of each month.
Part Three: ALLOCATION OF EXPENSES
(1) The Trust agrees to pay:
(a) Fees payable to American Express Financial Corporation
for its services under the terms of this Agreement.
(b) Taxes.
(c) Brokerage commissions and charges in connection with
the purchase and sale of assets.
(d) Custodian fees and charges.
(e) Fees and charges of its independent certified public
accountants for services the Trust requests.
(f) Premium on the bond required by Rule 17g-1 under the
Investment Company Act of 1940.
(g) Fees and expenses of attorneys (i) it employs in matters not
involving the assertion of a claim by a third party against the Trust,
its trustees and officers, (ii) it employs in conjunction with a claim
asserted by the Board against American Express Financial Corporation,
except that American Express Financial Corporation shall reimburse the
Trust for such fees and expenses if it is ultimately determined by a
court of competent jurisdiction, or American Express Financial
Corporation agrees, that it is liable in whole or in part to the Trust,
and (iii) it employs to assert a claim against a third party.
(h) Fees paid for the qualification and registration for public sale of
the securities of each of the funds of the Trust under the laws of the
United States and of the several states in which such securities shall
be offered for sale.
(i) Fees of consultants employed by the Trust.
(j) Trustees, officers and employees expenses which include fees,
salaries, memberships, dues, travel, seminars, pension, profit sharing,
and all other benefits paid to or provided for trustees, officers and
employees, trustees and officers liability insurance, errors and
omissions liability insurance, worker's compensation insurance and
other expenses applicable to the trustees, officers and employees,
except the Trust will not pay any fees or expenses of any person who is
an officer or employee of American Express Financial Corporation or its
affiliates.
<PAGE>
PAGE 4
(k) Filing fees and charges incurred by the Trust in connection with
filing any amendment to its articles of incorporation, or incurred in
filing any other document with the state of Massachusetts or its
political subdivisions.
(l) Organizational expenses of the Trust.
(m) Expenses incurred in connection with lending portfolio
securities of a fund of the Trust.
(n) Expenses properly payable by the Trust, approved by the
Board.
(2) American Express Financial Corporation agrees to pay all expenses
associated with the services it provides under the terms of this
Agreement. Further, American Express Financial Corporation agrees that
if, at the end of any month, the expenses of any fund of the Trust
under this Agreement and any other agreement between the Trust and
American Express Financial Corporation, but excluding those expenses
set forth in (1)(b) and (1)(c) of this Part Three, exceed the most
restrictive applicable state expenses limitation, the Trust shall not
pay those expenses set forth in (1)(a) and (d) through (n) of this Part
Three for that fund to the extent necessary to keep the fund's expenses
from exceeding the limitation, it being understood that American
Express Financial Corporation will assume all unpaid expenses and bill
the Trust for them in subsequent months but in no event can the
accumulation of unpaid expenses or billing be carried past the end of
the Trust's fiscal year.
Part Four: MISCELLANEOUS
(1) American Express Financial Corporation shall be deemed to be an
independent contractor and, except as expressly provided or authorized
in this Agreement, shall have no authority to act for or represent the
Trust.
(2) A "full business day" shall be as defined in the
By-laws.
(3) The Trust recognizes that American Express Financial Corporation
now renders and may continue to render investment advice and other
services to other investment companies and persons which may or may not
have investment policies and investments similar to those of the Trust
and that American Express Financial Corporation manages its own
investments and/or those of its subsidiaries. American Express
Financial Corporation shall be free to render such investment advice
and other services and the Trust hereby consents thereto.
(4) Neither this Agreement nor any transaction had pursuant hereto
shall be invalidated or in any way affected by the fact that trustees,
officers, agents and/or shareholders of the Trust are or may be
interested in American Express Financial Corporation or any successor
or assignee thereof, as directors, officers, stockholders or otherwise;
that directors, officers, stockholders or agents of American
<PAGE>
PAGE 5
Express Financial Corporation are or may be interested in the Trust as
trustees, officers, shareholders, or otherwise; or that American
Express Financial Corporation or any successor or assignee, is or may
be interested in the Trust as shareholder or otherwise, provided,
however, that neither American Express Financial Corporation, nor any
officer, director, trustee or employee thereof or of the Trust, shall
sell to or buy from the Trust any property or security other than
shares issued by the Trust, except in accordance with applicable
regulations or orders of the SEC.
(5) Any notice under this Agreement shall be given in writing,
addressed, and delivered, or mailed postpaid, to the party to this
Agreement entitled to receive such, at such party's principal place of
business in Minneapolis, Minnesota, or to such other address as either
party may designate in writing mailed to the other.
(6) American Express Financial Corporation agrees that no officer,
director or employee of American Express Financial Corporation will
deal for or on behalf of the Trust with himself as principal or agent,
or with any corporation or partnership in which he may have a financial
interest, except that this shall not prohibit:
(a) Officers, directors or employees of American Express Financial
Corporation from having a financial interest in the Trust or in
American Express Financial Corporation.
(b) The purchase of securities for the Trust, or the sale of securities
owned by the Trust, through a security broker or dealer, one or more of
whose partners, officers, directors or employees is an officer,
director or employee of American Express Financial Corporation,
provided such transactions are handled in the capacity of broker only
and provided commissions charged do not exceed customary brokerage
charges for such services.
(c) Transactions with the Trust by a broker-dealer affiliate of
American Express Financial Corporation as may be allowed by rule or
order of the SEC, and if made pursuant to procedures adopted by the
Board.
(7) American Express Financial Corporation agrees that, except as
herein otherwise expressly provided or as may be permitted consistent
with the use of a broker-dealer affiliate of American Express Financial
Corporation under applicable provisions of the federal securities laws,
neither it nor any of its officers, directors or employees shall at any
time during the period of this Agreement, make, accept or receive,
directly or indirectly, any fees, profits or emoluments of any
character in connection with the purchase or sale of securities (except
shares issued by the Trust) or other assets by or for the Trust.
<PAGE>
PAGE 6
Part Five: RENEWAL AND TERMINATION
(1) This Agreement shall continue in effect until March 19, 1997, or
until a new agreement is approved by a vote of the majority of the
outstanding shares of the Trust and by vote of the Board, including the
vote required by (b) of this paragraph, and if no new agreement is so
approved, this Agreement shall continue from year to year thereafter
unless and until terminated by either party as hereinafter provided,
except that such continuance shall be specifically approved at least
annually (a) by the Board or by a vote of the majority of the
outstanding shares of each fund of the Trust and (b) by the vote of a
majority of the trustees who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. As used in this
paragraph, the term "interested person" shall have the same meaning as
set forth in the Investment Company Act of 1940, as amended (the "1940
Act").
(2) This Agreement may be terminated by either the Trust or American
Express Financial Corporation at any time by giving the other party 60
days' written notice of such intention to terminate, provided that any
termination shall be made without the payment of any penalty, and
provided further that termination may be effected either by the Board
or by a vote of the majority of the outstanding voting shares of a fund
of the Trust. The vote of the majority of the outstanding voting shares
of the Fund for the purpose of this Part Five shall be the vote at a
shareholders' regular meeting, or a special meeting duly called for the
purpose, of 67% or more of the Fund's shares present at such meeting if
the holders of more than 50% of the outstanding voting shares are
present or represented by proxy, or more than 50% of the outstanding
voting shares of the Fund, whichever is less.
(3) This Agreement shall terminate in the event of its assignment, the
term "assignment" for this purpose having the same meaning as set forth
in the 1940 Act.
IN WITNESS THEREOF, the parties hereto have executed the foregoing
Agreement as of the day and year first above written.
<PAGE>
PAGE 7
IDS SPECIAL TAX-EXEMPT SERIES TRUST IDS Insured 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
By /s/Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL CORPORATION
By /s/Janis E. Miller
Vice President
<PAGE>
PAGE 1
DISTRIBUTION AGREEMENT
Agreement made as of the 20th day of March, 1995, by and between IDS Special
Tax-Exempt Series Trust (the "Trust"), a Massachusetts business, for and on
behalf of each class of its underlying Funds, and American Express Financial
Advisors Inc., a Delaware
corporation.
Part One: DISTRIBUTION OF SECURITIES
(1) The Trust covenants and agrees that, during the term of this agreement and
any renewal or extension, American Express Financial Advisors shall have the
exclusive right to act as principal underwriter for the Trust and to offer for
sale and to distribute either directly or through any affiliate any and all
shares of each class of capital stock issued or to be issued by the Trust.
(2) American Express Financial Advisors hereby covenants and agrees to act as
the principal underwriter of each class of capital shares issued and to be
issued by the Trust during the period of this agreement and agrees during such
period to offer for sale such shares as long as such shares remain available for
sale, unless American Express Financial Advisors is unable or unwilling to make
such offer for sale or sales or solicitations therefor legally because of any
federal, state, provincial or governmental law, rule or agency or for any
financial reason.
(3) With respect to the offering for sale and sale of shares of each class to be
issued by the Trust, it is mutually understood and agreed that such shares are
to be sold on the following terms:
(a) All sales shall be made by means of an application, and every
application shall be subject to acceptance or rejection by the Trust at its
principal place of business. Shares are to be sold for cash, payable at the time
the application and payment for such shares are received at the principal place
of business of the Trust.
(b) No shares shall be sold at less than the asset value (computed in
the manner provided by the currently effective prospectus or Statement of
Additional Information and the Investment Company Act of 1940, and rules
thereunder). The number of shares or fractional shares to be acquired by each
applicant shall be determined by dividing the amount of each accepted
application by the public offering price of one share of the capital stock of
the appropriate class as of the close of business on the day when the
application, together with payment, is received by the Trust at its principal
place of business. The computation as to the number of shares and fractional
shares shall be carried to three decimal points of one share with the
computation being carried to the nearest 1/l000th of a share. If the day of
receipt of the application and payment is not a full business day, then the
asset value of the share for use in such computation shall be determined as of
the close of business on the next succeeding full business day. In the event of
a period of emergency, the computation of the asset value for the purpose of
determining the number of shares or fractional shares to be acquired by the
applicant may be deferred until the close of business on the first
<PAGE>
PAGE 2
full business day following the termination of the period of emergency. A period
of emergency shall have the definition given thereto in the Investment Company
Act of 1940, and rules thereunder.
(4) The Trust agrees to make prompt and reasonable effort to do any and all
things necessary, in the opinion of American Express Financial Advisors, to have
and to keep the Trust and the shares properly registered or qualified in all
appropriate jurisdictions and, as to shares, in such amounts as American Express
Financial Advisors may from time to time designate in order that the Trust's
shares may be offered or sold in such jurisdictions.
(5) The Trust agrees that it will furnish American Express Financial Advisors
with information with respect to the affairs and accounts of the Trust, and in
such form, as American Express Financial Advisors may from time to time
reasonably require and further agrees that American Express Financial Advisors,
at all reasonable times, shall be permitted to inspect the books and records of
the Trust.
(6) American Express Financial Advisors or its agents may prepare or cause to be
prepared from time to time circulars, sales literature, broadcast material,
publicity data and other advertising material to be used in the sales of shares
issued by the Trust, including material which may be deemed to be a prospectus
under rules promulgated by the Securities and Exchange Commission (each separate
promotional piece is referred to as an "Item of Soliciting Material"). At its
option, American Express Financial Advisors may submit any Item of Soliciting
Material to the Trust for its prior approval. Unless a particular Item of
Soliciting Material is approved in writing by the Trust prior to its use,
American Express Financial Advisors agrees to indemnify the Trust and its
trustees and officers against any and all claims, demands, liabilities and
expenses which the Trust or such persons may incur arising out of or based upon
the use of any Item of Soliciting Material. The term "expenses" includes amounts
paid in satisfaction of judgments or in settlements. The foregoing right of
indemnification shall be in addition to any other rights to which the Trust or
any trustee or officer may be entitled as a matter of law. Notwithstanding the
foregoing, such indemnification shall not be deemed to abrogate or diminish in
any way any right or claim American Express Financial Advisors may have against
the Trust or its officers or trustees in connection with the Trust's
registration statement, prospectus, Statement of Additional Information or other
information furnished by or caused to be furnished by the Trust.
(7) American Express Financial Advisors agrees to submit to the Trust each
application for shares immediately after the receipt of such application and
payment therefor by American Express Financial Advisors at its principal place
or business.
(8) American Express Financial Advisors agrees to cause to be delivered to each
person submitting an application a prospectus or circular to be furnished by the
Trust in the form required by the applicable federal laws or by the acts or
statutes of any applicable state, province or country.
<PAGE>
PAGE 3
(9) The Trust shall have the right to extend to shareholders of each class the
right to use the proceeds of any cash dividend paid by the Trust to that
shareholder to purchase shares of the same class at the net asset value at the
close of business upon the day of purchase, to the extent set forth in the
currently effective prospectus or Statement of Additional Information.
(10) Shares of each class issued by the Trust may be offered and sold at their
asset value to the shareholders of the same class of other Trust s in the IDS
MUTUAL FUND GROUP who wish to exchange their investments in shares of the other
funds in the IDS MUTUAL FUND GROUP to investments in shares of the Fund, to the
extent set forth in the currently effective prospectus or Statement of
Additional Information, such asset value to be computed as of the close of
business on the day of sale of such shares of the Trust.
(11) American Express Financial Advisors and the Trust agree to use their best
efforts to conform with all applicable state and federal laws and regulations
relating to any rights or obligations under the term of this agreement.
Part Two: ALLOCATION OF EXPENSES
Except as provided by any other agreements between the parties, American Express
Financial Advisors covenants and agrees that during the period of this agreement
it will pay or cause or be paid all expenses incurred by American Express
Financial Advisors, or any of its affiliates, in the offering for sale or sale
of each class of the Trust's shares.
Part Three: COMPENSATION
(1) It is covenanted and agreed that American Express Financial
Advisors shall be paid:
(i) for a class of shares imposing a front-end sales charge, by the
purchasers of Trust shares in an amount equal to the difference between the
total amount received upon each sale of shares issued by the Trust and the asset
value of such shares at the time of such sale; and
(ii) for a class of shares imposing a deferred sales charge, by owners
of Trust shares at the time the sales charge is imposed in an amount equal to
any deferred sales charge, as described in the Trust 's prospectus.
Such sums as are received by the Trust shall be received as Agent for American
Express Financial Advisors and shall be remitted to American Express Financial
Advisors daily as soon as practicable after receipt.
(2) The asset value of any share of each class of the Trust shall be determined
in the manner provided by the classes currently effective prospectus and
Statement of Additional Information and the Investment Company Act of 1940, and
rules thereunder.
<PAGE>
PAGE 4
Part Four: MISCELLANEOUS
(1) American Express Financial Advisors shall be deemed to be an independent
contractor and, except as expressly provided or authorized in this agreement,
shall have no authority to act for or represent the Trust.
(2) American Express Financial Advisors shall be free to render to others
services similar to those rendered under this agreement.
(3) Neither this agreement nor any transaction had pursuant hereto shall be
invalidated or in any way affected by the fact that trustees, officers, agents
and/or shareholders of the Trust are or may be interested in American Express
Financial Advisors as trustees, officers, shareholders or otherwise; that
trustees, officers, shareholders or agents of American Express Financial
Advisors are or may be interested in the Trust as trustees, officers,
shareholders or otherwise; or that American Express Financial Advisors is or may
be interested in the Trust as shareholder or otherwise, provided, however, that
neither American Express Financial Advisors nor any officer or trustee of
American Express Financial Advisors or any officers or trustees of the Trust
shall sell to or buy from the Trust any property or security other than a
security issued by the Trust, except in accordance with a rule, regulation or
order of the federal Securities and Exchange Commission.
(4) For the purposes of this agreement, a "business day" shall have the same
meaning as is given to the term in the By-laws of the Trust.
(5) Any notice under this agreement shall be given in writing, addressed and
delivered, or mailed postpaid, to the parties to this agreement at each
company's principal place of business in Minneapolis, Minnesota, or to such
other address as either party may designate in writing mailed to the other.
(6) American Express Financial Advisors agrees that no officer, trustee or
employee of American Express Financial Advisors will deal for or on behalf of
the Trust with himself as principal or agent, or with any Trust or partnership
in which he may have a financial interest, except that this shall not prohibit:
(a) Officers, trustees and employees of American Express Financial
Advisors from having a financial interest in the Trust or in American Express
Financial Advisors.
(b) The purchase of securities for the Trust, or the sale of securities
owned by the Trust, through a security broker or dealer, one or more of whose
partners, officers, trustees or employees is an officer, trustee or employee of
American Express Financial Advisors, provided such transactions are handled in
the capacity of broker only and provided commissions charged do not exceed
customary brokerage charges for such services.
<PAGE>
PAGE 5
(c) Transactions with the Trust by a broker-dealer affiliate of
American Express Financial Advisors if allowed by rule or order of the
Securities and Exchange Commission and if made pursuant to procedures adopted by
the Trust 's Board of Trustees.
(7) American Express Financial Advisors agrees that, except as otherwise
provided in this agreement, or as may be permitted consistent with the use of a
broker-dealer affiliate of American Express Financial Advisors under applicable
provisions of the federal securities laws, neither it nor any of its officers,
trustees or employees shall at any time during the period of this agreement
make, accept or receive, directly or indirectly, any fees, profits or emoluments
of any character in connection with the purchase or sale of securities (except
securities issued by the Trust ) or other assets by or for the Trust.
Part Five: TERMINATION
(1) This agreement shall continue from year to year unless and until terminated
by American Express Financial Advisors or the Trust, except that such
continuance shall be specifically approved at least annually by a vote of a
majority of the Board of Trustees who are not parties to this agreement or
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval, and by a majority of the Board of Trustees
or by vote of a majority of the outstanding voting securities of the Trust. As
used in this paragraph, the term "interested person" shall have the meaning as
set forth in the Investment Company Act of 1940, as amended.
(2) This agreement may be terminated by American Express Financial Advisors or
the Trust at any time by giving the other party sixty (60) days written notice
of such intention to terminate.
(3) This agreement shall terminate in the event of its assignment, the term
"assignment" for this purpose having the same meaning as set forth in the
Investment Company Act of 1940, as amended.
<PAGE>
PAGE 6
IN WITNESS WHEREOF, The parties hereto have executed the foregoing agreement on
the date and year first above written.
IDS SPECIAL TAX-EXEMPT SERIES TRUST IDS Insured 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
By /s/Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
By /s/Janis E. Miller
Vice President
<PAGE>
PAGE 1
CUSTODIAN AGREEMENT
THIS CUSTODIAN AGREEMENT dated July 23, 1986, between IDS Special Tax-Exempt
Series Trust, a Massachusetts Business Trust (hereinafter also called the
"Trust") and First National Bank of Minneapolis, a corporation organized under
the laws of the United States of America with its principal place of business at
Minneapolis, Minnesota (hereinafter also called the "Custodian").
WHEREAS, the Trust expects that it will offer more than one series of capital
stock with the investments of each series being maintained in a separate fund
and desires that its securities and cash be hereafter held and administered by
the Custodian pursuant to the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements herein made, the Trust
and the Custodian agree as follows:
Section l. Definitions
The word "securities" as used herein shall be construed to include, without
being limited to, shares, stocks, treasury stocks, including any stocks of this
Trust, notes, bonds, debentures, evidences of indebtedness, options to buy or
sell stocks or stock indexes, certificates of interest or participation in any
profit-sharing agreements, collateral trust certificates, preorganization
certificates or subscriptions, transferable shares, investment contracts, voting
trust certificates, certificates of deposit for a security, fractional or
undivided interests in oil, gas or other mineral rights, or any certificates of
interest or participation in, temporary or interim certificates for, receipts
for, guarantees of, or warrants or rights to subscribe to or purchase any of the
foregoing, acceptances and other obligations and any evidence of any right or
interest in or to any cash, property or assets and any interest or instrument
commonly known as a security. In addition, for the purpose of this Agreement,
the word "securities" also shall include other instruments in which the Trust
may invest including currency forward contracts and commodities such as interest
rate or index futures contracts, margin deposits on such contracts or options on
such contracts.
The words "custodian order" shall mean a request or direction, including a
computer printout, directed to the Custodian and signed in the name of the Trust
by any two individuals designated in the current certified list referred to in
Section 2.
The word "facsimile" shall mean an exact copy or likeness which is
electronically transmitted for instant reproduction.
The word "fund" shall mean the components of assets that are represented by a
separate series of capital stock of the Trust.
<PAGE>
PAGE 2
Section 2. Names, Titles and Signatures of Authorized Persons
The Trust will certify to the Custodian the names and signatures of its present
officers and other designated persons authorized on behalf of the Trust to
direct the Custodian by custodian order as hereinbefore defined. The Trust
agrees that whenever any change occurs in this list it will file with the
Custodian a copy of a resolution certified by the Secretary or an Assistant
Secretary of the Trust as having been duly adopted by the Board of Trustees or
the Executive Committee of the Board of Trustees of the Trust designating those
persons currently authorized on behalf of the Trust to direct the Custodian by
custodian order, as hereinbefore defined, and upon such filing (to be
accompanied by the filing of specimen signatures of the designated persons) the
persons so designated in said resolution shall constitute the current certified
list. The Custodian is authorized to rely and act upon the names and signatures
of the individuals as they appear in the most recent certified list from the
Trust which has been delivered to the Custodian as hereinabove provided.
Section 3. Use of Subcustodians
The Custodian may make arrangements, where appropriate, with other banks having
not less than two million dollars aggregate capital, surplus and undivided
profits for the custody of securities and cash. All subcustodians of the
Custodian (such subcustodians, collectively, the "Subcustodians") shall be
subject to the instructions of the Custodian and not to those of the Trust and
shall act solely as agent of the Custodian.
Section 4. Receipt and Disbursement of Money
(1) The Custodian shall open and maintain a separate account or accounts in the
name of the Trust or cause any Subcustodian to open and maintain such account or
accounts, subject only to checks, drafts or directives by the Custodian or such
Subcustodian pursuant to the terms of this Agreement. The Custodian or such
Subcustodian shall hold in such account or accounts, subject to the provisions
hereof, all cash received by it from or for the account of the Trust. The
Custodian or such Subcustodian shall make payments of cash to or for the account
of the Trust from such cash only:
(a) for the purchase of securities for the portfolio of the Trust
upon the receipt of such securities by the Custodian or such
Subcustodian;
(b) for the purchase or redemption of shares of capital stock of
the Trust;
(c) for the payment of interest, dividends, taxes, management fees,
or operating expenses (including, without limitation thereto,
fees for legal, accounting and auditing services);
(d) for payment of distribution fees, commissions, or redemption
fees, if any;
(e) for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Trust
held by or to be delivered to the Custodian;
(f) for payments in connection with the return of securities loaned
by the Trust upon receipt of such securities or the reduction of
collateral upon receipt of proper notice;
(g) for payments for other proper purposes of the Trust; or
(h) upon the termination of this Agreement.
<PAGE>
PAGE 3
Before making any such payment for the purposes permitted under the terms of
items (a), (b), (c), (d), (e), (f) or (g) of paragraph (1) of this section, the
Custodian shall receive and may rely upon a custodian order directing such
payment and stating that the payment is for such a purpose permitted under these
items (a), (b), (c), (d), (e), (f) or (g) and that in respect to item (g), a
copy of a resolution of the Board of Trustees or of the Executive Committee of
the Board of Trustees of the Trust signed by an officer of the Trust and
certified by its Secretary or an Assistant Secretary, specifying the amount of
such payment, setting forth the purpose to be a proper purpose of the Trust, and
naming the person or persons to whom such payment is made. Notwithstanding the
above, for the purposes permitted under items (a) or (f) of paragraph (1) of
this section, the Custodian may rely upon a facsimile order.
(2) The Custodian is hereby appointed the attorney-in-fact of the Trust to
endorse and collect all checks, drafts or other orders for the payment of money
received by the Custodian for the account of the Trust and drawn on or to the
order of the Trust and to deposit same to the account of the Trust pursuant to
this Agreement.
Section 5. Receipt of Securities
Except as permitted by the second paragraph of this section, the Custodian
shall, and shall cause any Subcustodian to, hold in a separate account or
accounts, and physically segregated at all times from those of any other
persons, firms or corporations, pursuant to the provisions hereof, all
securities and cash received for the account of the Trust. The Custodian shall
record and maintain a record of all certificate numbers. Securities so received
shall be held in the name of the Trust, in the name of an exclusive nominee duly
appointed by the Custodian or such Subcustodian, or in bearer form, as
appropriate.
Subject to such rules, regulations or guidelines as the Securities and Exchange
Commission may adopt, the Custodian may deposit all or any part of the
securities owned by the Trust in a securities depository which includes any
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, or
such other person as may be permitted by the Commission, pursuant to which
system all securities of any particular class or series of any issuer deposited
within the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities.
All securities are to be held or disposed of by the Custodian for, and subject
at all times to the instructions of, the Trust pursuant to the terms of this
Agreement. The Custodian shall have no power or authority to assign,
hypothecate, pledge or otherwise dispose of any such securities, except pursuant
to the directive of the Trust and only for the account of the Trust as set forth
in Section 6 of this Agreement.
<PAGE>
PAGE 4
Section 6. Transfer Exchange, Delivery, etc. of Securities
The Custodian shall have sole power to release or deliver any securities of the
Trust held by it pursuant to this Agreement. The Custodian agrees to transfer,
exchange or deliver securities held by it or any Subcustodian only:
(a) for sales of such securities for the account of the Trust, upon
receipt of payment therefor;
(b) when such securities are called, redeemed, retired or otherwise
become payable;
(c) for examination upon the sale of any such securities in
accordance with "street delivery" custom which would include
delivery against interim receipts or other proper delivery
receipts;
(d) in exchange for or upon conversion into other securities alone or
other securities and cash whether pursuant to any plan of merger,
consolidation, reorganization, recapitalization or readjustment,
or otherwise;
(e) for the purpose of exchanging interim receipts or temporary
certificates for permanent certificates;
(f) upon conversion of such securities pursuant to their terms into
other securities;
(g) upon exercise of subscription, purchase or other similar rights
represented by such securities;
(h) for loans of such securities by the Trust upon receipt of
collateral; or
(i) for other proper purposes of the Trust.
As to any deliveries made by the Custodian pursuant to items (a), (b), (c), (d),
(e), (f), (g) and (h), securities or cash received in exchange therefore shall
be delivered to the Custodian, a Subcustodian, or a securities depository.
Before making any such transfer, exchange or delivery, the Custodian shall
receive a custodian order or a facsimile from the Trust requesting such
transfer, exchange or delivery and stating that it is for a purpose permitted
under this section (whenever a facsimile is utilized, the Trust will also
deliver an original signed custodian order) and, in respect to item (i), a copy
of a resolution of the Board of Trustees or of the Executive Committee of the
Board of Trustees of the Trust signed by an officer of the Trust and certified
by its Secretary or an Assistant Secretary, specifying the securities, setting
forth the purpose for which such payment, transfer, exchange or delivery is to
be made, declaring such purpose to be a proper purpose of the Trust, and naming
the person or persons to whom such transfer, exchange or delivery of such
securities shall be made.
<PAGE>
PAGE 5
Section 7. Custodian's Acts Without Instructions
Unless and until the Custodian receives a contrary custodian order from the
Trust, the Custodian shall or shall cause a Subcustodian to:
(a) present for payment all coupons and other income items held by
the Custodian or such Subcustodian for the account of the Trust
which call for payment upon presentation and hold all cash
received upon such payment for the account of the Trust;
(b) present for payment all securities held by it or such Sub-
custodian which mature or when called, redeemed, retired or
otherwise become payable;
(c) ascertain all stock dividends, rights and similar securities to
be issued with respect to any securities;
(d) collect and hold for the account of the Trust all such stock
dividends, rights and similar securities issued with respect to
any securities;
(e) ascertain all interest and cash dividends to be paid to
security holders with respect to any securities;
(f) collect and hold all interest and cash dividends for the
account of the Trust.
(g) present for exchange securities converted pursuant to their
terms into other securities;
(h) exchange interim receipts or temporary securities for
definitive securities; and
(i) execute in the name of the Trust such ownership and other
certificates as may be required to obtain payments in respect
thereto, provided that the Trust shall have furnished to the
Custodian or such Subcustodian any information necessary in
connection with such certificates.
Section 8. Transfer Taxes
The Trust shall pay or reimburse the Custodian and any Subcustodian for any
transfer taxes payable upon transfers of securities made hereunder, including
transfers resulting from the termination of this Agreement. The Custodian shall,
and shall cause any Subcustodian to, execute such certificates in connection
with securities delivered to it or such Subcustodian under this Agreement as may
be required, under any applicable law or regulation, to exempt from taxation any
transfers and/or deliveries of any such securities which may be entitled to such
exemption.
<PAGE>
PAGE 6
Section 9. Voting and Other Action
Neither the Custodian or any Subcustodian nor any nominee of the Custodian or
such Subcustodian shall vote any of the securities held hereunder by or for the
account of the Trust. The Custodian shall, and shall use its best efforts to
cause any Subcustodian to, promptly deliver to the Trust all notices, proxies
and proxy soliciting materials with relation to such securities, such proxies to
be executed by the registered holder of such securities (if registered otherwise
than in the name of the Trust), but without indicating the manner in which such
proxies are to be voted.
The Custodian shall transmit promptly to the Trust all written information
(including, without limitation, pendency of calls and maturities of securities
and expirations of rights in connection therewith) received by the Custodian or
such Subcustodian from issuers of the securities being held for the Trust. With
respect to tender or exchange offers, the Custodian shall, and shall use its
best efforts to cause any Subcustodian to, transmit promptly to the Trust all
written information received by the Custodian or such Subcustodian from issuers
of the securities whose tender or exchange is sought and from the party (or his
agents) making the tender or exchange offer.
Section 10. Custodian's Reports
The Custodian shall furnish the Trust as of the close of business each day a
statement showing all transactions and entries for the account of the Trust. The
books and records of the Custodian pertaining to its actions as Custodian under
this Agreement and securities held hereunder by the Custodian shall be open to
inspection and audit by officers of the Trust, internal auditors employed by the
Trust's investment adviser, and independent auditors employed by the Trust. The
Custodian shall furnish the Trust in such form as may reasonably be requested by
the Trust a report, including a list of the securities held by it in custody for
the account of the Trust, identification of any subcustodian, and identification
of such securities held by such subcustodian, as of the close of business on the
last business day of each month, which shall be certified by a duly authorized
officer of the Custodian. It is further understood that additional reports may
from time to time be requested by the Trust. Should any report ever be filed
with any governmental authority pertaining to lost or stolen securities, the
Custodian will concurrently provide the Trust with a copy of that report.
The Custodian also shall furnish such reports on its systems of internal
accounting control as the Trust may reasonably request from time to time.
<PAGE>
PAGE 7
Section 11. Security Interests, Liens and Transfers of Beneficial
Ownership
The Trust agrees to indemnify and hold harmless the Custodian. any Subcustodian
or any nominees thereof from all taxes, charges, expenses, assessments, claims
and liabilities (including counsel fees) incurred or assessed against any such
entity in connection with the performance of this Agreement, except such as may
arise from such entity's own negligent action, negligent failure to act or
willful misconduct. The Custodian is authorized to charge any account of the
Trust for such items. In the event of any advance of cash for any purpose made
by the Custodian resulting from orders or instructions of the Trust, or in the
event that the Custodian, any Subcustodian or any nominee thereof shall incur or
be assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Agreement, except such as may arise from
such entity's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Trust shall be
security therefor.
Section 12. Compensation
For its services hereunder the Custodian shall be paid such compensation at such
times as may from time to time be agreed on in writing by the parties hereto in
a Custodian Fee Agreement.
Section 13. Standard of Care
The Custodian shall not be liable for any action taken in good faith upon any
custodian order or facsimile herein described or certified copy of any
resolution of the Board of Trustees or of the Executive Committee of the Board
of Trustees of the Trust, and may rely on the genuineness of any such document
which it may in good faith believe to have been validly executed.
The Custodian shall maintain a standard of care equivalent to that which would
be required of a bailee for hire and shall not be liable for any loss or damage
to the Trust resulting from participation in a securities depository unless such
loss or damage arises by reason of any negligence, misfeasance, or willful
misconduct of officers or employees of the Custodian, or from its failure to
enforce effectively such rights as it may have against any securities depository
or from use of a Subcustodian, unless such loss or damage arises by reason of
any negligence, mis- feasance, or willful misconduct of officers or employees of
the Custodian, or from its failure to enforce effectively such rights as it may
have against such Subcustodian.
Section 14. Termination and Amendment of Agreement
The Trust and the Custodian mutually may agree from time to time in writing to
amend, to add to, or to delete from any provision of this Agreement.
<PAGE>
PAGE 8
The Custodian may terminate this Agreement by giving the Trust ninety days'
written notice of such termination by registered mail addressed to the Trust at
its principal place of business.
The Trust may terminate this Agreement at any time by written notice thereof
delivered, together with a copy of the resolution of the Board of Trustees
authorizing such termination and certified by the Secretary of the Trust, by
registered mail to the Custodian.
Upon such termination of this Agreement, assets of the Trust held by the
Custodian shall be delivered by the Custodian to a successor custodian, if one
has been appointed by the Trust, upon receipt by the Custodian of a copy of the
resolution of the Board of Trustees of the Trust certified by the Secretary,
showing appointment of the successor custodian, and provided that such successor
custodian is a bank or trust company, organized under the laws of the United
States or of any State of the United States, having not less than two million
dollars aggregate capital, surplus and undivided profits. Upon the termination
of this Agreement as a part of the transfer of assets, either to a successor
custodian or otherwise, the Custodian will deliver securities held by it
hereunder, when so authorized and directed by resolution of the Board of
Trustees of the Trust, to a duly appointed agent of the successor custodian or
to the appropriate transfer agents for transfer of registration and delivery as
directed. Delivery of assets on termination of this Agreement shall be effected
in a reasonable, expeditious and orderly manner; and in order to accomplish an
orderly transition from the Custodian to the successor custodian, the Custodian
shall continue to act as such under this Agreement as to assets in its
possession or control. Termination as to each security shall become effective
upon delivery to the successor custodian, its agent, or to a transfer agent for
a specific security for the account of the successor custodian, and such
delivery shall constitute effective delivery by the Custodian to the successor
under this Agreement.
<PAGE>
PAGE 9
In addition to the means of termination hereinbefore authorized, this Agreement
may be terminated at any time by the vote of a majority of the outstanding
shares of the Trust and after written notice of such action to the Custodian.
Section 13. General
Nothing expressed or mentioned in or to be implied from any provision of this
Agreement is intended to, or shall be construed to give any person or
corporation other than the parties hereto, any legal or equitable right, remedy
or claim under or in respect of this Agreement, or any covenant, condition or
provision herein contained, this Agreement and all of the covenants, conditions
and provisions hereof being intended to be and being for the sole and exclusive
benefit of the parties hereto and their respective successors and assigns.
This Agreement shall be governed by the laws of the State of Minnesota.
Attest: IDS SPECIAL TAX-EXEMPT
TRUST SERIES TRUST
/s/William C. Herber By /s/Leslie L. Ogg
William C. Herber Leslie L. Ogg
Secretary Vice President
FIRST NATIONAL BANK
OF MINNEAPOLIS
By /s/Robert Spies
Robert Spies
Vice President
By /s/Maria L. Lenander
Maria L. Lenander
<PAGE>
PAGE 1
TRANSFER AGENCY AGREEMENT
AGREEMENT dated as of March 20, 1995, between IDS Special Tax-Exempt Series
Trust, (the "Trust"), a Massachusetts business trust, on behalf if its
underlying series funds, and American Express Financial Corporation (the
"Transfer Agent"), a Delaware
corporation.
In consideration of the mutual promises set forth below, the Trust and the
Transfer Agent agree as follows:
1. Appointment of the Transfer Agent. The Trust hereby appoints the Transfer
Agent, as transfer agent for its shares and as shareholder servicing agent for
the Trust, and the Transfer Agent accepts such appointment and agrees to perform
the duties set forth below.
2. Compensation. The Trust will compensate the Transfer Agent for
the performance of its obligations as set forth in Schedule A.
Schedule A does not include out-of-pocket disbursements of the
Transfer Agent for which the Transfer Agent shall be entitled to
bill the Trust separately.
The Transfer Agent will bill the Trust monthly. The fee provided for hereunder
shall be paid in cash by the Trust to American Express Financial Corporation
within five (5) business days after the last day of each month.
Out-of-pocket disbursements shall include, but shall not be limited to, the
items specified in Schedule B. Reimbursement by the Trust for expenses incurred
by the Transfer Agent in any month shall be made as soon as practicable after
the receipt of an itemized bill from the Transfer Agent.
Any compensation jointly agreed to hereunder may be adjusted from time to time
by attaching to this Agreement a revised Schedule A, dated and signed by an
officer of each party.
3. Documents. The Trust will furnish from time to time such
certificates, documents or opinions as the Transfer Agent deems to
be appropriate or necessary for the proper performance of its
duties.
4. Representations of the Trust and the Transfer Agent.
(a) The Trust represents to the Transfer Agent that all outstanding shares are
validly issued, fully paid and non-assessable by the Trust. When shares are
hereafter issued in accordance with the terms of the Trust's Articles of
Incorporation and its prospectus, such shares shall be validly issued, fully
paid and non-assessable by the Trust.
(b) The Transfer Agent represents that it is registered under Section 17A(c) of
the Securities Exchange Act of 1934. The Transfer Agent agrees to maintain the
necessary facilities, equipment and personnel to perform its duties and
obligations under this agreement and to comply with all applicable laws.
<PAGE>
PAGE 2
5. Duties of the Transfer Agent. The Transfer Agent shall be
responsible, separately and through its subsidiaries or affiliates,
for the following functions:
(a) Sale of Trust Shares.
(1) On receipt of an application and payment, wired instructions and payment, or
payment identified as being for the account of a shareholder, the Transfer Agent
will deposit the payment, prepare and present the necessary report to the
Custodian and record the purchase of shares in a timely fashion in accordance
with the terms of the prospectus. All shares shall be held in book entry form
and no certificate shall be issued unless the Trust is permitted to do so by the
prospectus and the purchaser so requests.
(2) On receipt of notice that payment was dishonored, the Transfer Agent shall
stop redemptions of all shares owned by the purchaser related to that payment,
place a stop payment on any checks that have been issued to redeem shares of the
purchaser and take such other action as it deems appropriate.
(b) Redemption of Trust Shares. On receipt of instructions to redeem shares in
accordance with the terms of the Trust's prospectus, the Transfer Agent will
record the redemption of shares of the Trust, prepare and present the necessary
report to the Custodian and pay the proceeds of the redemption to the
shareholder, an authorized agent or legal representative upon the receipt of the
monies from the Custodian.
(c) Transfer or Other Change Pertaining to Trust Shares. On receipt of
instructions or forms acceptable to the Transfer Agent to transfer the shares to
the name of a new owner, change the name or address of the present owner or take
other legal action, the Transfer Agent will take such action as is requested.
(d) Exchange of Trust Shares. On receipt of instructions to exchange the shares
of the Trust for the shares of another fund in the IDS MUTUAL FUND GROUP or
other American Express Financial Corporation product in accordance with the
terms of the prospectus, the Transfer Agent will process the exchange in the
same manner as a redemption and sale of shares.
(e) Right to Seek Assurance. The Transfer Agent may refuse to transfer, exchange
or redeem shares of the Trust or take any action requested by a shareholder
until it is satisfied that the requested transaction or action is legally
authorized or until it is satisfied there is no basis for any claims adverse to
the transaction or action. It may rely on the provisions of the Uniform Act for
the Simplification of Fiduciary Security Transfers or the Uniform Commercial
Code. The Trust shall indemnify the Transfer Agent for any act done or omitted
to be done in reliance on such laws or for refusing to transfer, exchange or
redeem shares or taking any requested action if it acts on a good faith belief
that the transaction or action is illegal or unauthorized.
(f) Shareholder Records, Reports and Services.
<PAGE>
PAGE 3
(1) The Transfer Agent shall maintain all shareholder accounts, which shall
contain all required tax, legally imposed and regulatory information; shall
provide shareholders, and file with federal and state agencies, all required tax
and other reports pertaining to shareholder accounts; shall prepare shareholder
mailing lists; shall cause to be printed and mailed all required prospectuses,
annual reports, semiannual reports, statements of additional information (upon
request), proxies and other mailings to shareholders; and shall cause proxies to
be tabulated.
(2) The Transfer Agent shall respond to all valid inquiries related to its
duties under this Agreement.
(3) The Transfer Agent shall create and maintain all records in accordance with
all applicable laws, rules and regulations, including, but not limited to, the
records required by Section 31(a) of the Investment Company Act of 1940.
(g) Dividends and Distributions. The Transfer Agent shall prepare and present
the necessary report to the Custodian and shall cause to be prepared and
transmitted the payment of income dividends and capital gains distributions or
cause to be recorded the investment of such dividends and distributions in
additional shares of the Trust or as directed by instructions or forms
acceptable to the Transfer Agent.
(h) Confirmations and Statements. The Transfer Agent shall confirm each
transaction either at the time of the transaction or through periodic reports as
may be legally permitted.
(i) Lost or Stolen Checks. The Transfer Agent will replace lost or stolen checks
issued to shareholders upon receipt of proper notification and will maintain any
stop payment orders against the lost or stolen checks as it is economically
desirable to do.
(j) Reports to Trust. The Transfer Agent will provide reports pertaining to the
services provided under this Agreement as the Trust may request to ascertain the
quality and level of services being provided or as required by law.
(k) Other Duties. The Transfer Agent may perform other duties for
additional compensation if agreed to in writing by the parties to
this Agreement.
6. Ownership and Confidentiality of Records. The Transfer Agent agrees that all
records prepared or maintained by it relating to the services to be performed by
it under the terms of this Agreement are the property of the Trust and may be
inspected by the Trust or any person retained by the Trust at reasonable times.
The Trust and Transfer Agent agree to protect the confidentiality of those
records.
7. Action by Board and Opinion of Trust's Counsel. The Transfer
Agent may rely on resolutions of the Board of Trustees or the
Executive Committee of the Board of Trustees and on opinion of
counsel for the Trust.
<PAGE>
PAGE 4
8. Duty of Care. It is understood and agreed that, in furnishing the Trust with
the services as herein provided, neither the Transfer Agent, nor any officer,
trustee or agent thereof shall be held liable for any loss arising out of or in
connection with their actions under this Agreement so long as they act in good
faith and with due diligence, and are not negligent or guilty of any willful
misconduct. It is further understood and agreed that the Transfer Agent may rely
upon information furnished to it reasonably believed to be accurate and
reliable. In the event the Transfer Agent is unable to perform its obligations
under the terms of this Agreement because of an act of God, strike or equipment
or transmission failure reasonably beyond its control, the Transfer Agent shall
not be liable for any damages resulting from such failure.
9. Term and Termination. This Agreement shall become effective on the date first
set forth above (the "Effective Date") and shall continue in effect from year to
year thereafter as the parties may mutually agree; provided that either party
may terminate this Agreement by giving the other party notice in writing
specifying the date of such termination, which shall be not less than 60 days
after the date of receipt of such notice. In the event such notice is given by
the Trust, it shall be accompanied by a vote of the Board of Trustees, certified
by the Secretary, electing to terminate this Agreement and designating a
successor transfer agent or transfer agents. Upon such termination and at the
expense of the Trust, the Transfer Agent will deliver to such successor a
certified list of shareholders of the Trust (with name, address and taxpayer
identification or Social Security number), a historical record of the account of
each shareholder and the status thereof, and all other relevant books, records,
correspondence, and other data established or maintained by the Transfer Agent
under this Agreement in the form reasonably acceptable to the Trust, and will
cooperate in the transfer of such duties and responsibilities, including
provisions for assistance from the Transfer Agent's personnel in the
establishment of books, records and other data by such successor or successors.
10. Amendment. This Agreement may not be amended or modified in any
manner except by a written agreement executed by both parties.
11. Subcontracting. The Trust agrees that the Transfer Agent may subcontract for
certain of the services described under this Agreement with the understanding
that there shall be no diminution in the quality or level of the services and
that the Transfer Agent remains fully responsible for the services. Except for
out-of-pocket expenses identified in Schedule B, the Transfer Agent shall bear
the cost of subcontracting such services, unless otherwise agreed by the
parties.
12. Miscellaneous.
(a) This Agreement shall extend to and shall be binding upon the parties hereto,
and their respective successors and assigns; provided, however, that this
Agreement shall not be assignable without the written consent of the other
party.
(b) This Agreement shall be governed by the laws of the State of
Minnesota.
<PAGE>
PAGE 5
13. Limitation of Liability. The Trust and the Transfer Agent agree that the
obligations of the Trust hereunder shall not be binding upon any of the
trustees, shareholders, nominees, officers, employees or agents, whether past,
present or future, of the Trust, individually, but are binding only upon the
assets and property of the Trust, as provided in the Agreement and Declaration
of Trust. The execution and delivery of this Agreement have been authorized by
the trustees of the Trust, and signed by an authorized officer of the Trust,
acting as such, and neither such authorization by such trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them or any
shareholder of the Trust personally, but shall bind only the property of the
Trust as provided in the Agreement and Declaration of Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers as of the day and year written above.
IDS SPECIAL TAX-EXEMPT SERIES TRUST IDS Insured 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
By: /s/Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL CORPORATION
By: /s/Janis E. Miller
Vice President
<PAGE>
PAGE 6
Schedule A
IDS SPECIAL TAX-EXEMPT SERIES TRUST
TRANSFER AGENT FEE
Effective the 20th day of March, 1995, the Annual Per Account Fee
accrued daily and payable monthly is revised as follows:
CLASS FEE
A $ 15.50
B 16.50
Y 15.50
<PAGE>
PAGE 7
Schedule B
OUT-OF-POCKET EXPENSES
The Trust shall reimburse the Transfer Agent monthly for the following
out-of-pocket expenses:
o typesetting, printing, paper, envelopes, postage and return
postage for proxy soliciting material, and proxy tabulation costs
o printing, paper, envelopes and postage for dividend notices, dividend checks,
records of account, purchase confirmations, exchange confirmations and exchange
prospectuses, redemption confirmations, redemption checks, confirmations on
changes of address and any other communication required to be sent to
shareholders
o typesetting, printing, paper, envelopes and postage for prospectuses, annual
and semiannual reports, statements of additional information, supplements for
prospectuses and statements of additional information and other required
mailings to shareholders
o stop orders
o outgoing wire charges
o other expenses incurred at the request or with the consent of the
Trust
<PAGE>
PAGE 1
Shareholder Service Agreement
This agreement is between IDS Special Tax-Exempt Series Trust (the "Trust), on
behalf of its underlying series funds and American Express Financial Advisors
Inc., the principal underwriter of the Trust, for services to be provided to
shareholders by personal financial advisors and other servicing agents. It is
effective on the first day the Trust offers multiple classes of shares.
American Express Financial Advisors represents that shareholders consider their
financial advisor or servicing agent a significant factor in their satisfaction
with their investment and, to help retain financial advisors or servicing
agents, it is necessary for the Trust to pay annual servicing fees to financial
advisors and other servicing agents.
American Express Financial Advisors represents that fees paid to financial
advisors will be used by financial advisors to help shareholders thoughtfully
consider their investment goals and objectively monitor how well the goals are
being achieved. As principal underwriter, American Express Financial Advisors
will use its best efforts to assure that other distributors provide comparable
services to shareholders for the servicing fees received.
American Express Financial Advisors agrees to monitor the services provided by
financial advisors and servicing agents, to measure the level and quality of
services provided, to provide training and support to financial advisors and
servicing agents and to devise methods for rewarding financial advisors and
servicing agents who achieve an exemplary level and quality of services.
The Trust agrees to pay American Express financial advisors and other servicing
agents 0.15 percent of the net asset value for each shareholder account assigned
to a financial advisor or servicing agent that holds either Class A or Class B
shares. In addition, the Trust agrees to pay American Express Financial
Advisors' costs to monitor, measure, train and support services provided by
financial advisors or servicing agents up to 0.025 percent of the net asset
value for each shareholder account assigned to a financial advisor or servicing
agent that holds either Class A or Class B shares. The Trust agrees to pay
American Express Financial Advisors in cash within five (5) business days after
the last day of each month.
American Express Financial Advisors agrees to provide the Trust, prior to the
beginning of the calendar year, a budget covering its expected costs to monitor,
measure, train and support services and a quarterly report of its actual
expenditures. American Express Financial Advisors agrees to meet with
representatives of the Trust at their request to provide information as may be
reasonably necessary to evaluate its performance under the terms of this
agreement.
<PAGE>
PAGE 2
American Express Financial Advisors agrees that if, at the end of any month, the
expenses of the Trust, including fees under this agreement and any other
agreement between the Trust and American Express Financial Advisors or American
Express Financial Corporation, but excluding taxes, brokerage commissions and
charges in connection with the purchase and sale of assets exceed the most
restrictive applicable state expense limitation for the Trust's current fiscal
year, the Trust shall not pay fees and expenses under this agreement to the
extent necessary to keep the Trust's expenses from exceeding the limitation, it
being understood that American Express Financial Advisors will assume all unpaid
expenses and bill the Trust for them in subsequent months but in no event can
the accumulation of unpaid expenses or billing be carried past the end of the
Trust's fiscal year.
This agreement shall continue in effect for a period of more than one year so
long as it is reapproved at least annually at a meeting called for the purpose
of voting on the agreement by a vote, in person, of the members of the Board who
are not interested persons of the Trust and have no financial interest in the
operation of the agreement, and of all the members of the Board.
This agreement may be terminated at any time without payment of any penalty by a
vote of a majority of the members of the Board who are not interested persons of
the Trust and have no financial interest in the operation of the agreement or by
American Express Financial Advisors. The agreement will terminate automatically
in the event of its assignment as that term is defined in the Investment Company
Act of 1940. This agreement may be amended at any time provided the amendment is
approved in the same manner the agreement was initially approved and the
amendment is agreed to by American Express Financial Advisors.
Approved this 20th day of March, 1995.
IDS SPECIAL TAX-EXEMPT SERIES TRUST IDS Insured 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
/s/Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
Janis E. Miller
Vice President
<PAGE>
PAGE 1
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT made the 20th day of March, 1995, by and between IDS Special
Tax-Exempt Series Trust (the "Trust"), a Massachusetts business trust, on behalf
of its underlying series funds, and American Express Financial Corporation, a
Delaware corporation.
Part One: SERVICES
(1) The Trust hereby retains American Express Financial Corporation, and
American Express Financial Corporation hereby agrees, for the period of this
Agreement and under the terms and conditions hereinafter set forth, to furnish
the Trust continuously with all administrative, accounting, clerical,
statistical, correspondence, corporate and all other services of whatever nature
required in connection with the administration of the Trust as provided under
this Agreement; and to pay such expenses as may be provided for in Part Three
hereof; subject always to the direction and control of the Board of Trustees,
the Executive Committee and the authorized officers of the Trust. American
Express Financial Corporation agrees to maintain an adequate organization of
competent persons to provide the services and to perform the functions herein
mentioned. American Express Financial Corporation agrees to meet with any
persons at such times as the Board of Trustees deems appropriate for the purpose
of reviewing American Express Financial Corporation's performance under this
Agreement.
(2) The Trust agrees that it will furnish to American Express Financial
Corporation any information that the latter may reasonably request with respect
to the services performed or to be performed by American Express Financial
Corporation under this Agreement.
(3) It is understood and agreed that in furnishing the Trust with the services
as herein provided, neither American Express Financial Corporation, nor any
officer, trustee or agent thereof shall be held liable to the Trust or its
creditors or shareholders for errors of judgment or for anything except willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
reckless disregard of its obligations and duties under the terms of this
Agreement. It is further understood and agreed that American Express Financial
Corporation may rely upon information furnished to it reasonably believed to be
accurate and reliable.
Part Two: COMPENSATION FOR SERVICES
(1) The Trust agrees to pay to American Express Financial Corporation, and
American Express Financial Corporation covenants and agrees to accept from the
Trust in full payment for the services furnished, based on the net assets of the
Trust as set forth in the following table:
<PAGE>
PAGE 2
Assets Annual Rate At
(Billions) Each Asset Level
Insured
First $1 0.040%
Next 1 0.035
Next 1 0.030
Next 3 0.025
Over 6 0.020
Massachusetts, Michigan
Minnesota, New York
and Ohio
First $0.25 0.040%
Next 0.25 0.035
Next 0.25 0.030
Next 0.25 0.025
Over 1 0.020
The administrative fee for each calendar day of each year shall be equal to
1/365th (1/366th in each leap year) of the total amount computed. The
computation shall be made for each such day on the basis of net assets as of the
close of business of the full business day two (2) business days prior to the
day for which the computation is being made. In the case of the suspension of
the computation of net asset value, the administrative fee for each day during
such suspension shall be computed as of the close of business on the last full
business day on which the net assets were computed. As used herein, "net assets"
as of the close of a full business day shall include all transactions in shares
of the Trust recorded on the books of the Trust for that day.
(2) The administrative fee shall be paid on a monthly basis and, in the event of
the termination of this Agreement, the administrative fee accrued shall be
prorated on the basis of the number of days that this Agreement is in effect
during the month with respect to which such payment is made.
(3) The administrative fee provided for hereunder shall be paid in cash by the
Trust to American Express Financial Corporation within five (5) business days
after the last day of each month.
Part Three: ALLOCATION OF EXPENSES
(1) The Trust agrees to pay:
(a) Administrative fees payable to American Express Financial Corporation for
its services under the terms of this Agreement.
(b) Taxes.
(c) Fees and charges of its independent certified public
accountants for services the Trust requests.
<PAGE>
PAGE 3
(d) Fees and expenses of attorneys (i) it employs in matters not involving the
assertion of a claim by a third party against the Trust, its trustees and
officers, (ii) it employs in conjunction with a claim asserted by the Board of
Trustees against American Express Financial Corporation, except that American
Express Financial Corporation shall reimburse the Trust for such fees and
expenses if it is ultimately determined by a court of competent jurisdiction, or
American Express Financial Corporation agrees, that it is liable in whole or in
part to the Trust, and (iii) it employs to assert a claim against a third party.
(e) Fees paid for the qualification and registration for public sale of the
securities of the Trust under the laws of the United States and of the several
states in which such securities shall be offered for sale.
(f) Office expenses which shall include a charge for occupancy, insurance on the
premises, furniture and equipment, telephone, telegraph, electronic information
services, books, periodicals, published services, and office supplies used by
the Trust, equal to the cost of such incurred by American Express Financial
Corporation.
(g) Fees of consultants employed by the Trust.
(h) Trustees, officers and employees expenses which shall include fees,
salaries, memberships, dues, travel, seminars, pension, profit sharing, and all
other benefits paid to or provided for trustees, officers and employees,
trustees and officers liability insurance, errors and omissions liability
insurance, worker's compensation insurance and other expenses applicable to the
trustees, officers and employees, except the Trust will not pay any fees or
expenses of any person who is an officer or employee of American Express
Financial Corporation or its affiliates.
(i) Filing fees and charges incurred by the Trust in connection with filing any
amendment to its articles of incorporation, or incurred in filing any other
document with the State of Minnesota or its political subdivisions.
(j) Organizational expenses of the Trust.
(k) One-half of the Investment Company Institute membership dues charged jointly
to the IDS MUTUAL FUND GROUP and American Express Financial Corporation.
(l) Expenses properly payable by the Trust, approved by the Board
of Trustees.
(2) American Express Financial Corporation agrees to pay all expenses associated
with the services it provides under the terms of this Agreement. Further,
American Express Financial Corporation agrees that if, at the end of any month,
the expenses of the Trust under this Agreement and any other agreement between
the Trust and American Express Financial Corporation, but excluding those
expenses set forth in (1)(b) of this Part Three, exceed the most restrictive
applicable state expenses limitation, the Trust shall
<PAGE>
PAGE 4
not pay those expenses set forth in (1)(a) and (c) through (m) of this Part
Three to the extent necessary to keep the Trust's expenses from exceeding the
limitation, it being understood that American Express Financial Corporation will
assume all unpaid expenses and bill the Trust for them in subsequent months but
in no event can the accumulation of unpaid expenses or billing be carried past
the end of the Trust's fiscal year.
Part Four: MISCELLANEOUS
(1) American Express Financial Corporation shall be deemed to be an independent
contractor and, except as expressly provided or authorized in this Agreement,
shall have no authority to act for or represent the Trust.
(2) A "full business day" shall be as defined in the By-laws.
(3) The Trust recognizes that American Express Financial Corporation now renders
and may continue to render investment advice and other services to other
investment companies and persons which may or may not have investment policies
and investments similar to those of the Trust and that American Express
Financial Corporation manages its own investments and/or those of its
subsidiaries. American Express Financial Corporation shall be free to render
such investment advice and other services and the Trust hereby consents thereto.
(4) Neither this Agreement nor any transaction had pursuant hereto shall be
invalidated or in anyway affected by the fact that trustees, officers, agents
and/or shareholders of the Trust are or may be interested in American Express
Financial Corporation or any successor or assignee thereof, as trustees,
officers, stockholders or otherwise; that trustees, officers, stockholders or
agents of American Express Financial Corporation are or may be interested in the
Trust as trustees, officers, shareholders, or otherwise; or that American
Express Financial Corporation or any successor or assignee, is or may be
interested in the Trust as shareholder or otherwise, provided, however, that
neither American Express Financial Corporation, nor any officer, trustee or
employee thereof or of the Trust, shall sell to or buy from the Trust any
property or security other than shares issued by the Trust, except in accordance
with applicable regulations or orders of the United States Securities and
Exchange Commission.
(5) Any notice under this Agreement shall be given in writing, addressed, and
delivered, or mailed postpaid, to the party to this Agreement entitled to
receive such, at such party's principal place of business in Minneapolis,
Minnesota, or to such other address as either party may designate in writing
mailed to the other.
(6) American Express Financial Corporation agrees that no officer, trustee or
employee of American Express Financial Corporation will deal for or on behalf of
the Trust with himself as principal or agent, or with any corporation or
partnership in which he may have a financial interest, except that this shall
not prohibit officers, trustees or employees of American Express Financial
Corporation from having a financial interest in the Trust or in American Express
Financial Corporation.
<PAGE>
PAGE 5
(7) The Trust agrees that American Express Financial Corporation may subcontract
for certain of the services described under this Agreement with the
understanding that there shall be no diminution in the quality or level of the
services and that American Express Financial Corporation remains fully
responsible for the services.
(8) This Agreement shall extend to and shall be binding upon the parties hereto,
and their respective successors and assigns; provided, however, that this
Agreement shall not be assignable without the written consent of the other
party. This Agreement shall be governed by the laws of the State of Minnesota.
Part Five: RENEWAL AND TERMINATION
(1) This Agreement shall become effective on the date first set forth above (the
"Effective Date") and shall continue in effect from year to year thereafter as
the parties may mutually agree; provided that either party may terminate this
Agreement by giving the other party notice in writing specifying the date of
such termination, which shall be not less than 60 days after the date of receipt
of such notice.
(2) This Agreement may not be amended or modified in any manner except by a
written agreement executed by both parties.
IN WITNESS THEREOF, the parties hereto have executed the foregoing Agreement as
of the day and year first above written.
IDS SPECIAL TAX-EXEMPT SERIES TRUST IDS Insured 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
By: /s/Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL CORPORATION
By: /s/Janis E. Miller
Vice President
<PAGE>
PAGE 1
LICENSE AGREEMENT
American Express Financial Corporation
IDS Tower 10
Minneapolis, Mn 55440
Dear Sirs:
Each of the Funds named below hereby acknowledges that American Express
Financial Corporation is the owner of the trade name and marks "IDS" listed
below, and any predecessor names and marks.
American Express Financial Corporation hereby grants to each Fund the
non-exclusive right to use such marks for the purpose of offering, selling and
distributing any and all shares issued or to be issued by each Fund. This
license shall continue with respect to each Fund for as long as American Express
Financial Corporation continues to act as the investment manager for that Fund
and the Fund uses such marks in accordance with policies and procedures
established by American Express Financial Corporation.
American Express Financial Corporation and each Fund agree that in the conduct
of its respective business and activities and its rendering of services under
such marks it shall adhere to the highest ethical and business standards in the
mutual fund field and shall do nothing to bring disrepute to, nor to in any
manner damage, the good trade name and marks "IDS".
Trade Name
IDS
Mark Registration
"IDS" 881,460
"IDS" 881,461
"IDS" Application Serial Number 73/673,985
Sincerely yours,
IDS Bond Fund, Inc.
IDS Discovery Fund, Inc.
IDS Equity Select Fund, Inc.
IDS Extra Income Fund, Inc.
IDS Federal Income Fund, Inc.
IDS Global Series, Inc.
IDS Global Balanced Fund
IDS Global Bond Fund
IDS Global Growth Fund
IDS Emerging Markets Fund
IDS Innovations Fund
IDS Growth Fund, Inc.
IDS Growth Fund
IDS Research Opportunities
<PAGE>
PAGE 2
IDS High Yield Tax-Exempt Fund, Inc.
IDS International Fund, Inc.
IDS Investment Series, Inc.
IDS Diversified Equity Income Fund
IDS Mutual
IDS Managed Retirement Fund, Inc.
IDS Market Advantage Series, Inc.
IDS Blue Chip Advantage Fund
IDS Small Company Index Fund
IDS Money Market Series, Inc.
IDS Cash Management Fund
IDS New Dimensions Fund, Inc.
IDS Precious Metals Fund, Inc.
IDS Progressive Fund, Inc.
IDS Selective Fund, Inc.
IDS Stock Fund, Inc.
IDS Strategy Fund, Inc.
IDS Equity Value Fund
IDS Strategy Aggressive Fund
IDS Tax-Exempt Bond fund, Inc.
IDS Intermediate Tax-Exempt Bond Fund
IDS Tax-Free Money Fund, Inc.
IDS Utilities Income Fund, Inc.
IDS Life Investment Series, Inc.
IDS Life Aggressive Growth Fund
IDS Life Capital Resource Fund
IDS Life Growth Dimensions Fund
IDS Life International Equity Fund
IDS Life Managed Fund, Inc.
IDS Life Moneyshare Fund, Inc.
IDS Life Special Income Fund, Inc.
IDS Life Global Yield Fund
IDS Life Income Advantage Fund
IDS Life Special Income Fund
By:/s/William R. Pearce
William R. Pearce
President of each of the
above-named funds
Date: January 25, 1988
Accepted and agreed to:
American Express Financial Corporation
By:/s/John R. Thomas
John R. Thomas
Sr. Vice President
REF: ejn7-223
<PAGE>
PAGE 1
Independent auditors' consent
- -------------------------------------------------------------------
The board and shareholders
IDS California Tax-Exempt Trust
IDS Special Tax-Exempt Series Trust
We consent to the use of our reports incorporated herein by reference and to the
references to our Firm under the headings "Financial highlights" in Part A and
"INDEPENDENT AUDITORS" in Part B of the Registration Statement.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
August , 1997
<PAGE>
PAGE 1
Plan and Agreement of Distribution
This plan and agreement is between IDS Special Tax-Exempt Series Trust (the
"Trust"), on behalf of its underlying series funds and American Express
Financial Advisors Inc., the principal underwriter of the Trust, for
distribution services to the Trust. It is effective on the first day the Trust
offers multiple classes of
shares.
The plan and agreement has been approved by members of the Board of Trustees
(the "Board") of the Trust who are not interested persons of the Trust and have
no direct or indirect financial interest in the operation of the plan or any
related agreement, and all of the members of the Board, in person, at a meeting
called for the purpose of voting on the plan and agreement.
The plan and agreement provides that:
1. The Trust will reimburse American Express Financial Advisors for all sales
and promotional expenses attributable to the sale of Class B shares, including
sales commissions, business and employee expenses charged to distribution of
Class B shares, and corporate overhead appropriately allocated to the sale of
Class B shares.
2. The amount of the reimbursement shall be equal on an annual basis to 0.75% of
the average daily net assets of the Trust attributable to Class B shares. The
amount so determined shall be paid to American Express Financial Advisors in
cash within five (5) business days after the last day of each month. American
Express Financial Advisors agrees that if, at the end of any month, the expenses
of the Trust, including fees under this agreement and any other agreement
between the Trust and American Express Financial Advisors or American Express
Financial Corporation, but excluding taxes, brokerage commissions and charges in
connection with the purchase and sale of assets exceed the most restrictive
applicable state expense limitation for the Trust's current fiscal year, the
Trust shall not pay fees and expenses under this agreement to the extent
necessary to keep the Trust's expenses from exceeding the limitation, it being
understood that American Express Financial Advisors will assume all unpaid
expenses and bill the Trust for them in subsequent months, but in no event can
the accumulation of unpaid expenses or billing be carried past the end of the
Trust's fiscal year.
3. For each purchase of Class B shares, after eight years the Class B shares
will be converted to Class A shares and those assets will no longer be included
in determining the reimbursement amount.
4. The Trust understands that if a shareholder redeems Class B shares before
they are converted to Class A shares, American Express Financial Advisors will
impose a sales charge directly on the redemption proceeds to cover those
expenses it has previously incurred on the sale of those shares.
<PAGE>
PAGE 2
5. American Express Financial Advisors agrees to provide at least quarterly an
analysis of distribution expenses and to meet with representatives of the Trust
as reasonably requested to provide additional information.
6. The plan and agreement shall continue in effect for a period of more than one
year provided it is reapproved at least annually in the same manner in which it
was initially approved.
7. The plan and agreement may not be amended to increase materially the amount
that may be paid by the Trust without the approval of a least a majority of the
outstanding shares of Class B. Any other amendment must be approved in the
manner in which the plan and agreement was initially approved.
8. This agreement may be terminated at any time without payment of any penalty
by a vote of a majority of the members of the Board who are not interested
persons of the Trust and have no financial interest in the operation of the plan
and agreement, or by vote of a majority of the outstanding Class B shares, or by
American Express Financial Advisors. The plan and agreement will terminate
automatically in the event of its assignment as that term is defined in the
Investment Company Act of 1940.
Approved this 20th day of March, 1995.
IDS SPECIAL TAX-EXEMPT SERIES TRUST IDS Insured 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
/s/Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
/s/Janis E. Miller
Janis E. Miller
Vice President
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<INTEREST-INCOME> 4577544
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<REALIZED-GAINS-CURRENT> 244141
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<DISTRIBUTIONS-OF-INCOME> 3608530
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<SHARES-REINVESTED> 517292
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<NAME> IDS MASSACHUSETTS TAX-EXEMPT FUND CLASS Y
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<NAME> IDS MICHIGAN TAX-EXEMPT FUND CLASS A
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<NAME> IDS MICHIGAN TAX-EXEMPT FUND CLASS B
<S> <C>
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<TABLE> <S> <C>
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<NAME> IDS MICHIGAN TAX-EXEMPT FUND CLASS Y
<S> <C>
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<NAME> IDS MINNESOTA TAX-EXEMPT FUND CLASS A
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<NAME> IDS MINNESOTA TAX-EXEMPT FUND CLASS B
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<TABLE> <S> <C>
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<NAME> IDS MINNESOTA TAX-EXEMPT FUND CLASS Y
<S> <C>
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<NAME> IDS NEW YORK TAX-EXEMPT FUND CLASS A
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<NAME> IDS NEW YORK TAX-EXEMPT FUND CLASS B
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 15
<NAME> IDS NEW YORK TAX-EXEMPT FUND CLASS Y
<S> <C>
<PERIOD-TYPE> 12-MOS
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<OVERDISTRIBUTION-GAINS> 3177889
<ACCUM-APPREC-OR-DEPREC> 7804286
<NET-ASSETS> 1144
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> IDS OHIO TAX-EXEMPT FUND CLASS A
<S> <C>
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<PERIOD-END> JUN-30-1997
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 17
<NAME> IDS OHIO TAX-EXEMPT FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
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<TOTAL-LIABILITIES> 69413
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<PAID-IN-CAPITAL-COMMON> 67343656
<SHARES-COMMON-STOCK> 658475
<SHARES-COMMON-PRIOR> 414378
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<ACCUMULATED-NET-GAINS> (1692471)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4470817
<NET-ASSETS> 3539331
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4492346
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<EXPENSES-NET> 602692
<NET-INVESTMENT-INCOME> 3889654
<REALIZED-GAINS-CURRENT> 204013
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<NET-CHANGE-FROM-OPS> 5104770
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (129674)
<DISTRIBUTIONS-OF-GAINS> (297)
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<NUMBER-OF-SHARES-SOLD> 339467
<NUMBER-OF-SHARES-REDEEMED> 113803)
<SHARES-REINVESTED> 18433
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<PER-SHARE-NAV-BEGIN> 5.28
<PER-SHARE-NII> .25
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 18
<NAME> IDS OHIO TAX-EXEMPT FUND CLASS Y
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 64606778
<INVESTMENTS-AT-VALUE> 690091185
<RECEIVABLES> 985787
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<TOTAL-ASSETS> 70212204
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<OTHER-ITEMS-LIABILITIES> 66584
<TOTAL-LIABILITIES> 69413
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<PAID-IN-CAPITAL-COMMON> 67343656
<SHARES-COMMON-STOCK> 214
<SHARES-COMMON-PRIOR> 202
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1692471)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4470817
<NET-ASSETS> 1153
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4492346
<OTHER-INCOME> 0
<EXPENSES-NET> 602692
<NET-INVESTMENT-INCOME> 3889654
<REALIZED-GAINS-CURRENT> 204013
<APPREC-INCREASE-CURRENT> 744941
<NET-CHANGE-FROM-OPS> 5104770
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (62)
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<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 12
<NET-CHANGE-IN-ASSETS> (3675489)
<ACCUMULATED-NII-PRIOR> 695
<ACCUMULATED-GAINS-PRIOR> (2155221)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> IDS INSURED TAX-EXEMPT FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 454600456
<INVESTMENTS-AT-VALUE> 490904655
<RECEIVABLES> 8662530
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<TOTAL-ASSETS> 499629685
<PAYABLE-FOR-SECURITIES> 5332884
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<OTHER-ITEMS-LIABILITIES> 601785
<TOTAL-LIABILITIES> 5934669
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 470893648
<SHARES-COMMON-STOCK> 83920040
<SHARES-COMMON-PRIOR> 90424927
<ACCUMULATED-NII-CURRENT> 438514
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (14063415)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36426269
<NET-ASSETS> 462300946
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 31085631
<OTHER-INCOME> 0
<EXPENSES-NET> 3902589
<NET-INVESTMENT-INCOME> 27183042
<REALIZED-GAINS-CURRENT> (1176907)
<APPREC-INCREASE-CURRENT> 8442998
<NET-CHANGE-FROM-OPS> 34449133
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (25736641)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 6218449
<NUMBER-OF-SHARES-REDEEMED> (15964818)
<SHARES-REINVESTED> 3241482
<NET-CHANGE-IN-ASSETS> (17927533)
<ACCUMULATED-NII-PRIOR> 160320
<ACCUMULATED-GAINS-PRIOR> (12842656)
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<GROSS-EXPENSE> 3957864
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<PER-SHARE-NII> .30
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> IDS INSURED TAX-EXEMPT FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 454600456
<INVESTMENTS-AT-VALUE> 490904655
<RECEIVABLES> 8662530
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 499629685
<PAYABLE-FOR-SECURITIES> 5332884
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<OTHER-ITEMS-LIABILITIES> 601785
<TOTAL-LIABILITIES> 5934669
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 470893648
<SHARES-COMMON-STOCK> 5699121
<SHARES-COMMON-PRIOR> 3831110
<ACCUMULATED-NII-CURRENT> 438514
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (14063415)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36426269
<NET-ASSETS> 31392921
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 31085631
<OTHER-INCOME> 0
<EXPENSES-NET> 3902589
<NET-INVESTMENT-INCOME> 27183042
<REALIZED-GAINS-CURRENT> (1176907)
<APPREC-INCREASE-CURRENT> 8442998
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1211996)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 2423964
<NUMBER-OF-SHARES-REDEEMED> (726159)
<SHARES-REINVESTED> 170206
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> IDS INSURED TAX-EXEMPT FUND CLASS Y
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 454600456
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<TOTAL-LIABILITIES> 5934669
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 470893648
<SHARES-COMMON-STOCK> 208
<SHARES-COMMON-PRIOR> 197
<ACCUMULATED-NII-CURRENT> 438514
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (14063415)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36426269
<NET-ASSETS> 1149
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 31085631
<OTHER-INCOME> 0
<EXPENSES-NET> 3902589
<NET-INVESTMENT-INCOME> 27183042
<REALIZED-GAINS-CURRENT> (1176907)
<APPREC-INCREASE-CURRENT> 8442998
<NET-CHANGE-FROM-OPS> 34449133
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (63)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 11
<NET-CHANGE-IN-ASSETS> (17927533)
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</TABLE>
<PAGE>
PAGE 1
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
<PAGE>
PAGE 2
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 8th day of January, 1997.
/s/ H. Brewster Atwater, Jr. /s/ Melvin R. Laird
H. Brewster Atwater, Jr. Melvin R. Laird
/s/ Lynne V. Cheney /s/ William R. Pearce
Lynne V. Cheney William R. Pearce
/s/ William H. Dudley /s/ Alan K. Simpson
William H. Dudley Alan K. Simpson
/s/ Robert F. Froehlke /s/ Edson W. Spencer
Robert F. Froehlke Edson W. Spencer
/s/ David R. Hubers /s/ John R. Thomas
David R. Hubers John R. Thomas
/s/ Heinz F. Hutter /s/ Wheelock Whitney
Heinz F. Hutter Wheelock Whitney
/s/ Anne P. Jones /s/ C. Angus Wurtele
Anne P. Jones C. Angus Wurtele
<PAGE>
PAGE 1
OFFICERS POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as officers 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 Life Investment Series, Inc. 2-73115 811-3218
IDS Life Managed Fund, Inc. 2-96367 811-4252
IDS Life Moneyshare Fund, Inc. 2-72584 811-3190
IDS Life Special Income Fund, Inc. 2-73113 811-3219
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, as an officer, 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
<PAGE>
PAGE 2
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 1st day of November, 1995.
/s/ William R. Pearce
William R. Pearce
/s/ Melinda S. Urion
Melinda S. Urion
