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. 30 (File No. 33-5102) X
---- --
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 33 (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. 28, 1998 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.
<PAGE>
Cross reference sheet showing the location in the prospectus and Statement of
Additional Information of the information called for by items enumerated in
Parts A and B of Form N-1A.
Negative answers omitted are so indicated.
<PAGE>
PART A
Item No. Section in Prospectus
1 Cover page of prospectus
2 (a) Sales charge and Fund expenses
(b) The Fund in brief
(c) The Fund in brief
3 (a) Financial highlights
(b) NA
(c) Performance
(d) Financial highlights
4 (a) The Fund in brief; Investment policies and risks; How the Fund
is organized
(b) Investment policies and risks
(c) Investment policies and risks
5 (a) Board members and officers
(b)(i) Investment manager; About American Express Financial Corporation
- General information
(b)(ii) Investment manager
(b)(iii) Investment manager
(c) Portfolio manager
(d) Administrator and transfer agent
(e) Administrator and transfer agent
(f) Distributor
(g) Investment manager; About American Express Financial Corporation
- General information
5A(a) *
(b) *
6 (a) Shares; Voting rights
(b) NA
(c) NA
(d) Voting rights
(e) Cover page; Special shareholder services
(f) Dividend and capital gain distributions; Reinvestments
(g) Taxes
(h) Alternative purchase arrangements
7 (a) Distributor
(b) Valuing Fund shares
(c) How to purchase, exchange or redeem shares
(d) How to purchase shares
(e) NA
(f) Distributor
(g) Alternative purchase arrangements; Reductions and waivers of the
sales charge
8 (a) How to redeem shares
(b) NA
(c) How to purchase shares: Three ways to invest
(d) How to purchase, exchange or redeem shares: Redemption policies
- "Important...
9 None
PART B
Item No. Section in Statement of Additional Information
10 Cover page of SAI
11 Table of Contents
12 NA
13 (a) Additional Investment Policies; all appendices except Dollar-Cost
Averaging
(b) Additional Investment Policies
(c) Additional Investment Policies
(d) Security Transactions
14 (a) Board members and officers**; Board Members and Officers
(b) Board Members and Officers
(c) Board Members and Officers
15 (a) NA
(b) Principal Holders of Securities, if applicable
(c) Board Members and Officers
16 (a)(i) How the Fund is organized; About the American Express Financial
Corporation**
(a)(ii) Agreements: Investment Management Services Agreement, Plan and
Agreement of Distribution
(a)(iii) Agreements: Investment Management Services Agreement
(b) Agreements: Investment Management Services Agreement
(c) NA
(d) Agreements: Administrative Services Agreement, Shareholder
Service Agreement
(e) NA
(f) Agreement: Distribution Agreement
(g) NA
(h) Custodian Agreement; Independent Auditors
(i) Agreements: Transfer Agency Agreement; Custodian Agreement
17 (a) Security Transactions
(b) Brokerage Commissions Paid to Brokers Affiliated with American
Express Financial Corporation
(c) Security Transactions
(d) Security Transactions
(e) Security Transactions
18 (a) Shares; Voting rights**
(b) NA
19(a) Investing in the Fund
(b) Valuing Fund Shares; Investing in the Fund
(c) Redeeming Shares
20 Taxes
21 (a) Agreements: Distribution Agreement
(b) NA
(c) NA
22 (a) Performance Information (for money market funds only)
(b) Performance Information (for all funds except money market funds)
23 Financial Statements
* Designates information is located in annual report.
** Designates location in prospectus.
<PAGE>
1
IDS California Tax-Exempt Trust
IDS Special Tax-Exempt Series Trust
California Tax-Exempt Fund
Massachusetts Tax-Exempt Fund
Michigan Tax-Exempt Fund
Minnesota Tax-Exempt Fund
New York Tax-Exempt Fund
Ohio Tax-Exempt Fund
Prospectus
August 28, 1998
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 a Fund is the right
investment for you. Read it before you invest and keep it for future reference.
Additional facts about each Fund are in a Statement of Additional Information
(SAI), filed with the Securities and Exchange Commission (SEC) and available for
reference, along with other related materials, on the SEC Internet web site
(http://www.sec.gov). The SAI is incorporated by reference. For a free copy,
contact American Express Shareholder Service.
Like all mutual fund shares, these securities have not been approved or
disapproved by the Securities and Exchange Commission or any state securities
commission, nor has the Securities and Exchange Commission or any state
securities commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
Please note that the 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
<PAGE>
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 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
<PAGE>
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
Year 2000
Appendices
Description of bond ratings
1998 state tax-exempt and taxable equivalent yield calculations
Descriptions of derivative instruments
<PAGE>
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 this
prospectus titled "Investment policies and risks."
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 $80
billion in assets for the IDS MUTUAL FUND GROUP. Shares of the Funds are sold
through American Express Financial Advisors Inc. (AEFA), a wholly-owned
subsidiary of AEFC.
Portfolio manager
Paul Hylle joined AEFC in 1993 and serves as portfolio manager for each Fund. 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>
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 each
Fund's daily share price and dividends, and are not charged directly to
shareholder accounts.
Shareholder transaction expenses
<TABLE>
<CAPTION>
Maximum sales charge on purchases (as a percentage of offering price)*
<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** 0.28% 0.28%
Total 0.75% 1.50%
Massachusetts
Class A Class B
Management fee 0.47% 0.47%
12b-1 fee 0.00% 0.75%
Other expenses** 0.35% 0.35%
Total 0.82% 1.57%
<PAGE>
Michigan
Class A Class B
Management fee 0.47% 0.47%
12b-1 fee 0.00% 0.75%
Other expenses** 0.35% 0.35%
Total 0.82% 1.57%
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** 0.32% 0.33%
Total 0.79% 1.55%
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.
<PAGE>
Example: Suppose for each year for the next 10 years, Fund expenses are as above
and annual return is 5%. If you sold your shares at the end of the following
years, for each $1,000 invested, you would pay total expenses of:
California
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**
Massachusetts
1 year 3 years 5 years 10 years
Class A $58 $75 $ 93 $147
Class B $66 $90 $106 $167**
Class B* $16 $50 $ 86 $167**
Michigan
1 year 3 years 5 years 10 years
Class A $58 $75 $ 93 $147
Class B $66 $90 $106 $167**
Class B* $16 $50 $ 86 $167**
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**
New York
1 year 3 years 5 years 10 years
Class A $58 $74 $ 92 $143
Class B $66 $89 $105 $164**
Class B* $16 $49 $ 85 $164**
<PAGE>
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 in the ninth year.
This example does not represent actual expenses, past or future. Actual expenses
may be higher or lower than those shown. Because Class B pays annual
distribution (12b-1) fees, long-term shareholders of Class B may indirectly pay
an equivalent of more than a 6.25% sales charge, the maximum permitted by the
National Association of Securities Dealers.
Performance
Financial highlights
<TABLE>
<CAPTION>
Performance
IDS California Tax-Exempt Trust
IDS California Tax-Exempt Fund
Financial highlights
Fiscal period ended June 30,
Per share income and capital changes(a)
Class A
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989c 1988b
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
beginning of period
Income from investment operations:
Net investment .29 .29 .28 .30 .31 .30 .31 .32 .32 .16 .32
income (loss)
Net gains (losses) .11 .10 .02 .03 (.28) .23 .24 .05 (.08) .15 .16
(both realized
and unrealized)
Total from investment .40 .39 .30 .33 .03 .53 .55 .37 .24 .31 .48
operations
Less distributions:
Distributions from net (.29) (.29) (.28) (.30) (.31) (.30) (.31) (.32) (.32) (.16) (.32)
investment income
Distributions from -- (.01) (.03) -- -- -- -- -- -- -- --
realized gains
Total distributions (.29) (.30) (.31) (.30) (.31) (.30) (.31) (.32) (.32) (.16) (.32)
Net asset value, $5.35 $5.24 $5.15 $5.16 $5.13 $5.41 $5.18 $4.94 $4.89 $4.97 $4 .82
end of period
Ratios/supplemental data:
Class
A
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989c 1988b
Net assets, end of $239 $232 $234 $239 $255 $261 $222 $185 $142
$95 $63
period (in millions)
Ratio of expenses to .75%% .77%+ .80% .65% .61% .63% .64% .60% .62% .64%e .72%
average daily net
assets(d)
Ratio of net income 5.24% 5.64% 5.40% 5.89% 5.67% 5.78% 6.16% 6.51% 6.53% 6.67%e 6.61%
(loss)
to average daily net
assets
Portfolio turnover 15% 14% 15% 48% 27% 5% 7% 23% 20% 6% 13%
rate
(excluding short-term
securities)
Total return(f) 7.7% 7.8% 6.0% 6.5% .4% 10.8% 11.4% 7.7% 5.0% 6.5% 10.5%
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Fiscal year ended 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 Effective fiscal year 1996, expense ratio is based on total expenses of the
Fund before reduction of earnings credits on cash balances.
e Adjusted to an annual basis.
f Total return does not reflect payment of a sales charge.
</TABLE>
<PAGE>
IDS California Tax-Exempt Trust
IDS California Tax-Exempt Fund
Financial highlights
Fiscal period ended June 30,
Per share income and capital changesa
Class
B
1998 1997 1996 1995b
Net asset value, $5.24 $5.15 $5.16 $5.21
beginning of period
Income from investment operations:
Net investment .25 .25 .24 .09
income (loss)
Net gains (losses) .11 .10 .02
(.05)
(both realized
and unrealized)
Total from investment .36 .35 .26 .04
operations
Less distributions:
Distributions from net (.25) (.25) (.24) (.09)
investment income
Distributions from -- (.01) (.03) --
realized gains
Total distributions (.25) (.26) (.27) (.09)
Net asset value, $5.35 $5.24 $5.15 $5.16
end of period
Ratios/supplemental data:
Class
B
1998 1997 1996 1995b
Net assets, end of $15 $10 $6 $2
period (in millions)
Ratio of expenses to 1.5% 1.52% 1.57% 1.51%d
average daily net
assets(c)
Ratio of net income 4.50% 4.94% 4.64% 4.87%d
(loss)
to average daily net
assets
Portfolio turnover 15% 14% 15% 48%
rate
(excluding short-term
securities)
Total return(e) 6.9% 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 Effective fiscal year 1996, expense ratio is based on total
expenses of the Fund before reduction of earnings credits on cash balances.
d Adjusted to an annual basis.
e Total return does not reflect payment of a sales charge.
<PAGE>
<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
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $5.42 $5.30 $5.27 $5.24 $5.49 $5.20 $4.96 $4.88 $5.01 $4.91
beginning of period
Income from investment operations:
Net investment .29 .29 .28 .30 .30 .30 .31 .32 .32 .32
income (loss)
Net gains (losses) .14 .12 .03 .03 (.25) .29 .24 .08 (.12) .12
(both realized
and unrealized)
Total from investment .43 .41 .31 .33 .05 .59 .55 .40 .20 .44
operations
Less distributions:
Distributions from net (.29) (.29) (.28) (.30) (.30) (.30) (.31) (.32) (.32) (.32)
investment income
Distributions from -- -- -- -- -- -- -- -- (.01) (.02)
realized gains
Total distributions (.29) (.29) (.28) (.30) (.30) (.30) (.31) (.32) (.33) (.34)
Net asset value, $5.56 $5.42 $5.30 $5.27 $5.24 $5.49 $5.20 $4.96 $4.88 $5.01
end of period
Ratios/supplemental data:
Class
A
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
Net assets, end of $67 $67 $68 $68 $72 $64 $44 $27 $19 $13
period (in millions)
Ratio of expenses to .82% .84% .86% .72% .69% .72% .72% .69% .70% .84%
average daily net
assets(b)
Ratio of net income 5.17% 5.32% 5.26% 5.74% 5.40% 5.57% 6.05% 6.53% 6.59% 6.55%
(loss)
to average daily net
assets
Portfolio turnover rate 9% 8% 6% 16% 6% --% 2% 16% 36% 25%
(excluding short-term
securities)
Total return(c) 8.1% 7.8% 6.0% 6.5% .9% 11.5% 11.4% 8.5% 4.2% 9.2%
a For a share outstanding throughout the period. Rounded to the nearest cent. b
Effective fiscal year 1996, expense ratio is based on total
expenses of the Fund before reduction of earnings credits on cash balances.
c Total return does not reflect payment of a sales charge.
</TABLE>
<PAGE>
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 B
1998 1997 1996 1995b
Net asset value, $5.42 $5.30 $5.27 $5.31
beginning of period
Income from investment operations:
Net investment .24 .25 .24 .09
income (loss)
Net gains (losses) .14 .12 .03 (.04)
(both realized
and unrealized)
Total from investment .38 .37 .27 .05
operations
Less distributions:
Distributions from net (.24) (.25) (.24) (.09)
investment income
Net asset value, $5.56 $5.42 $5.30 $5.27
end of period
Ratios/supplemental data:
Class B
1998 1997 1996 1995b
Net assets, end $13 $8 $6 $2
of
period (in
millions)
Ratio of expenses to 1.57% 1.59% 1.63% 1.59%d
average daily net
assets(c)
Ratio of net income 4.43% 4.58% 4.51% 4.83%d
(loss)
to average daily net
assets
Portfolio turnover rate 9% 8% 6% 16%
(excluding short-term
securities)
Total return(e) 7.3% 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 Effective fiscal year 1996, expense ratio is based on total
expenses of the Fund before reduction of earnings credit on cash balances.
d Adjusted to an annual basis.
e Total return does not reflect payment of a sales charge.
<PAGE>
<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
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $5.44 $5.36 $5.39 $5.35 $5.60 $5.31 $5.04 $4.96 $5.08 $4.85
beginning of period
Income from investment operations:
Net investment .29 .29 .30 .30 .31 .31 .32 .32 .32 .32
income (loss)
Net gains (losses) .13 .08 .04 .05 (.25) .29 .27 .08 (.12) .23
(both realized
and unrealized)
Total from investment .42 .37 .34 .35 .06 .60 .59 .40 .20 .55
operations
Less distributions:
Distributions from net (.29) (.29) (.30) (.31) (.31) (.31) (.32) (.32) (.32) (.32)
investment income
Distributions from -- -- (.07) -- -- -- -- -- -- --
realized gains
Total distributions (.29) (.29) (.37) (.31) (.31) (.31) (.32) (.32) (.32) (.32)
Net asset value, $5.57 $5.44 $5.36 $5.39 $5.35 $5.60 $5.31 $5.04 $4.96 $5.08
end of period
Ratios/supplemental data:
Class
A
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
Net assets, end of $77 $77 $79 $78 $77 $72 $55 $41 $29 $16
period (in millions)
Ratio of expenses to .82% .81% .82% .70% .65% .68% .67% .67% .71% .81%
average daily net
assets(b)
Ratio of net income 5.19% 5.38% 5.37% 5.71% 5.43% 5.64% 6.18% 6.45% 6.47% 6.50%
(loss)
to average daily net
assets
Portfolio turnover 10% 21% 29% 48% 16% 2% --% 3% 5% 10%
rate
(excluding short-term
securities)
Total return(c) 7.7% 7.1% 6.3% 6.6% 1.0% 11.6% 12.0% 8.3% 4.1% 11.7%
a For a share outstanding throughout the period. Rounded to the nearest cent. b
Effective fiscal year 1996, expense ratio is based on total
expenses of the Fund before reduction of earnings credits on cash balances.
c Total return does not reflect payment of a sales charge.
</TABLE>
<PAGE>
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 B
1998 1997 1996 1995b
Net asset value, $5.44 $5.36 $5.39 $5.43
beginning of period
Income from investment operations:
Net investment .25 .25 .25 .09
income (loss)
Net gains (losses) .13 .08 .04 (.04)
(both realized
and unrealized)
Total from investment .38 .33 .29 .05
operations
Less distributions:
Distributions from net (.25) (.25) (.25) (.09)
investment income
Distributions from -- -- (.07) --
realized gains
Total distributions (.25) (.25) (.32) (.09)
Net asset value, $5.57 $5.44 $5.36 $5.39
end of period
Ratios/supplemental data:
Class B
1998 1997 1996 1995b
Net assets, end of $5 $4 $3 $1
period (in millions)
Ratio of expenses to 1.57% 1.56% 1.59% 1.62%c
average daily net
assets(d)
Ratio of net income 4.44% 4.65% 4.63% 4.89%c
(loss)
to average daily net
assets
Portfolio turnover 10% 21% 29% 48%
rate
(excluding short-term
securities)
Total return(e) 6.9% 6.3% 5.6% .9%
a For a share outstanding throughout the period. Rounded to the nearest cent. b
nception 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>
<TABLE>
<CAPTION>
Performance
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
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989c 1988b
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
beginning of period
Income from investment operations:
Net investment .30 .31 .30 .31 .31 .31 .33 .33 .32 .16 .33
income (loss)
Net gains (losses) .11 .10 .01 .03 (.28) .22 .21 .06 (.10) .19 .10
(both realized
and unrealized)
Total from investment .41 .41 .31 .34 .03 .53 .54 .39 .22 .35 .43
operations
Less distributions:
Distributions from net (.30) (.31) (.30) (.31) (.31) (.31) (.33) (.33) (.32) (.16) (.33)
investment income
Net asset value, $5.41 $5.30 $5.20 $5.19 $5.16 $5.44 $5.22 $5.01 $4.95 $5.05 $4.86
end of period
Ratios/supplemental data:
Class
A
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989c 1988b
Net assets, end of $385 $376 $393 $403 $408 $402 $313 $233 $181 $121 $82
period (in millions)
Ratio of expenses to .75% .75%+ .80% .67% .66% .67% .66% .63% .64% .65%e .65%
average daily net
assets(d)
Ratio of net income 5.61% 5.81% 5.66% 6.01% 5.73% 5.91% 6.43% 6.67% 6.62% 6.84%ee 6.73%
(loss)
to average daily net
assets
Portfolio turnover 8% 14% 13% 28% 13% 2% 7% 10% 8% --% 14%
rate
(excluding short-term
securities)
Total return(f) 8.0% 8.1% 5.9% 6.8% .4% 10.5% 11.0% 8.2% 4.8% 7.4% 9.3%
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Fiscal year ended 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 Effective fiscal year 1996, expense ratio is based on total expenses of the
Fund before reduction of earnings credits on cash balances.
e Adjusted to an annual basis.
f Total return does not reflect payment of a sales charge.
</TABLE>
<PAGE>
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
B
1998 1997 1996 1995b
Net asset value, $5.30 $5.20 $5.19 $5.24
beginning of period
Income from investment operations:
Net investment .26 .27 .26 .09
income (loss)
Net gains (losses) .11 .10 .01 (.05)
(both realized
and unrealized)
Total from investment .37 .37 .27 .04
operations
Less distributions:
Distributions from net (.26) (.27) (.26) (.09)
investment income
Net asset value, $5.41 $5.30 $5.20 $5.19
end of period
Ratios/supplemental data:
Class
B
1998 1997 1996 1995b
Net assets, end of $31 $22 $16 $4
period (in millions)
Ratio of expenses to 1.50% 1.50% 1.57% 1.27%d
average daily net
assets(c)
Ratio of net income 4.86% 5.05% 4.94% 5.40%d
(loss)
to average daily net
assets
Portfolio turnover 8% 14% 13% 28%
rate
(excluding short-term
securities)
Total return(e) 7.2% 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 Effective fiscal year 1996, expense ratio
is based on total expenses of
the Fund before reduction of earnings credits on cash balances.
d Adjusted to an annual basis.
e Total return does not reflect payment of a sales charge.
<PAGE>
<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 changesa
Class A
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989c 1988b
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
beginning of period
Income from investment operations:
Net investment .27 .28 .29 .30 .30 .30 .31 .31 .31 .16 .31
income (loss)
Net gains (losses) .14 .09 (.03) (.03) (.29) .28 .27 .06 (.07) .14 .15
(both realized
and unrealized)
Total from investment .41 .37 .26 .27 .01 .58 .58 .37 .24 .30 .46
operations
Less distributions:
Distributions from net (.27) (.28) (.29) (.30) (.30) (.30) (.31) (.31) (.31) (.16) (.31)
investment income
Net asset value, $5.29 $5.15 $5.06 $5.09 $5.12 $5.41 $5.13 $4.86 $4.80 $4.87 $4.73
end of period
Ratios/supplemental data
Class A
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989c 1988b
Net assets, end of $105 $108 $115 $120 $120 $117 $95 $79 $68 $49 $34
period (in millions)
Ratio of expenses to .79% .81% .82% .70% .65% .67% .67% .65% .65% .66%e .71%
average daily net assets(d)
Ratio of net income 5.22% 5.55% 5.51% 6.00% 5.61% 5.79% 6.26% 6.53% 6.57% 6.78%e 6.61%
(loss) to average daily
net assets
Portfolio turnover rate 10% 12% 9% 20% 10% --% 8% 17% 8% 1% 6%
(excluding short-term
securities)
Total return(f) 8.2% 7.6% 5.2% 5.5% .1% 11.6% 12.3% 8.2% 5.0% 6.5% 10.3%
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Fiscal year ended 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 Effective fiscal year 1996, expense ratio is based on total expense of the
Fund before reduction of earnings credits on cash balances.
e Adjusted to an annual basis.
f Total return does not reflect payment of a sales charge.
</TABLE>
<PAGE>
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
1998 1997 1996 1995b
Net asset value, $5.15 $5.06 $5.09 $5.17
beginning of period
Income from investment operations:
Net investment .23 .25 .25 .09
income (loss)
Net gains (losses) .14 .09 (.03) (.08)
(both realized
and unrealized
Total from investment .37 .34 .22 .01
operations
Less distributions:
Distributions from net (.23) (.25) (.25) (.09)
investment income
Net asset value, $5.29 $5.15 $5.06 $5.09
end of period
Ratios/supplemental data
Class B
1998 1997 1996 1995(b)
Net assets, end of $10 $8 $5 $2
period (in millions)
Ratio of expenses to 1.55% 1.56% 1.59% 1.59%d
average daily net assets(c)
Ratio of net income (loss) 4.47% 4.81% 4.79% 5.42%d
to average daily net assets
Portfolio turnover rate 10% 12% 9% 20%
(excluding short-term
securities)
Total return(e) 7.4% 6.8% 4.4% .2%
a For a share outstanding throughout the period. Rounded to the nearest cent. b
Inception date was March 20, 1995. c Effective fiscal year 1996, expense ratio
is based on total expense of the
Fund before reduction of earnings credits on cash balances.
d Adjusted to an annual basis.
e Total return does not reflect payment of a sales charge.
<PAGE>
<TABLE>
<CAPTION>
IDS Special Tax-Exempt Series Trust
IDS Ohio Tax-Exempt Fund
Fiscal period ended June 30,
Per share income and capital changes(a)
Class A
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $5.38 $5.28 $5.28 $5.26 $5.58 $5.28 $5.01 $4.94 $5.04 $4.87
beginning of period
Income from investment operations:
Net investment .29 .29 .29 .29 .30 .30 .31 .32 .31 .31
income (loss)
Net gains (losses) .12 .10 .01 .03 (.32) .31 .27 .07 (.09) .18
(both realized
and unrealized)
Total from investment .41 .39 .30 .32 (.02) .61 .58 .39 .22 .49
operations
Less distributions:
Distributions from net (.29) (.29) (.29) (.30) (.30) (.30) (.31) (.32) (.31) (.31)
investment income
Distributions from -- -- (.01) -- -- (.01) -- -- (.01) (.01)
realized gains
Total distributions (.29) (.29) (.30) (.30) (.30) (.31) (.31) (.32) (.32) (.32)
Net asset value, $5.50 $5.38 $5.28 $5.28 $5.26 $5.58 $5.28 $5.01 $4.94 $5.04
end of period
Ratios/supplemental data:
Class A
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
Net assets, end of $67 $67 $72 $73 $72 $65 $47 $33 $25 $16
period (in millions)
Ratio of expenses to .83% .83% .85% .71% .66% .67% .70% .68% .70% .82%
average daily net assets(b)
Ratio of net income 5.22% 5.46% 5.35% 5.65% 5.44% 5.65% 6.14% 6.41% 6.43% 6.40%
(loss)
to average daily net
assets
Portfolio turnover rate 10% 9% 24% 45% 11% --% 5% 2% 6% 10%
(excluding short-term
securities)
Total return(c) 7.8% 7.4% 5.7% 6.2% (.5%) 12.1% 11.9% 8.1% 4.6% 10.5%
a For a share outstanding throughout the period. Rounded to the nearest cent. b
Effective fiscal year 1996, expense ratio is based on total
expense of the Fund before reduction of earnings credits on cash balances.
c Total return does not reflect payment of a sales charge.
</TABLE>
<PAGE>
IDS Special Tax-Exempt Series Trust
IDS Ohio Tax-Exempt Fund
Fiscal period ended June 30,
Per share income and capital changesa
Class
B
1998 1997 1996 1995b
Net asset value, $5.38 $5.28 $5.28 $5.34
beginning of period
Income from investment operations:
Net investment .24 .25 .24 .09
income (loss)
Net gains (losses) .13 .10 .01 (.06)
(both realized
and unrealized)
Total from investment .37 .35 .25 .03
operations
Less distributions:
Distributions from net (.25) (.25) (.24) (.09)
investment income
Distributions from -- -- (.01) --
realized gains
Total distributions (.25) (.25) (.25) (.09)
Net asset value, $5.50 $5.38 $5.28 $5.28
end of period
Ratios/supplemental data:
Class
B
1998 1997 1996 1995b
Net assets, end of $5 $4 $2 $1
period (in millions)
Ratio of expenses to 1.59% 1.59% 1.59% 1.66%
d
average daily net
assetsc
Ratio of net income 4.47% 4.74% 4.63% 4.58%
(loss) d
to average daily net
assets
Portfolio turnover 10% 9% 24% 45%
rate
(excluding short-term
securities)
Total returne 7.0% 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 Effective fiscal year 1996, expense ratio is based on total
expenses of the Fund before reduction of earnings credits on cash balances.
d Adjusted to an annual basis.
e Total return does not reflect payment of a sales charge.
<PAGE>
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.
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, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Purchase 1 year Since 5 years 10 years
made ago inception ago ago
- ---------------------- ------------------- ------------------ ------------------- ------------------
California Fund:
Class A +2.34% --% +4.57% +6.98%
Class B +2.94% +5.17%* --% --%
Massachusetts Fund:
Class A +2.72% --% +4.74% +6.81%
Class B +3.32% +5.39%* --% --%
Michigan Fund:
Class A +2.28% --% +4.64% +7.04%`
Class B +2.86% +5.11%* --% --%
Minnesota Fund:
Class A +2.56% --% +4.71% +7.02%
Class B +3.17% +5.44%* --% --%
New York Fund:
Class A +2.75% --% +4.19% +7.02%
Class B +3.35% +4.92%* --% --%
Ohio Fund:
Class A +2.40% --% +4.22% +6.78%
Class B +2.98% +4.98%* --% --%
Lehman Brothers Municipal +8.65% +7.38%** +6.07% +7.97%
Bond Index
*Inception date was March 20, 1995.
**Measurement period started April 1, 1995.
Cumulative total returns as of June 30, 1998
Purchase 1 year Since 5 years 10 years
made ago inception ago ago
- ---------------------- ------------------- ------------------ ------------------- ------------------
California Fund:
Class A +2.34% --% +25.04% +96.36%
Class B +2.94% +17.98%* --% --%
Massachusetts Fund:
Class A +2.72% --% +26.05% +93.19%
Class B +3.32% +18.80%* --% --%
Michigan Fund:
Class A +2.28% --% +25.48% +97.49%
Class B +2.86% +17.76%* --% --%
Minnesota Fund:
Class A +2.56% --% +25.89% +97.07%
Class B +3.17% +18.98%* --% --%
New York Fund:
Class A +2.75% --% +22.79% +97.03
Class B +3.35% +17.08%* --% --%
Ohio Fund:
Class A +2.40% --% +22.97% +92.73%
Class B +2.98% +17.29%* --% --%
Lehman Brothers Municipal +8.65% +26.13%** +34.27% +115.21%
Bond Index
</TABLE>
*Inception date was March 20, 1995.
**Measurement period started April 1, 1995.
<PAGE>
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.
Lehman Brothers Municipal Bond Index is an unmanaged index made up of a
representative list of general obligation, revenue, insured and pre-refunded
bonds. The index is frequently used as a general measure of tax-exempt bond
market performance. However, the securities used to create the index may not be
representative of the bonds held in 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, 1998 were the following for each Fund:
SEC standardized yield
Class A Class B
California Fund 3.80% 3.25%
Massachusetts Fund 3.74% 3.20%
Michigan Fund 3.68% 3.13%
Minnesota Fund 4.18% 3.65%
New York Fund 3.81% 3.26%
Ohio Fund 3.84% 3.29%
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
<PAGE>
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.
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 investment manager uses to achieve
investment performance are described in more detail in the next section and in
the SAI.
<PAGE>
Facts about investments and their risks
Bonds and other debt securities exempt from federal, 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 a Fund 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 constitutional limitations. 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.
<PAGE>
Bond ratings and holdings for fiscal 1998 for
California Tax-Exempt Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Percent of
S&P rating Protection of net assets
Percent of (or Moody's principal and in unrated securities
net assets equivalent) interest assessed by AEFC
57.50% AAA Highest quality 5.49%
16.16 AA High quality --
5.33 A Upper medium grade --
7.42 BBB Medium grade 0.02
-- BB Moderately speculative 3.74
-- B Speculative 0.85
-- CCC Highly speculative --
-- CC Poor quality --
-- C Lowest quality --
-- D In default --
10.10 Unrated Unrated securities --
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Bond ratings and holdings for fiscal 1998 for
Massachusetts Tax-Exempt Fund
<S> <C> <C> <C>
Percent of
S&P rating Protection of net assets
Percent of (or Moody's principal and in unrated securities
net assets equivalent) interest assessed by AEFC
63.36% AAA Highest quality 4.84%
8.94 AA High quality --
7.06 A Upper medium grade --
9.12 BBB Medium grade --
-- BB Moderately speculative 2.21
-- B Speculative 1.97
-- CCC Highly speculative --
-- CC Poor quality --
-- C Lowest quality --
-- D In default --
9.09 Unrated Unrated securities 0.07
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Bond ratings and holdings for fiscal 1998 for
Michigan Tax-Exempt Fund
<S> <C> <C> <C>
Percent of
S&P rating Protection of net assets
Percent of (or Moody's principal and in unrated securities
net assets equivalent) interest assessed by AEFC
57.93% AAA Highest quality 16.15%
8.38 AA High quality --
5.88 A Upper medium grade --
3.96 BBB Medium grade 3.64
0.70 BB Moderately speculative 0.41
-- B Speculative 0.24
-- CCC Highly speculative --
-- CC Poor quality --
-- C Lowest quality --
-- D In default 0.44
21.08 Unrated Unrated securities 0.20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Bond ratings and holdings for fiscal 1998 for
Minnesota Tax-Exempt Fund
<S> <C> <C> <C>
Percent of
S&P rating Protection of net assets
Percent of (or Moody's principal and in unrated securities
net assets equivalent) interest assessed by AEFC
39.90% AAA Highest quality 4.13%
18.15 AA High quality 4.02
12.20 A Upper medium grade --
1.95 BBB Medium grade 3.81
-- BB Moderately speculative 10.22
-- B Speculative 2.13
-- CCC Highly speculative --
-- CC Poor quality --
-- C Lowest quality --
1.26 D In default --
24.57 Unrated Unrated securities 0.26
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Bond ratings and holdings for fiscal 1998 for
New York Tax-Exempt Fund
<S> <C> <C> <C>
Percent of
S&P rating Protection of net assets
Percent of (or Moody's principal and in unrated securities
net assets equivalent) interest assessed by AEFC
53.00% AAA Highest quality 8.49%
10.76 AA High quality --
10.03 A Upper medium grade --
13.31 BBB Medium grade --
-- BB Moderately speculative 1.41
-- B Speculative --
-- CCC Highly speculative --
-- CC Poor quality --
-- C Lowest quality --
-- D In default --
9.90 Unrated Unrated securities --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Bond ratings and holdings for fiscal 1998 for
Ohio Tax-Exempt Fund
<S> <C> <C> <C>
Percent of
S&P rating Protection of net assets
Percent of (or Moody's principal and in unrated securities
net assets equivalent) interest assessed by AEFC
60.77% AAA Highest quality 4.04%
8.38 AA High quality --
7.56 A Upper medium grade --
8.20 BBB Medium grade 1.51
3.31 BB Moderately speculative 1.50
-- B Speculative 2.04
-- CCC Highly speculative --
-- CC Poor quality --
-- C Lowest quality --
-- D In default --
9.09 Unrated Unrated securities --
</TABLE>
(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. Because such securities do not pay current cash
income, the market value of these securities may be subject to greater
volatility than other debt securities. To comply with tax laws, a 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.
<PAGE>
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 on 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 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.
<PAGE>
Derivative instruments: The investment manager may use derivative instruments in
addition to securities to achieve investment performance. Derivative instruments
include futures, options and forward contracts. Such instruments may be used to
maintain cash reserves while remaining fully invested, to offset anticipated
declines in values of investments, to facilitate trading, to reduce transaction
costs or to pursue higher investment returns. Derivative instruments are
characterized by requiring little or no initial payment and a daily change in
price based on or derived from a security, a currency, a group of securities or
currencies, or an index. A number of strategies or combination of instruments
can be used to achieve the desired investment performance characteristics. A
small change in the value of the underlying security, currency or index will
cause a sizable gain or loss in the price of the derivative instrument.
Derivative instruments allow the investment manager to change the investment
performance characteristics very quickly and at lower costs. Risks include
losses of premiums, rapid changes in prices, defaults by other parties and
inability to close such instruments. 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 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 investment manager will follow guidelines
established by the board and consider relevant factors such as the nature of the
security and the number of likely buyers when determining whether a security is
illiquid. No more than 10% of each Fund's net assets will be held in securities
and other instruments that are illiquid.
<PAGE>
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.
To establish the net assets, all securities are valued as of the close of each
business day. In valuing assets:
o Securities and assets with available market values are valued on that basis
o Securities maturing in 60 days or less are valued at amortized cost
o Assets without readily available market values are valued according to
methods selected in good faith by the board
<PAGE>
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Sales charge and
distribution
(12b-1) fee Service fee Other information
Class A Maximum initial sales 0.175% of average daily net Initial sales charge waived
charge of 5%; no 12b-1 fee assets or reduced for certain
purchases
Class B No initial sales charge; 0.175% of average daily net Shares convert to Class A
maximum CDSC of 5% assets in the ninth year of
declines to 0% after six ownership; CDSC waived in
years; 12b-1 fee of 0.75% certain circumstances
of average daily net
assets
</TABLE>
Conversion of Class B shares to Class A shares - During the ninth calendar year
of owning your Class B shares, Class B shares will convert to Class A shares and
will no longer be subject to a distribution fee. Class B shares that convert to
Class A shares are not subject to a sales charge. Class B shares purchased
through reinvested dividends and distributions also will convert to Class A
shares in the same proportion as the other Class B shares. This means more of
your money will be put to work for you.
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
o You will not have all of your purchase price invested. Part of your
purchase price will go to pay the sales charge. You will not pay a
sales charge when you redeem your shares.
o You will be able to take advantage of reductions in the sales charge.
If you purchase Class B shares
o All of your money is invested in shares of stock. However, you will pay
a sales charge if you redeem your shares within six years of purchase.
o No reductions of the sales charge are available for large 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
o Your shares will have a lower expense ratio than Class B shares because
Class A does not pay a distribution fee and the transfer agency fee for
Class A is lower than the fee for Class B. As a result, Class A shares
will pay higher dividends than Class B shares.
If you purchase Class B shares
o The distribution and transfer agency fees for Class B will cause your
shares to have a higher expense ratio and to pay lower dividends than
Class A shares. In the ninth year of ownership, Class B shares will
convert to Class A shares and you 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.
<PAGE>
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.
If you are investing in these Funds for the first time, you will need to set up
an account. Your financial advisor will help you fill out and submit an
application. Once your account is set up, you can choose among several
convenient ways to invest.
Important: When opening an account, you must provide your correct Taxpayer
Identification Number (Social Security or Employer Identification number). See
"Distributions and taxes."
When you purchase shares for a new or existing account, the price you pay per
share is determined at the close of business on the day your investment is
received and accepted at the Minneapolis headquarters.
Purchase policies:
o Investments must be received and accepted in the Minneapolis
headquarters on a business day before 3 p.m. Central time to be
included in your account that day and to receive that day's share
price. Otherwise, your purchase will be processed the next business day
and you will pay the next day's share price.
o The minimums allowed for investment may change from time to time.
o Wire orders can be accepted only on days when your bank, American
Express Client Service Corporation (AECSC), 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 AECSC 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.
<PAGE>
Three ways to invest
1 By regular account
Send your check and application (or your name and account number if you have an
established account) to:
American Express Financial Advisors Inc.
P.O. Box 74
Minneapolis, MN 55440-0074
Your financial advisor will help you with this process.
Minimum amounts
Initial investment per Fund: $ 2,000
Additional investments per Fund: $ 100
Account balances per Fund: $ 300*
2 By scheduled investment plan
Contact your financial advisor to set up one of the following scheduled plans:
o automatic payroll deduction
o bank authorization
o direct deposit of Social Security check
o other plan approved by the Fund
Minimum amounts
Initial investment: $ 100
Additional investments: $ 100/each payment
Account balances: none
(on active plans of monthly payments)
If account balance is below $2,000, frequency of payments must be at least
monthly.
<PAGE>
3 By wire
If you have an established account, you may wire money to:
Norwest Bank Minneapolis
Routing No. 091000019
Minneapolis, MN
Attn: Domestic Wire Dept.
Give these instructions: Credit IDS Account #00-30-015 for personal account #
(your account number) for (your name).
If this information is not included, the order may be rejected and all money
received by the Fund, less any costs the Fund or AECSC incurs, will be returned
promptly.
Minimum amounts
Each wire investment: $ 1,000**
*If your account balance falls below $300, you will be asked in writing to bring
it up to $300 or establish a scheduled investment plan. If you do not do so
within 30 days, your shares can be redeemed and the proceeds mailed to you. If
you are in a "wrap-fee" program sponsored by AEFA and your wrap program balance
falls below the required program minimum or is terminated, your shares will be
redeemed and the proceeds mailed to you.
**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.
<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 the proceeds from your redemption are
more or less than the cost of your shares, you will have a gain or loss, which
can affect your tax liability.
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 Advisors Telephone Transaction Service:
800-437-3133 or
612-671-3800
o A Fund and AECSC will honor any telephone exchange or redemption
request believed to be authentic and will use reasonable procedures to
confirm that they are. This includes asking identifying questions and
tape recording calls. If reasonable procedures are followed, a Fund or
AECSC will not be liable for any loss resulting from fraudulent
requests.
o Phone exchange and redemption privileges automatically apply to all
accounts except custodial, corporate or qualified retirement accounts
unless you request these privileges NOT apply by writing American
Express Shareholder Service. Each registered owner must sign the
request.
o AECSC 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 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.
<PAGE>
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 AECSC 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 AECSC that your check has cleared.)
Three ways to receive payment when you redeem shares
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.
<PAGE>
2 By wire
o Minimum wire redemption: $1,000
o Request that money be wired to your bank
o Bank account must be in the same ownership as the IDS fund account
NOTE: Pre-authorization required. For instructions, contact your
financial advisor or American Express Shareholder Service.
3 By scheduled 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
Reductions and waivers of the sales charge
Class A - initial sales charge alternative
On purchases of Class A shares, you pay a 5% sales charge on the first $50,000
of your total investment and less on investments after the first $50,000:
Total investment Sales charge as a
percentage of:*
Public Net
offering amount
price invested
Up to $50,000 5.0% 5.26%
Next $50,000 4.5 4.71
Next $400,000 3.8 3.95
Next $500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
* To calculate the actual sales charge on an investment greater than $50,000 and
less than $1,000,000, amounts for each applicable increment must be totaled. See
the SAI.
<PAGE>
Reductions of the sales charge on Class A shares Your sales charge may be
reduced, depending on the totals of:
o the amount you are investing in a Fund now;
o the amount of your existing investment in the Fund, if any; and
o the amount you and your primary household group are investing or have in
other funds in the IDS MUTUAL FUND GROUP that carry a sales charge. (The
primary household group consists of accounts in any ownership for spouses
or domestic partners and their unmarried children under 21. Domestic
partners are individuals who maintain a shared primary residence and have
joint property or other insurable interests.)
Other policies that affect your sales charge:
o IDS Tax-Free Money Fund and Class A shares of IDS Cash Management Fund do
not carry sales charges. However, you may count investments in these funds
if you acquired shares in them by exchanging shares from IDS funds that
carry sales charges.
o Employee benefit plan purchases made through a payroll deduction plan or
through a plan sponsored by an employer, association of employers, employee
organization or other similar entity, may be added together to reduce sales
charges for all shares purchased through that plan.
o If you intend to invest $1 million over a period of 13 months, you can
reduce the sales charges in Class A by filing a letter of intent.
For more details, see the SAI.
Waivers of the sales charge for Class A shares Sales charges do not apply to:
o Current or retired board members, officers or employees of the Fund or AEFC
or its subsidiaries, their spouses and unmarried children under 21.
o Current or retired American Express financial advisors, their spouses and
unmarried children under 21.
<PAGE>
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.
o Purchases made within 30 days after a redemption of shares (up to the
amount redeemed): - of a product distributed by AEFA in a qualified plan
subject to a deferred sales charge or - in a qualified plan where American
Express Trust Company has a recordkeeping, trustee,
investment management or investment servicing relationship.
Send the Fund a written request along with your payment, indicating the amount
of the redemption and the date on which it occurred.
o Purchases made with dividend or capital gain distributions from the same
class of another fund in the IDS MUTUAL FUND GROUP that has a sales charge.
o Purchases made through or under a "wrap fee" product sponsored by AEFA
(total amount of all investments must be $50,000); the University of
Massachusetts After-Tax Savings Program; or a segregated separate account
offered by Nationwide Life Insurance Company or Nationwide Life and Annuity
Insurance Company.
o Purchases made with the proceeds from IDS Life Real Estate Variable Annuity
surrenders.
* Eligibility must be determined in advance by AEFA. To do so, contact your
financial advisor.
<PAGE>
Class B - contingent deferred sales charge alternative
Where a CDSC is imposed on a redemption, it is based on the amount of the
redemption and the number of calendar years, including the year of purchase,
between purchase and redemption. The following table shows the declining scale
of percentages that apply to redemptions during each year after a purchase:
If a redemption is The percentage rate
made during the for the CDSC is:
First year 5%
Second year 4%
Third year 4%
Fourth year 3%
Fifth year 2%
Sixth year 1%
Seventh year 0%
If the amount you are redeeming reduces the current net asset value of your
investment in Class B shares below the total dollar amount of all your purchase
payments during the last six years (including the year in which your redemption
is made), the CDSC is based on the lower of the redeemed purchase payments or
market value.
The following example illustrates how the CDSC is applied. Assume you had
invested $10,000 in Class B shares and that your investment had appreciated in
value to $12,000 after 15 months, including reinvested dividend and capital gain
distributions. You could redeem any amount up to $2,000 without paying a CDSC
($12,000 current value less $10,000 purchase amount). If you redeemed $2,500,
the CDSC would apply only to the $500 that represented part of your original
purchase price. The CDSC rate would be 4% because a redemption after 15 months
would take place during the second year after purchase.
Because the CDSC is imposed only on redemptions that reduce the total of your
purchase payments, you never have to pay a CDSC on any amount you redeem that
represents appreciation in the value of your shares, income earned by your
shares or capital gains. In addition, when determining the rate of any CDSC,
your redemption will be made from the oldest purchase payment you made. Of
course, once a purchase payment is considered to have been redeemed, the next
amount redeemed is the next oldest purchase payment. By redeeming the oldest
purchase payments first, lower CDSCs are imposed than would otherwise be the
case.
<PAGE>
Waivers of the contingent deferred sales charge The CDSC on Class B shares will
be waived on redemptions of shares:
o In the event of the shareholder's death,
o Held in a trusteed employee benefit plan,
o Held in IRAs or certain qualified plans for which American Express Trust
Company acts as custodian, such as Keogh plans, tax-sheltered custodial accounts
or corporate pension plans, provided that the shareholder is:
- at least 59-1/2 years old, and
- taking a retirement distribution (if the redemption is part of a
transfer to an IRA or qualified plan in a product distributed by AEFA,
or a custodian-to-custodian transfer to a product not distributed by
AEFA, the CDSC will not be waived), or
- redeeming under an approved substantially equal periodic payment
arrangement.
Special shareholder services
Services
To help you track and evaluate the performance of your investments, AECSC
provides these services:
Quarterly statements featuring: (1) a list of all your holdings and transactions
during the previous three months and (2) personalized mutual fund performance
information about your specific account.
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.
<PAGE>
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 (TouchTone(R) 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 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. Capital gains are realized when a security is sold for a
higher price than was paid for it. Short-term capital gains are distributed at
the end of the calendar year and are included in net investment income.
Long-term capital gains are realized when a security is held for more than one
year. A Fund will offset any net realized capital gains by any available capital
loss carryovers. Net realized long-term capital gains, if any, are distributed
at the end of the calendar year as capital gain distributions. These long-term
capital gains will be subject to differing tax rates depending on the holding
period of the underlying investments. Before they are distributed, net long-term
capital gains are included in the value of each share. After they are
distributed, the value of each share drops by the per-share amount of the
distribution. (If your distributions are reinvested, the total value of your
holdings will not change.)
Dividends for each class will be calculated at the same time, in the same manner
and will be the same amount prior to deduction of expenses. Expenses
attributable solely to a class of shares will be paid exclusively by that class.
<PAGE>
Reinvestments
Dividends and capital gain distributions are automatically reinvested in
additional shares in the same class of 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 have previously
opened an account.
The reinvestment price is the net asset value at close of business on the day
the distribution is paid. (Your quarterly statement will confirm the amount
invested and the number of shares purchased.)
If you choose cash distributions, you will receive cash only for distributions
declared after your request has been processed.
If the U.S. Postal Service cannot deliver the checks for the cash distributions,
we will reinvest the checks into your account at the then-current net asset
value and make future distributions in the form of additional shares. Prior to
reinvestment, no interest will accrue on amounts represented by uncashed
distribution or redemption checks.
Taxes
Dividends distributed from interest earned 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.
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.
<PAGE>
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 short term (for shares held for one year or less) or long term (for shares
held for more than one year). Long-term capital gains will be taxed at rates
that vary depending upon the holding period. Long-term capital gains are divided
into two holding periods: (1) shares held more than one year but not more than
18 months and (2) shares held more than 18 months.
Your Taxpayer Identification Number (TIN) is important. As with any financial
account you open, you must list your current and correct Taxpayer Identification
Number (TIN) -- either your Social Security or Employer Identification number.
The TIN must be certified under penalties of perjury on your application when
you open an account.
If you do not provide the TIN, or the TIN you report is incorrect, you could be
subject to backup withholding of 31% of taxable distributions and proceeds from
certain sales and exchanges. You also could be subject to further penalties,
such as:
o a $50 penalty for each failure to supply your correct TIN
o a civil penalty of $500 if you make a false statement that results in
no backup withholding
o criminal penalties for falsifying information
You also could be subject to backup withholding because you failed to report
interest or dividends on your tax return as required.
<PAGE>
<TABLE>
<CAPTION>
How to determine the correct TIN
<S> <C>
Use the Social Security or
For this type of account: Employer Identification number of:
Individual or joint account The individual or one of the individuals listed on
the joint account
Custodian account of a minor (Uniform The minor
Gifts/Transfers to Minors Act)
A living trust The
grantor-trustee (the
person who puts the money
into the trust)
An irrevocable trust, The legal entity (not the personal representative
pension trust or estate or trustee, unless no legal entity is designated in
the account title)
Sole proprietorship The owner
Partnership The partnership
Corporate The corporation
Association, club or tax-exempt organization The organization
</TABLE>
For details on TIN requirements, ask your financial advisor or local American
Express Financial Advisors office for federal Form W-9, "Request for Taxpayer
Identification Number and Certification."
Important: This information is a brief and selective summary of certain federal
tax rules that apply to 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.
<PAGE>
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.
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.
<PAGE>
Independent board members and officers
Chairman of the board
William R. Pearce*
Chairman of the board, Board Services Corporation (provides administrative
services to boards including the boards of the IDS and IDS Life funds and Master
Trust portfolios).
H. Brewster Atwater, Jr.
Retired chairman and chief executive officer, General Mills, Inc.
Lynne V. Cheney
Distinguished fellow, American Enterprise Institute for Public Policy Research.
Heinz F. Hutter
Retired president and chief operating officer, Cargill, Inc.
Anne P. Jones
Attorney and telecommunications consultant.
Alan K. Simpson
Former United States senator for Wyoming.
Edson W. Spencer
Retired chairman and chief executive officer, Honeywell, Inc.
Wheelock Whitney
Chairman, Whitney Management Company.
C. Angus Wurtele
Chairman of the board, The Valspar Corporation.
Officer
Vice president, general counsel and secretary
Leslie L. Ogg*
President of Board Services Corporation.
<PAGE>
Board members and officers associated with AEFC
President
John R. Thomas*
Senior vice president, AEFC.
William H. Dudley*
Senior advisor to the chief executive officer, AEFC.
David R. Hubers*
President and chief executive officer, AEFC.
Officers associated with AEFC
Vice president
Peter J. Anderson*
Senior vice president, AEFC.
Vice president
Frederick C. Quirsfeld*
Vice president, AEFC.
Treasurer
Matthew N. Karstetter*
Vice president, AEFC.
Refer to the SAI for the board members' and officers' biographies.
* Interested person as defined by the Investment Company Act of 1940.
<PAGE>
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:
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, 1998, 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
Under an Administrative Services Agreement, each Fund pays AEFC for
administration and accounting services at an annual rate of 0.04% decreasing in
gradual percentages to 0.02% as assets increase.
Under a separate Transfer Agency Agreement, AECSC maintains shareholder accounts
and records. Each Fund pays AECSC an annual fee per shareholder account for this
service as follows:
o Class A $15.50
o Class B $16.50
Distributor
The Funds have an exclusive distribution agreement with AEFA. Financial advisors
representing AEFA 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.
<PAGE>
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.
Total expenses paid by each Fund's Class A and Class B shares for the fiscal
year ended June 30, 1998 were the percentage of average daily net assets as
follows.
Class A Class B
California Fund 0.75% 1.50%
Massachusetts Fund 0.82% 1.57%
Michigan Fund 0.82% 1.57%
Minnesota Fund 0.75% 1.50%
New York Fund 0.79% 1.55%
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, 1998 were more than $200 billion.
AEFA serves individuals and businesses through its nationwide network of more
than 180 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.
<PAGE>
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.
Year 2000
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which would have a material impact on the operations of the Funds. The Funds
have no computer systems of their own but are dependent upon the systems
maintained by AEFC and certain other third parties.
A comprehensive review of AEFC's computer systems and business processes has
been conducted to identify the major systems that could be affected by the Year
2000 issue. Steps are being taken to resolve any potential problems including
modification of existing software and the purchase of new software. These
measures are scheduled to be completed and tested on a timely basis. AEFC's goal
is to complete internal remediation and testing of each of its critical systems
by the end of 1998 and to continue compliance efforts through 1999. The Year
2000 readiness of other third parties whose system failures could have an impact
on the Funds' operations currently is being evaluated. The companies or
governments in which the Funds invest also may be adversely affected by Year
2000 issues. This may affect the value of the Funds' investments. The potential
materiality of any impact is not known at this time.
<PAGE>
Appendix A
Description of bond ratings
Bond ratings concern the quality of the issuing state or local governmental
unit. They are not an opinion of the market value of the security. Such ratings
are opinions on whether the principal and interest will be repaid when due. A
security's rating may change, which could affect its price. Ratings by Moody's
Investors Service, Inc. are Aaa, Aa, A, Baa, Ba, B, Caa, Ca and C. Ratings by
Standard & Poor's Corporation are AAA, AA, A, BBB, BB, B, CCC, CC, C and D. The
following is a compilation of the two agencies' rating descriptions. For further
information, see the SAI.
Aaa/AAA - Judged to be of the best quality and carry the smallest degree of
investment risk. Interest and principal are secure.
Aa/AA - Judged to be high-grade although margins of protection for interest and
principal may not be quite as good as Aaa or AAA rated securities.
A - Considered upper-medium grade. Protection for interest and principal is
deemed adequate but may be susceptible to future impairment.
Baa/BBB - Considered medium-grade obligations. Protection for interest and
principal is adequate over the short-term; however, these obligations may have
certain speculative characteristics.
Ba/BB - Considered to have speculative elements. The protection of interest and
principal payments may be very moderate.
B - Lack characteristics of more desirable investments. There may be small
assurance over any long period of time of the payment of interest and principal.
Caa/CCC - Are of poor standing. Such issues may be in default or there may be
risk with respect to principal or interest.
Ca/CC - Represent obligations that are highly speculative. Such issues are often
in default or have other marked shortcomings.
C - Are obligations with a higher degree of speculation. These securities have
major risk exposures to default.
D - Are in payment default. The D rating is used when interest payments or
principal payments are not made on the due date.
<PAGE>
Non-rated securities will be considered for investment when they possess a risk
comparable to that of rated securities consistent with the Fund's objectives and
policies. When assessing the risk involved in each non-rated security, the Fund
will consider the financial condition of the issuer or the protection afforded
by the terms of the security.
Definitions of zero-coupon and pay-in-kind securities
A zero-coupon security is a security that is sold at a deep discount from its
face value and makes no periodic interest payments. The buyer of such a security
receives a rate of return by gradual appreciation of the security, which is
redeemed at face value on the maturity date.
A pay-in-kind security is a security in which the issuer has the option to make
interest payments in cash or in additional securities. The securities issued as
interest usually have the same terms, including maturity date, as the
pay-in-kind securities.
<PAGE>
Appendix B
1998 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
1998 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
$102,300-$155,950 range. Under Adjusted Gross Income, $175,000 is in the
$124,500 to $186,800 column. The Taxable Income line and Adjusted Gross Income
column meet at 38.26%. This is the rate you'll use in Step 2.
Adjusted gross income*
Taxable income** $0 $124,500 $186,800
Married Filing Jointly to to to OVER
$124,500(1) $186,800(2) $309,300(3) $309,300(2)
$ 0 - $10,032 15.85%
10,032 - 23,776 16.70
23,776 - 37,522 18.40
37,522 - 42,350 20.10
42,350 - 52,090 32.32
52,090 - 65,832 33.76
65,832 - 102,300 34.70 35.46%
102,300 - 155,950 37.42 38.26 39.48%
155,950 - 278,450 41.95 42.93 44.34 42.93%
278,450 + 45.22 47.85%*** 46.29
Taxable income** $0 $124,500
Single to to OVER
$124,500(1) $247,000(3) $247,000(2)
$ 0 - $ 5,016 15.85%
5,016 - 11,888 16.70
11,888 - 18,761 18.40
18,761 - 25,350 20.10
25,350 - 26,045 32.32
26,045 - 32,916 33.76
32,916 - 61,400 34.70
61,400 - 128,100 37.42 38.87%
128,100 - 278,450 41.95 43.64 42.93%
278,450 + 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 $309,300 and your taxable income exceeds
$278,450.
(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, 1997. These rates may change if California tax rates change
in 1998. 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>
<TABLE>
<CAPTION>
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:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
38.87% 4.91 5.73 6.54 7.36 8.18 9.00 9.81 10.63
39.48% 4.96 5.78 6.61 7.44 8.26 9.09 9.91 10.74
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
43.64% 5.32 6.21 7.10 7.98 8.87 9.76 10.65 11.53
44.34% 5.39 6.29 7.19 8.08 8.98 9.88 10.78 11.68
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
47.85% 5.75 6.71 7.67 8.63 9.59 10.55 11.51 12.46
</TABLE>
<PAGE>
Appendix B
1998 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
$102,300-$155,950 range. Under Adjusted Gross Income, $175,000 is in the
$124,500 to $186,800 column. The Taxable Income line and Adjusted Gross Income
column meet at 40.10%. This is the rate you'll use in Step 2.
Adjusted gross income*
Taxable income** $0 $124,500 $186,800
Married Filing Jointly to to to OVER
$124,500(1) $186,800(2) $309,300(3) $309,300(2)
$ 0 - $ 42,350 25.20%
42,350 - 102,300 36.64 37.38%
102,300 - 155,950 39.28 40.10 41.28%
155,950 - 278,450 43.68 44.63 46.00 44.63%
278,450 + 46.85 49.40*** 47.89
Taxable income** $0 $124,500
Single to to OVER
$124,500(1) $247,000(3) $247,000(2)
$ 8,000 - $ 25,350 25.20%
25,350 - 61,400 36.64
61,400 - 128,100 39.28 40.69%
128,100 - 278,450 43.68 45.31 44.63%
278,450 + 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 $309,300 and your taxable income exceeds
$278,450.
(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, 1998. These rates may change if Massachusetts
tax rates change in 1998. 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>
<TABLE>
<CAPTION>
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:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
40.69% 5.06 5.90 6.74 7.59 8.43 9.27 10.12 10.96
41.28% 5.11 5.96 6.81 7.66 8.51 9.37 10.22 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
45.31% 5.49 6.40 7.31 8.23 9.14 10.06 10.97 11.89
46.00% 5.56 6.48 7.41 8.33 9.26 10.19 11.11 12.04
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
49.40% 5.93 6.92 7.91 8.89 9.88 10.87 11.86 12.85
</TABLE>
<PAGE>
Appendix B
1998 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
$102,300-$155,950 range. Under Adjusted Gross Income, $175,000 is in the
$124,500 to $186,800 column. The Taxable Income line and Adjusted Gross Income
column meet at 34.93%. This is the rate you'll use in Step 2.
Adjusted gross income*
Taxable income** $0 $124,500 $186,800
Married Filing Jointly to to to OVER
$124,500(1) $186,800(2) $309,300(3) $309,300(2)
$ 0 - $ 42,350 18.74%
42,350 - 102,300 31.17 31.97%
102,300 - 155,950 34.04 34.93 36.21%
155,950 - 278,450 38.82 39.85 41.34 39.85%
278,450 + 42.26 45.03*** 43.39
Taxable income** $0 $124,500
Single to to OVER
$124,500(1) $247,000(3) $247,000(2)
$ 0 - $ 25,350 18.74%
25,350 - 61,400 31.17
61,400 - 128,100 34.04 35.57%
128,100 - 278,450 38.82 40.59 39.85%
278,450 + 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 $309,300 and your taxable income exceeds
$278,450.
(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, 1998. These rates may change if Michigan tax rates change in
1998. 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>
<TABLE>
<CAPTION>
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:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
35.57% 4.66 5.43 6.21 6.98 7.76 8.54 9.31 10.09
36.21% 4.70 5.49 6.27 7.05 7.84 8.62 9.41 10.19
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
40.59% 5.05 5.89 6.73 7.57 8.42 9.26 10.10 10.94
41.34% 5.11 5.97 6.82 7.67 8.52 9.38 10.23 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
45.03% 5.46 6.37 7.28 8.19 9.10 10.01 10.92 11.82
</TABLE>
<PAGE>
Appendix B
1998 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
$102,300-$155,950 range. Under Adjusted Gross Income, $175,000 is in the
$124,500 to $186,800 column. The Taxable Income line and Adjusted Gross Income
column meet at 37.72%. This is the rate you'll use in Step 2.
Adjusted gross income*
Taxable income** $0 $124,500 $186,800
Married Filing Jointly to to to OVER
$124,500(1) $186,800(2) $309,300(3) $309,300(2)
$ 0 - $ 24,800 20.10%
24,800 - 42,350 21.80
42,350 - 98,540 33.76 34.53%
98,450 - 102,300 34.12 34.89
102,300 - 155,950 36.87 37.72 38.94%
155,950 - 278,450 41.44 42.43 43.85 42.43%
278,450 + 44.73 47.39*** 45.82
Taxable income** $0 $124,500
Single to to OVER
$124,500(1) $247,000(3) $247,000(2)
$ 0 - $ 16,960 20.10%
16,960 - 25,350 21.80
25,350 - 55,730 33.76
55,730 - 61,400 34.12
61,400 - 128,100 36.87 38.33%
128,100 - 278,450 41.44 43.14 42.43%
278,450 + 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 $309,300 and your taxable income exceeds
$278,450.
(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, 1998. These rates may change if Minnesota tax rates change in
1998. 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>
<TABLE>
<CAPTION>
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 8.83% 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:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
20.10% 3.75 4.38 5.01 5.63 6.26 6.88 7.51 8.14
21.80% 3.84 4.48 5.12 5.75 6.39 7.03 7.67 8.31
33.76% 4.53 5.28 6.04 6.79 7.55 8.30 9.06 9.81
34.12% 4.55 5.31 6.07 6.83 7.59 8.35 9.11 9.87
34.53% 4.58 5.35 6.11 6.87 7.64 8.40 9.16 9.93
34.89% 4.61 5.38 6.14 6.91 7.68 8.45 9.22 9.98
36.87% 4.75 5.54 6.34 7.13 7.92 8.71 9.50 10.30
37.72% 4.82 5.62 6.42 7.23 8.03 8.83 9.63 10.44
38.33% 4.86 5.68 6.49 7.30 8.11 8.92 9.73 10.54
38.94% 4.91 5.73 6.55 7.37 8.19 9.01 9.83 10.65
41.44% 5.12 5.98 6.83 7.68 8.54 9.39 10.25 11.10
42.43% 5.21 6.08 6.95 7.82 8.69 9.55 10.42 11.29
43.14% 5.28 6.16 7.03 7.91 8.79 9.67 10.55 11.43
43.85% 5.34 6.23 7.12 8.01 8.90 9.80 10.69 11.58
44.73% 5.43 6.33 7.24 8.14 9.05 9.95 10.86 11.76
45.82% 5.54 6.46 7.38 8.31 9.23 10.15 11.07 12.00
47.39% 5.70 6.65 7.60 8.55 9.50 10.45 11.40 12.36
</TABLE>
<PAGE>
Appendix B
1998 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
$102,300-$155,950 range. Under Adjusted Gross Income, $175,000 is in the
$124,500 to $186,800 column. The Taxable Income line and Adjusted Gross Income
column meet at 36.59%. This is the rate you'll use in Step 2.
Adjusted gross income*
Taxable income** $0 $124,500 $186,800
Married Filing Jointly to to to OVER
$124,500(1) $186,800(2) $309,300(3) $309,300(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 - 42,350 20.82
42,350 - 102,300 32.93 33.71%
102,300 - 155,950 35.73 36.59 37.84%
155,950 - 278,450 40.38 41.39 42.84 41.39%
278,450 + 43.74 46.44*** 44.84
Taxable income** $0 $124,500
Single to to OVER
$124,500(1) $247,000(3) $247,000(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 - 25,350 20.82
25,350 - 61,400 32.93
61,400 - 128,100 35.73 37.22%
128,100 - 278,450 40.38 42.11 41.39%
278,450 + 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 $309,300 and your taxable income exceeds
$278,450.
(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.
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, 1998. These rates may change if New York state tax rates
change in 1998. 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.
<PAGE>
<TABLE>
<CAPTION>
STEP 2: Determining your combined federal and New York state taxable yield
equivalents.
Using 36.59%, 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:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
37.22% 4.78 5.58 6.37 7.17 7.96 8.76 9.56 10.35
37.84% 4.83 5.63 6.44 7.24 8.04 8.85 9.65 10.46
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
42.11% 5.18 6.05 6.91 7.77 8.64 9.50 10.36 11.23
42.84% 5.25 6.12 7.00 7.87 8.75 9.62 10.50 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
46.44% 5.60 6.53 7.47 8.40 9.34 10.27 11.20 12.14
</TABLE>
<PAGE>
Appendix B
1998 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
$102,300-$155,950 range. Under Adjusted Gross Income, $175,000 is in the
$124,500 to $186,800 column. The Taxable Income line and Adjusted Gross Income
column meet at 38.91%. This is the rate you'll use in Step 2.
Adjusted gross income*
Taxable income** $0 $124,500 $186,800
Married Filing Jointly to to to OVER
$124,500(1) $186,800(2) $309,300(3) $309,300(2)
$ 0 - $ 16,000 20.70%
16,000 - 21,600 21.12
21,600 - 22,000 21.63
22,000 - 26,000 22.27
26,000 - 40,000 22.82
40,000 - 42,350 23.63
42,350 - 45,000 35.31
45,000 - 90,000 35.34 36.10%
90,000 - 102,300 35.38 36.13
102,300 - 155,950 38.07 38.91 40.11%
155,950 - 278,450 42.56 43.53 44.93 43.53%
278,450 + 45.79 48.39*** 46.86
Taxable income** $0 $124,500
Single to to OVER
$124,500(1) $247,000(3) $247,000(2)
$ 0 - $ 8,000 20.70%
8,000 - 11,000 21.12
11,000 - 12,000 21.76
12,000 - 13,000 22.27
13,000 - 20,000 22.82
20,000 - 25,000 23.63
25,000 - 25,350 23.67
25,350 - 50,000 35.34
50,000 - 61,400 35.38
61,400 - 128,100 38.07 39.51%
128,100 - 278,450 42.56 44.23 43.53%
278,450 + 45.79 46.86
*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 $309,300 and your taxable income exceeds
$278,450.
(1) No Phase-out -- Assumes no phase-out of itemized deductions or personal
exemptions. (2) Itemized Deductions Phase-out and Recapture of Personal Income
Tax -- Assumes a single taxpayer has one personal exemption, joint taxpayers
have two personal exemptions. 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, 1998. These rates may change if
New York state or city tax rates change in 1998. If state or city tax rates
change, equivalent rates may be higher than those shown.
This table does not reflect the state itemized deduction adjustment.
If these assumptions do not apply to you, it will be necessary to construct your
own personalized tax equivalency table.
<PAGE>
<TABLE>
<CAPTION>
STEP 2: Determining your combined federal, New York state and New York City
taxable yield equivalents.
Using 38.91%, you may determine that a tax-exempt yield of 5% is equivalent to
earning a taxable 8.18% 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:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
20.70% 3.78 4.41 5.04 5.67 6.31 6.94 7.57 8.20
21.12% 3.80 4.44 5.07 5.70 6.34 6.97 7.61 8.24
21.63% 3.83 4.47 5.10 5.74 6.38 7.02 7.66 8.29
21.76% 3.83 4.47 5.11 5.75 6.39 7.03 7.67 8.31
22.27% 3.86 4.50 5.15 5.79 6.43 7.08 7.72 8.36
22.82% 3.89 4.53 5.18 5.83 6.48 7.13 7.77 8.42
23.63% 3.93 4.58 5.24 5.89 6.55 7.20 7.86 8.51
23.67% 3.93 4.59 5.24 5.90 6.55 7.21 7.86 8.52
35.31% 4.64 5.41 6.18 6.96 7.73 8.50 9.28 10.05
35.34% 4.64 5.41 6.19 6.96 7.73 8.51 9.28 10.05
35.38% 4.64 5.42 6.19 6.96 7.74 8.51 9.29 10.06
36.10% 4.69 5.48 6.26 7.04 7.82 8.61 9.39 10.17
36.13% 4.70 5.48 6.26 7.05 7.83 8.61 9.39 10.18
38.07% 4.84 5.65 6.46 7.27 8.07 8.88 9.69 10.50
38.91% 4.91 5.73 6.55 7.37 8.18 9.00 9.82 10.64
39.51% 4.96 5.79 6.61 7.44 8.27 9.09 9.92 10.75
40.11% 5.01 5.84 6.68 7.51 8.35 9.18 10.02 10.85
42.56% 5.22 6.09 6.96 7.83 8.70 9.58 10.45 11.32
43.53% 5.31 6.20 7.08 7.97 8.85 9.74 10.63 11.51
44.23% 5.38 6.28 7.17 8.07 8.97 9.86 10.76 11.66
44.93% 5.45 6.36 7.26 8.17 9.08 9.99 10.90 11.80
45.79% 5.53 6.46 7.38 8.30 9.22 10.15 11.07 11.99
46.86% 5.65 6.59 7.53 8.47 9.41 10.35 11.29 12.23
48.39% 5.81 6.78 7.75 8.72 9.69 10.66 11.63 12.59
</TABLE>
<PAGE>
Appendix B
1998 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
$102,300-$155,950 range. Under Adjusted Gross Income, $175,000 is in the
$124,500 to $186,800 column. The Taxable Income line and Adjusted Gross Income
column meet at 36.44%. This is the rate you'll use in Step 2.
Adjusted gross income*
Taxable income** $0 $124,500 $186,800
Married Filing Jointly to to to OVER
$124,500(1) $186,800(2) $309,300(3) $309,300(2)
$ 0 - $ 5,000 15.61%
5,000 - 10,000 16.21
10,000 - 15,000 17.43
15,000 - 20,000 18.03
20,000 - 40,000 18.64
40,000 - 42,350 19.24
42,350 - 80,000 31.59 32.39%
80,000 - 100,000 32.11 32.90
100,000 - 102,300 32.77 33.55
102,300 - 155,950 35.57 36.44 37.69%
155,950 - 200,000 40.24 41.25 42.70
200,000 - 278,450 40.61 43.05 41.61%
278,450 + 43.95 46.64*** 45.05
Taxable income** $0 $124,500
Single to to OVER
$124,500(1) $247,000(3) $247,000(2)
$ 0 - $ 5,000 15.61%
5,000 - 10,000 16.21
10,000 - 15,000 17.43
15,000 - 20,000 18.03
20,000 - 25,350 18.64
25,350 - 40,000 31.08
40,000 - 61,400 31.59
61,400 - 80,000 34.45
80,000 - 100,000 34.94 36.45%
100,000 - 128,100 35.57 37.06
128,100 - 200,000 40.24 41.97 41.25%
200,000 - 278,450 40.61 42.33 41.61
278,450 + 43.95 45.05
*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 $309,300 and your taxable income exceeds
$278,450.
(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 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, 1997. These rates may change if Ohio tax rates change in 1998. 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.
<PAGE>
<TABLE>
<CAPTION>
STEP 2: Determining your combined federal and Ohio state taxable yield
equivalents.
Using 36.44%, you may determine that a tax-exempt yield of 5% is equivalent to
earning a taxable 7.87% 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:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
15.61% 3.55 4.15 4.74 5.33 5.92 6.52 7.11 7.70
16.21% 3.58 4.18 4.77 5.37 5.97 6.56 7.16 7.76
17.43% 3.63 4.24 4.84 5.45 6.06 6.66 7.27 7.87
18.03% 3.66 4.27 4.88 5.49 6.10 6.71 7.32 7.93
18.64% 3.69 4.30 4.92 5.53 6.15 6.76 7.37 7.99
19.24% 3.71 4.33 4.95 5.57 6.19 6.81 7.43 8.05
31.08% 4.35 5.08 5.80 6.53 7.25 7.98 8.71 9.43
31.59% 4.39 5.12 5.85 6.58 7.31 8.04 8.77 9.50
32.11% 4.42 5.16 5.89 6.63 7.36 8.10 8.84 9.57
32.39% 4.44 5.18 5.92 6.66 7.40 8.13 8.87 9.61
32.77% 4.46 5.21 5.95 6.69 7.44 8.18 8.92 9.67
32.90% 4.47 5.22 5.96 6.71 7.45 8.20 8.94 9.69
33.55% 4.51 5.27 6.02 6.77 7.52 8.28 9.03 9.78
34.45% 4.58 5.34 6.10 6.86 7.63 8.39 9.15 9.92
34.94% 4.61 5.38 6.15 6.92 7.69 8.45 9.22 9.99
35.57% 4.66 5.43 6.21 6.98 7.76 8.54 9.31 10.09
36.44% 4.72 5.51 6.29 7.08 7.87 8.65 9.44 10.23
36.45% 4.72 5.51 6.29 7.08 7.87 8.65 9.44 10.23
37.06% 4.77 5.56 6.36 7.15 7.94 8.74 9.53 10.33
37.69% 4.81 5.62 6.42 7.22 8.02 8.83 9.63 10.43
40.24% 5.02 5.86 6.69 7.53 8.37 9.20 10.04 10.88
40.61% 5.05 5.89 6.74 7.58 8.42 9.26 10.10 10.94
41.25% 5.11 5.96 6.81 7.66 8.51 9.36 10.21 11.06
41.61% 5.14 5.99 6.85 7.71 8.56 9.42 10.28 11.13
41.97% 5.17 6.03 6.89 7.75 8.62 9.48 10.34 11.20
42.33% 5.20 6.07 6.94 7.80 8.67 9.54 10.40 11.27
42.70% 5.24 6.11 6.98 7.85 8.73 9.60 10.47 11.34
43.05% 5.27 6.15 7.02 7.90 8.78 9.66 10.54 11.41
43.95% 5.35 6.24 7.14 8.03 8.92 9.81 10.70 11.60
45.05% 5.46 6.37 7.28 8.19 9.10 10.01 10.92 11.83
46.64% 5.62 6.56 7.50 8.43 9.37 10.31 11.24 12.18
</TABLE>
<PAGE>
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 a 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. 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>
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 Insured Tax-Exempt Fund
Prospectus
Aug. 28, 1998
The goal of IDS Insured Tax-Exempt Fund, a part of IDS Special Tax-Exempt Series
Trust, is 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 by reference. For a free copy,
contact American Express Shareholder Service.
Like all mutual fund shares, these securities have not been approved or
disapproved by the Securities and Exchange Commission or any state securities
commission, nor has the Securities and Exchange Commission or any state
securities commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
Please note that the Fund:
o is not a bank deposit
o is not federally insured
o is not endorsed by any bank or government agency
o is not guaranteed to achieve its goal
American Express Shareholder Service
P.O. Box 534
Minneapolis, MN
55440-0534
800-862-7919
TTY: 800-846-4852
Web site address: http://www.americanexpress.com/advisors
<PAGE>
Table of contents
The Fund in brief
Goal
Investment policies and risks
Manager and distributor
Portfolio manager
Alternative purchase arrangements
Sales charge and Fund expenses
Performance
Financial highlights
Total returns
Yield
Investment policies and risks
Facts about investments and their risks
Alternative investment option
Valuing Fund shares
How to purchase, exchange or redeem shares
Alternative purchase arrangements
How to purchase shares
How to exchange shares
How to redeem shares Reductions and waivers of the sales charge
Special shareholder services
Services
Quick telephone reference
Distributions and taxes
Dividend and capital gain distributions
Reinvestments
Taxes
How to determine the correct TIN
<PAGE>
How the Fund is organized
Shares
Voting rights
Shareholder meetings
Board members and officers
Investment manager
Administrator and transfer agent
Distributor
About American Express Financial Corporation
General information
Year 2000
Appendices
1998 Federal tax-exempt and taxable equivalent yield calculations
Descriptions of derivative instruments
<PAGE>
The Fund in brief
Goal
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 this goal
cannot be guaranteed. Only shareholders can change the goal.
Investment policies and risks
The Fund is a diversified mutual fund that invests primarily in 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 $80 billion
in assets for the IDS MUTUAL FUND GROUP. Shares of the Fund are sold through
American Express Financial Advisors Inc. (AEFA), a wholly-owned subsidiary of
AEFC.
Portfolio manager
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** 0.28% 0.29% 0.20%
Total 0.73% 1.49% 0.65%
*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 $136
Class B $65 $87 $101 $158**
Class B* $15 $47 $ 81 $158**
Class Y $ 7 $21 $ 36 $ 81
*Assuming Class B shares are not redeemed at the end of the period.
**Based on conversion of Class B shares to Class A shares in the ninth year.
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>
<TABLE>
<CAPTION>
Performance
Financial highlights
Fiscal period ended June 30,
Per share income and
capital changesa
Class
A
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989b 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
beginning of period
Income from investment
operations:
Net investment .28 .30 .30 .30 .30 .30 .31 .32 .31 .16 .31
income (loss)
Net gains (losses) .13 .07 .03 .05 (.28) .30 .29 .08 (.04) .14 .14
(both realized
and unrealized)
Total from .41 .37 .33 .35 .02 .60 .60 .40 .27 .30 .45
investment
operations
Less
distributions:
Dividends from net (.29) (.29) (.28) (.30) (.30) (.30) (.31) (.32) (.31) (.16) (.32)
investment income
Distributions from - - (.02) - - - - - - - -
realized gains
Total distributions (.29) (.29) (.30) (.30 (.30) (.30) (.31) (.32) (.31) (.16) (.32)
Net asset value, $5.63 $5.51 $5.43 $5.40 $5.35 $5.63 $5.33 $5.04 $4.96 $5.00 $4.86
end of period
Ratios/supplemental
data
Class
A
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989b 1988
Net assets, end of $455 $462 $491 $505 $525 $464 $308 $195 $133 $79 $55
period (in millions)
Ratio of expenses to .73% .74% .75% .66% .65% .65% .67% .67% .69% .72%c .77%
average daily net
assetsd
Ratio of net income 5.09% 5.42% 5.16% 5.66% 5.32% 5.53% 6.06% 6.36% 6.44% 6.60%c 6.55%
(loss)
to average daily
net assets
Portfolio turnover 17% 33% 52% 53% 37% 5% 11% 8% 24% 19% 33%
rate
(excluding
short-term
securities)
Total returne 7.6% 7.1% 6.3% 6.7% .3% 11.7% 12.3% 8.1% 5.6% 6.4% 9.7%
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 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.
Fiscal period ended June 30,
Per share income and
capital changesa
Class Class
B Y
1998 1997 1996 1995b 1998 1997 1996 1995b
Net asset value, $5.51 $5.43 $5.40 $5.47 $5.52 $5.44 $5.41 $5.47
beginning of period
Income from investment operations:
Net investment .24 .25 .26 .09 .29 .30 .31 .08
income (loss)
Net gains (losses) .13 .08 .03 (.07) .13 .08 .03 (.06)
(both realized
and unrealized)
Total from .37 .33 .29 .02 .42 .38 .34 .02
investment
operations
Less
distributions:
Dividends from net (.25) (.25) (.24) (.09) (.30) (.30) (.29) (.08)
investment income
Distributions from - - (.02) - - - (.02) -
realized gains
Total distributions (.25) (.25) (.26) (.09) (.30) (.30) (.31) (.08)
Net asset value, $5.63 $5.51 $5.43 $5.40 $5.64 $5.52 $5.44 $5.41
end of period
Ratios/supplemental
data
Class Class
B Y
1998 1997 1996 1995b 1998 1997 1996 1995b
Net assets, end of $44 $31 $21 $6 $- $- $- $-
period (in millions)
Ratio of expenses to 1.49% 1.50% 1.51% 1.49%c .48% .58% .57% .54%c
average daily net
assetsd
Ratio of net income 4.34% 4.71% 4.42% 4.72%c 5.30% 5.78% 5.32% 5.38%c
(loss)
to average daily
net assets
Portfolio turnover 17% 33% 52% 53% 17% 33% 52% 53%
rate
(excluding
short-term
securities)
Total returne 6.8% 6.3% 5.5% .4% 7.7% 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 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.
</TABLE>
The information in these tables has been audited by KPMG Peat Marwick LLP,
independent auditors. The independent auditors' report and additional
information about the performance of the Fund are contained in the Fund's annual
report which, if not included with this prospectus, may be obtained without
charge.
<PAGE>
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, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Purchase 1 year Since 5 years 10 years
made ago inception ago ago
- ------------------------- ----------------- --------------------- ------------------- -------------------
Insured Tax-Exempt:
Class A +2.22% --% +4.46% +7.16%
Class B +2.80% +4.95%* --% --%
Class Y +7.74% +6.66%* --% --%
Lehman Brothers Municipal
Bond Index
+8.65% +7.38%** +6.07% +7.97%
*Inception date was March 20, 1995.
**Measurement period started April 1, 1995.
Cumulative total returns as of June 30, 1998
Purchase 1 year Since 5 years 10 years
made ago inception ago ago
- ---------------------------- ----------------- --------------------- ------------------- -------------------
Insured Tax-Exempt:
Class A +2.22% --% +24.40% + 99.67%
Class B +2.80% +17.18%* --% --%
Class Y +7.74% +23.55%* --% --%
Lehman Brothers Municipal
Bond Index
+8.65% +26.13%** +34.27% +115.21%
*Inception date was March 20, 1995.
**Measurement period started April 1, 1995.
</TABLE>
<PAGE>
These examples show total returns from hypothetical investments in Class A,
Class B and Class Y shares of the Fund. These returns are compared to those of a
popular index for the same periods. The performance of Class B and Class Y will
vary from the performance of Class A based on differences in sales charges and
fees. Past performance for Class Y for the periods prior to March 20, 1995, may
be calculated based on the performance of Class A, adjusted to reflect
differences in sales charges although not for other differences in expenses.
For purposes of calculation, information about the Fund assumes:
o a sales charge of 5% for Class A shares
o redemption at the end of the period and deduction of the applicable
contingent deferred sales charge for Class B shares
o no sales charge for Class Y shares
o no adjustments for taxes an investor may have paid on the reinvested
income and capital gains
o a period of widely fluctuating securities prices. Returns shown should
not be considered a representation of the Fund's future performance.
Lehman Brothers Municipal Bond Index is an unmanaged index made up of a
representative list of general obligation, revenue, insured and pre-refunded
bonds. The index is frequently used as a general measure of tax-exempt bond
market performance. However, the securities used to create the index may not be
representative of the bonds held in the Fund. The index reflects reinvestment of
all distributions and changes in market prices, but excludes brokerage
commissions or other fees.
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, 1998, was 3.78% for
Class A, 3.22% for Class B and 4.11% 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.
<PAGE>
The Fund's yield varies from day to day, mainly because share values and
offering prices (which are calculated daily) vary in response to changes in
interest rates. Net investment income normally changes much less in the short
run. Thus, when interest rates rise and share values fall, yield tends to rise.
When interest rates fall, yield tends to follow.
Past yields should not be considered an indicator of future yields.
Investment policies and risks
Under normal market conditions, the Fund will invest at least 80% of its net
assets in 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 investment 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 on 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
<PAGE>
needed materials, or declining market or needs of the projects) might also
affect other bonds in the same segment. This could increase market risk.
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 investment manager may use derivative instruments in
addition to securities to achieve investment performance. Derivative instruments
include futures, options and forward contracts. Such instruments may be used to
maintain cash reserves while remaining fully invested, to offset anticipated
declines in values of investments, to facilitate trading, to reduce transaction
costs or to pursue higher investment returns. Derivative instruments are
characterized by requiring little or no initial payment and a daily change in
price based on or derived from a security, a currency, a group of securities or
currencies, or an index. A number of strategies or combination of instruments
can be used to achieve the desired investment performance characteristics. A
small change in the value of the underlying security, currency or index will
cause a sizable gain or loss in the price of the derivative instrument.
Derivative instruments allow the investment manager to change the investment
performance characteristics very quickly and at lower costs. Risks include
losses of premiums, rapid changes in prices, defaults by other parties and
inability to close such instruments. The Fund will use derivative instruments
only to achieve the same investment performance characteristics it could achieve
by directly holding those securities and currencies permitted under the
investment policies. The Fund will designate cash or appropriate liquid assets
to cover its portfolio obligations. The use of derivative instruments may
produce taxable income. No more than 5% of the Fund's net assets can be used at
any one time for good faith deposits on futures and premiums for options on
futures that do not offset existing investment positions. This does not,
however, limit the portion of the Fund's assets at risk to 5%. The Fund is not
limited as to the percentage of its assets that may be invested in permissible
investments, including derivatives, except as otherwise explicitly provided in
this prospectus or the SAI. For descriptions of these and other types of
derivative instruments, see the Appendix to this prospectus and the SAI.
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
<PAGE>
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 investment manager will follow guidelines
established by the board and consider relevant factors such as the nature of the
security and the number of likely buyers when determining whether a security is
illiquid. No more than 10% of the Fund's net assets will be held in securities
and other instruments that are illiquid.
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, 1998.
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.
<PAGE>
Lending portfolio securities: The Fund may lend its securities to earn income so
long as borrowers provide collateral equal to the market value of the loans. The
risks are that borrowers will not provide collateral when required or return
securities when due. Unless a majority of the outstanding voting securities
approve otherwise, loans may not exceed 30% of the Fund's net assets.
Alternative investment option
In the future, the board of the Fund may determine for operating efficiencies to
use a master/feeder structure. Under that structure, the Fund's assets would be
invested in an investment company with the same goal as the Fund, rather than
invested directly in a portfolio of securities.
Valuing Fund shares
The public offering price is the net asset value (NAV) adjusted for the sales
charge for Class A. It is the NAV for Class B and Class Y.
The NAV is the value of a single Fund share. The NAV usually changes daily, and
is calculated at the close of business, normally 3 p.m. Central time, each
business day (any day the New York Stock Exchange is open). NAV generally
declines as interest rates increase and rises as interest rates decline.
To establish the net assets, all securities are valued as of the close of each
business day. In valuing assets:
o Securities and assets with available market values are valued on that basis
o Securities maturing in 60 days or less are valued at amortized cost
o Assets without readily available market values are valued according to
methods selected in good faith by the board
<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>
<S> <C> <C> <C>
Sales charge and
distribution
(12b-1) fee Service fee Other information
Class A Maximum initial sales 0.175% of average daily net Initial sales charge waived
charge of 5%; no 12b-1 fee assets or reduced for certain
purchases
Class B No initial sales charge; 0.175% of average daily net Shares convert to Class A
maximum CDSC of 5% assets in the ninth year of
declines to 0% after six ownership; CDSC waived in
years; 12b-1 fee of 0.75% certain circumstances
of average daily net
assets
Class Y None 0.10% of average daily net Available only to certain
assets qualifying institutional
investors
</TABLE>
Conversion of Class B shares to Class A shares - During the ninth calendar year
of owning your Class B shares, Class B shares will convert to Class A shares and
will no longer be subject to a distribution fee. Class B shares that convert to
Class A shares are not subject to a sales charge. Class B shares purchased
through reinvested dividends and distributions also will convert to Class A
shares in the same proportion as the other Class B shares. This means more of
your money will be put to work for you.
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
o You will not have all of your purchase price invested. Part of your
purchase price will go to pay the sales charge. You will not pay a
sales charge when you redeem your shares.
o You will be able to take advantage of reductions in the sales charge.
If you purchase Class B shares
o All of your money is invested in shares of stock. However, you will pay
a sales charge if you redeem your shares within six years of purchase.
o No reductions of the sales charge are available for large 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
o Your shares will have a lower expense ratio than Class B shares because
Class A does not pay a distribution fee and the transfer agency fee for
Class A is lower than the fee for Class B. As a result, Class A shares
will pay higher dividends than Class B shares.
If you purchase Class B shares
o The distribution and transfer agency fees for Class B will cause your
shares to have a higher expense ratio and to pay lower dividends than
Class A shares. In the ninth year of ownership, Class B shares will
convert to Class A shares and you 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.
<PAGE>
Class Y shares - Class Y shares are offered to certain institutional investors.
Class Y shares are sold without a front-end sales charge or a CDSC and are not
subject to a distribution fee. The following investors are eligible to purchase
Class Y shares:
o Qualified employee benefit plans* if the plan:
- uses a daily transfer recordkeeping service offering participants daily
access to IDS funds and has
- at least $10 million in plan assets or
- 500 or more participants; or
- does not use daily transfer recordkeeping and has
- at least $3 million invested in funds of the IDS MUTUAL FUND GROUP or
- 500 or more participants.
o Trust companies or similar institutions, and charitable organizations
that meet the definition in Section 501(c)(3) of the Internal Revenue
Code.* These organizations must have at least $10 million invested in
funds of the IDS MUTUAL FUND GROUP.
o Nonqualified deferred compensation plans* whose participants are
included in a qualified employee benefit plan described above.
* Eligibility must be determined in advance by AEFA. To do so, contact your
financial advisor.
How to purchase shares
If you are investing in this Fund for the first time, you will need to set up an
account. Your financial advisor will help you fill out and submit an
application. Once your account is set up, you can choose among several
convenient ways to invest.
Important: When opening an account, you must provide your correct Taxpayer
Identification Number (Social Security or Employer Identification number). See
"Distributions and taxes."
When you purchase shares for a new or existing account, the price you pay per
share is determined at the close of business on the day your investment is
received and accepted at the Minneapolis headquarters.
Purchase policies:
o Investments must be received and accepted in the Minneapolis
headquarters on a business day before 3 p.m. Central time to be
included in your account that day and to receive that day's share
price. Otherwise, your purchase will be processed the next business day
and you will pay the next day's share price.
<PAGE>
o The minimums allowed for investment may change from time to time.
o Wire orders can be accepted only on days when your bank, American
Express Client Service Corporation (AECSC), 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 AECSC 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.
Three ways to invest
1 By regular account
Send your check and application (or your name and account number if you have an
established account) to:
American Express Financial Advisors Inc.
P.O. Box 74
Minneapolis, MN 55440-0074
Your financial advisor will help you with this process.
Minimum amounts
Initial investment: $ 2,000
Additional investments: $ 100
Account balances: $ 300*
2 By scheduled investment plan
Contact your financial advisor to set up one of the following scheduled plans:
o automatic payroll deduction
o bank authorization
<PAGE>
o direct deposit of Social Security check
o other plan approved by the Fund
Minimum amounts
Initial investment: $ 100
Additional investments: $ 100/each payment
Account balances: none
(on active plans of monthly payments)
If account balance is below $2,000, frequency of payments must be at least
monthly.
3 By wire
If you have an established account, you may wire money to:
Norwest Bank Minneapolis
Routing No. 091000019
Minneapolis, MN
Attn: Domestic Wire Dept.
Give these instructions: Credit IDS Account #00-30-015 for personal account #
(your account number) for (your name).
If this information is not included, the order may be rejected and all money
received by the Fund, less any costs the Fund or AECSC incurs, will be returned
promptly.
Minimum amounts
Each wire investment: $ 1,000
*If your account balance falls below $300, you will be asked in writing to bring
it up to $300 or establish a scheduled investment plan. If you do not do so
within 30 days, your shares can be redeemed and the proceeds mailed to you. If
you are in a "wrap-fee" program sponsored by AEFA and your wrap program balance
falls below the required program minimum or is terminated, your shares will be
redeemed and the proceeds mailed to you.
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.
<PAGE>
If your exchange request arrives at the Minneapolis headquarters before the
close of business, your shares will be redeemed at the net asset value set for
that day. The proceeds will be used to purchase new fund shares the same day.
Otherwise, your exchange will take place the next business day at that day's net
asset value.
For tax purposes, an exchange represents a redemption and purchase and may
result in a gain or loss. However, you cannot use the sales charge imposed on
the purchase of Class A shares to create or increase a tax loss (or reduce a
taxable gain) by exchanging from the Fund within 91 days of your purchase. For
further explanation, see the SAI.
How to redeem shares
You can redeem your shares at any time. American Express Shareholder Service
will mail payment within seven days after receiving your request.
When you redeem shares, the amount you receive may be more or less than the
amount you invested. Your shares will be redeemed at net asset value, minus any
applicable sales charge, at the close of business on the day your request is
accepted at the Minneapolis headquarters. If your request arrives after the
close of business, the price per share will be the net asset value, minus any
applicable sales charge, at the close of business on the next business day.
A redemption is a taxable transaction. If the proceeds from your redemption are
more or less than the cost of your shares, you will have a gain or loss, which
can affect your tax liability.
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
<PAGE>
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 Advisors Telephone Transaction Service:
800-437-3133 or
612-671-3800
o The Fund and AECSC will honor any telephone exchange or redemption
request believed to be authentic and will use reasonable procedures to
confirm that they are. This includes asking identifying questions and
tape recording calls. If reasonable procedures are followed, the Fund
or AECSC will not be liable for any loss resulting from fraudulent
requests.
o Phone exchange and redemption privileges automatically apply to all
accounts except custodial, corporate or qualified retirement accounts
unless you request these privileges NOT apply by writing American
Express Shareholder Service. Each registered owner must sign the
request.
o AECSC answers phone requests promptly, but you may experience delays
when call volume is high. If you are unable to get through, use mail
procedure as an alternative.
o Acting on your instructions, your financial advisor may conduct
telephone transactions on your behalf.
o Phone privileges may be modified or discontinued at any time.
Minimum amount
Redemption: $100
Maximum amount
Redemption: $50,000
<PAGE>
Exchange policies:
o You may make up to three exchanges within any 30-day period, with each
limited to $300,000. These limits do not apply to scheduled exchange
programs and certain employee benefit plans or other arrangements through
which one shareholder represents the interests of several. Exceptions may
be allowed with pre-approval of the Fund.
o Exchanges must be made into the same class of shares of the new fund.
o If your exchange creates a new account, it must satisfy the minimum
investment amount for new purchases.
o Once we receive your exchange request, you cannot cancel it.
o Shares of the new fund may not be used on the same day for another
exchange.
o If your shares are pledged as collateral, the exchange will be delayed
until written approval is obtained from the secured party.
o AECSC and the Fund reserve the right to reject any exchange, limit the
amount, or modify or discontinue the exchange privilege, to prevent abuse
or adverse effects on the Fund and its shareholders. For example, if
exchanges are too numerous or too large, they may disrupt the Fund's
investment strategies or increase its costs.
Redemption policies:
o A "change of mind" option allows you to change your mind after requesting a
redemption and to use all or part of the proceeds to purchase new shares in
the same account from which you redeemed. If you reinvest in Class A, you
will purchase the new shares at net asset value rather than the offering
price on the date of a new purchase. If you reinvest in Class B, any CDSC
you paid on the amount you are reinvesting also will be reinvested. To take
advantage of this option, send a written request within 30 days of the date
your redemption request was received. Include your account number and
mention this option. This privilege may be limited or withdrawn at any
time, and it may have tax consequences.
o A telephone redemption request will not be allowed within 30 days of a
phoned-in address change.
Important: If you request a redemption of shares you recently purchased by a
check or money order that is not guaranteed, the Fund will wait for your check
to clear. It may take up to 10 days from the date of purchase before a check is
mailed to you. (A check may be mailed earlier if your bank provides evidence
satisfactory to the Fund and AECSC that your check has cleared.)
<PAGE>
Three ways to receive payment when you redeem shares
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
Reductions and waivers of the sales charge
Class A - initial sales charge alternative
On purchases of Class A shares, you pay a 5% sales charge on the first $50,000
of your total investment and less on investments after the first $50,000:
Total investment Sales charge as a
percentage of:*
Public Net
offering amount
price invested
Up to $50,000 5.0% 5.26%
Next $50,000 4.5 4.71
Next $400,000 3.8 3.95
Next $500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
<PAGE>
* 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.
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.
<PAGE>
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.
o Purchases made within 30 days after a redemption of shares (up to the
amount redeemed): - of a product distributed by AEFA in a qualified plan
subject to a deferred sales charge or - in a qualified plan where American
Express Trust Company has a recordkeeping, trustee,
investment management or investment servicing relationship.
Send the Fund a written request along with your payment, indicating the amount
of the redemption and the date on which it occurred.
o Purchases made with dividend or capital gain distributions from the same
class of another fund in the IDS MUTUAL FUND GROUP that has a sales charge.
o Purchases made through or under a "wrap fee" product sponsored by AEFA
(total amount of all investments must be $50,000); the University of
Massachusetts After-Tax Savings Program; or a segregated separate account
offered by Nationwide Life Insurance Company or Nationwide Life and Annuity
Insurance Company.
o Purchases made with the proceeds from IDS Life Real Estate Variable Annuity
surrenders.
* Eligibility must be determined in advance by AEFA. To do so, contact your
financial advisor.
<PAGE>
Class B - contingent deferred sales charge alternative
Where a CDSC is imposed on a redemption, it is based on the amount of the
redemption and the number of calendar years, including the year of purchase,
between purchase and redemption. The following table shows the declining scale
of percentages that apply to redemptions during each year after a purchase:
If a redemption is The percentage rate
made during the for the CDSC is:
First year 5%
Second year 4%
Third year 4%
Fourth year 3%
Fifth year 2%
Sixth year 1%
Seventh year 0%
If the amount you are redeeming reduces the current net asset value of your
investment in Class B shares below the total dollar amount of all your purchase
payments during the last six years (including the year in which your redemption
is made), the CDSC is based on the lower of the redeemed purchase payments or
market value.
The following example illustrates how the CDSC is applied. Assume you had
invested $10,000 in Class B shares and that your investment had appreciated in
value to $12,000 after 15 months, including reinvested dividend and capital gain
distributions. You could redeem any amount up to $2,000 without paying a CDSC
($12,000 current value less $10,000 purchase amount). If you redeemed $2,500,
the CDSC would apply only to the $500 that represented part of your original
purchase price. The CDSC rate would be 4% because a redemption after 15 months
would take place during the second year after purchase.
Because the CDSC is imposed only on redemptions that reduce the total of your
purchase payments, you never have to pay a CDSC on any amount you redeem that
represents appreciation in the value of your shares, income earned by your
shares or capital gains. In addition, when determining the rate of any CDSC,
your redemption will be made from the oldest purchase payment you made. Of
course, once a purchase payment is considered to have been redeemed, the next
amount redeemed is the next oldest purchase payment. By redeeming the oldest
purchase payments first, lower CDSCs are imposed than would otherwise be the
case.
<PAGE>
Waivers of the contingent deferred sales charge The CDSC on Class B shares will
be waived on redemptions of shares:
o In the event of the shareholder's death,
o Held in a trusteed employee benefit plan,
o Held in IRAs or certain qualified plans for which American Express Trust
Company acts as custodian, such as Keogh plans, tax-sheltered custodial
accounts or corporate pension plans, provided that the shareholder is:
- at least 59-1/2 years old, and
- taking a retirement distribution (if the redemption is part of a transfer
to an IRA or qualified plan in a product distributed by AEFA, or a
custodian-to-custodian transfer to a product not distributed by AEFA,
the CDSC will not be waived), or
- redeeming under an approved substantially equal periodic payment
arrangement.
Special shareholder services
Services
To help you track and evaluate the performance of your investments, AECSC
provides these services:
Quarterly statements featuring: (1) a list of all your holdings and transactions
during the previous three months and (2) personalized mutual fund performance
information about your specific account.
Yearly tax statements featuring average-cost-basis reporting of capital gains or
losses if you redeem your shares along with distribution information which
simplifies tax calculations.
A personalized mutual fund progress report detailing returns on your initial
investment and cash-flow activity in your account. It calculates a total return
to reflect your individual history in owning Fund shares. This report is
available from your financial advisor.
Quick telephone reference
American Express Financial Advisors Telephone Transaction Service
Redemptions and exchanges, dividend payments or reinvestments and automatic
payment arrangements
National/Minnesota: 800-437-3133
Mpls./St. Paul area: 671-3800
<PAGE>
TTY Service
For the hearing impaired
800-846-4852
American Express Financial Advisors Easy Access Line
Automated account information (TouchTone(R) phones only), including current Fund
prices and performance, account values and recent account transactions
800-862-7919
Distributions and taxes
As a shareholder you are entitled to your share of the Fund's net income and any
net gains realized on its investments. The Fund distributes dividends and
capital gain distributions to qualify as a regulated investment company and to
avoid paying corporate income and excise taxes. Dividend and capital gain
distributions will have tax consequences you should know about.
Dividend and capital gain distributions
The Fund's net investment income from dividends and interest is distributed to
you monthly as dividends. Capital gains are realized when a security is sold for
a higher price than was paid for it. Short-term capital gains are distributed at
the end of the calendar year and are included in net investment income.
Long-term capital gains are realized when a security is held for more than one
year. The Fund will offset any net realized capital gains by any available
capital loss carryovers. Net realized long-term capital gains, if any, are
distributed at the end of the calendar year as capital gain distributions. These
long-term capital gains will be subject to differing tax rates depending on the
holding period of the underlying investments. Before they are distributed, net
long-term capital gains are included in the value of each share. After they are
distributed, the value of each share drops by the per-share amount of the
distribution. (If your distributions are reinvested, the total value of your
holdings will not change.)
Dividends for each class will be calculated at the same time, in the same manner
and will be the same amount prior to deduction of expenses. Expenses
attributable solely to a class of shares will be paid exclusively by that class.
Reinvestments
Dividends and capital gain distributions are automatically reinvested in
additional shares in the same class of the Fund, unless:
o you request the Fund in writing or by phone to pay distributions to you
in cash, or
o you direct the Fund to invest your distributions in the same class of
another publicly available IDS fund for which you have previously
opened an account.
<PAGE>
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 cash only for distributions
declared after your request has been processed.
If the U.S. Postal Service cannot deliver the checks for the cash distributions,
we will reinvest the checks into your account at the then-current net asset
value and make future distributions in the form of additional shares. Prior to
reinvestment, no interest will accrue on amounts represented by uncashed
distribution or redemption checks.
Taxes
Dividends distributed from interest earned on tax-exempt securities
(exempt-interest dividends) are exempt from federal income taxes but may be
subject to state and local taxes. Dividends distributed from other income earned
and capital gain distributions are not exempt from federal income taxes.
Distributions are taxable in the year the Fund declares them regardless of
whether you take them in cash or reinvest them.
Interest on certain private activity bonds is a preference item for purposes of
the individual and corporate alternative minimum taxes. To the extent the Fund
earns such income, it will flow through to its shareholders and may be taxable
to those shareholders who are subject to the alternative minimum tax.
Because interest on municipal bonds and notes is tax-exempt for federal income
tax purposes, any interest on borrowed money used directly or indirectly to
purchase Fund shares is not deductible on your federal income tax return. You
should consult a tax advisor regarding its deductibility for state and local
income tax purposes.
Each January, you will receive a tax statement showing the kinds and total
amount of all distributions you received during the previous year. You must
report distributions on your tax returns, even if they are reinvested in
additional shares.
Buying a dividend creates a tax liability. This means buying shares shortly
before a capital gain distribution. You pay the full pre-distribution price for
the shares, then receive a portion of your investment back as a distribution,
which is taxable.
Redemptions and exchanges subject you to a tax on any capital gain. If you sell
shares for more than their cost, the difference is a capital gain. Your gain may
be short term (for shares held for one year or less) or long term (for shares
held for more than one year). Long-term capital gains will be taxed at rates
that vary depending upon the holding period. Long-term capital gains are divided
into two holding periods: (1) shares held more than one year but not more than
18 months and (2) shares held more than 18 months.
<PAGE>
Your Taxpayer Identification Number (TIN) is important. As with any financial
account you open, you must list your current and correct Taxpayer Identification
Number (TIN) -- either your Social Security or Employer Identification number.
The TIN must be certified under penalties of perjury on your application when
you open an account.
If you do not provide the TIN, or the TIN you report is incorrect, you could be
subject to backup withholding of 31% of taxable distributions and proceeds from
certain sales and exchanges. You also could be subject to further penalties,
such as:
o a $50 penalty for each failure to supply your correct TIN
o a civil penalty of $500 if you make a false statement that results in
no backup withholding
o criminal penalties for falsifying information
You also could be subject to backup withholding because you failed to report
interest or dividends on your tax return as required.
<TABLE>
<CAPTION>
How to determine the correct TIN
<S> <C>
Use the Social Security or
For this type of account: Employer Identification number of:
Individual or joint account The individual or one of the individuals listed on
the joint account
Custodian account of a minor (Uniform The minor
Gifts/Transfers to Minors Act)
A living trust The
grantor-trustee (the
person who puts the money
into the trust)
An irrevocable trust, The legal entity (not the personal representative
pension trust or estate or trustee, unless no legal entity is designated in
the account title)
Sole proprietorship The owner
Partnership The partnership
Corporate The corporation
Association, club or tax-exempt organization The organization
</TABLE>
<PAGE>
For details on TIN requirements, ask your financial advisor or local American
Express Financial Advisors office for federal Form W-9, "Request for Taxpayer
Identification Number and Certification."
Important: This information is a brief and selective summary of certain federal
tax rules that apply to this Fund. Tax matters are highly individual and
complex, and you should consult a qualified tax advisor about your personal
situation.
How the Fund is organized
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.
<PAGE>
Board members and officers
Shareholders elect a board that oversees the operations of the Fund and chooses
its officers. Its officers are responsible for day-to-day business decisions
based on policies set by the board. The board has named an executive committee
that has authority to act on its behalf between meetings. Board members and
officers serve 47 IDS and IDS Life funds and 15 Master Trust portfolios, except
for William H.
Dudley, who does not serve the nine IDS Life funds.
Independent board members and officers
Chairman of the board
William R. Pearce*
Chairman of the board, Board Services Corporation (provides administrative
services to boards including the boards of the IDS and IDS Life funds and Master
Trust portfolios).
H. Brewster Atwater, Jr.
Retired chairman and chief executive officer, General Mills, Inc.
Lynne V. Cheney
Distinguished fellow, American Enterprise Institute for Public Policy Research.
Heinz F. Hutter
Retired president and chief operating officer, Cargill, Inc.
Anne P. Jones
Attorney and telecommunications consultant.
Alan K. Simpson
Former United States senator for Wyoming.
Edson W. Spencer
Retired chairman and chief executive officer, Honeywell, Inc.
Wheelock Whitney
Chairman, Whitney Management Company.
C. Angus Wurtele
Chairman of the board, The Valspar Corporation.
<PAGE>
Officer
Vice president, general counsel and secretary
Leslie L. Ogg*
President of Board Services Corporation.
Board members and officers associated with AEFC
President
John R. Thomas*
Senior vice president, AEFC.
William H. Dudley*
Senior advisor to the chief executive officer, AEFC.
David R. Hubers*
President and chief executive officer, AEFC.
Officers associated with AEFC
Vice president
Peter J. Anderson*
Senior vice president, AEFC.
Vice president
Frederick C. Quirsfeld*
Vice president, AEFC.
Treasurer
Matthew N. Karstetter*
Vice president, AEFC.
Refer to the SAI for the board members' and officers' biographies.
* Interested person as defined by the Investment Company Act of 1940.
<PAGE>
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, 1998, 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.
Administrator and transfer agent
Under an Administrative Services Agreement, the Fund pays AEFC for
administration and accounting services at an annual rate of 0.04% decreasing in
gradual percentages to 0.02% as assets increase.
Under a separate Transfer Agency Agreement, AECSC maintains shareholder accounts
and records. The Fund pays AECSC an annual fee per shareholder account for this
service as follows:
o Class A $15.50
o Class B $16.50
o Class Y $15.50
Distributor
The Fund has an exclusive distribution agreement with AEFA. Financial advisors
representing AEFA provide information to investors about individual investment
programs, the Fund and its operations, new account applications, and exchange
and redemption requests. The cost of these services is paid partially by the
Fund's sales charges.
Persons who buy Class A shares pay a sales charge at the time of purchase.
Persons who buy Class B shares are subject to a contingent deferred sales charge
on a redemption in the first six years and pay an asset-based sales charge (also
known as a 12b-1 fee) of
<PAGE>
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, 1998, were 0.73% of its average daily net assets. Expenses for Class B and
Class Y were 1.49% and 0.48%, respectively.
About American Express Financial Corporation
General information
The AEFC family of companies offers not only mutual funds but also insurance,
annuities, investment certificates and a broad range of financial management
services.
Besides managing investments for all funds in the IDS MUTUAL FUND GROUP, AEFC
also manages investments for itself and its subsidiaries, IDS Certificate
Company and IDS Life Insurance Company. Total assets under management on June
30, 1998, were more than $200 billion.
AEFA serves individuals and businesses through its nationwide network of more
than 180 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>
Year 2000
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which would have a material impact on the operations of the Fund. The Fund has
no computer systems of its own but is dependent upon the systems maintained by
AEFC and certain other third parties.
A comprehensive review of AEFC's computer systems and business processes has
been conducted to identify the major systems that could be affected by the Year
2000 issue. Steps are being taken to resolve any potential problems including
modification of existing software and the purchase of new software. These
measures are scheduled to be completed and tested on a timely basis. AEFC's goal
is to complete internal remediation and testing of each of its critical systems
by the end of 1998 and to continue compliance efforts through 1999. The Year
2000 readiness of other third parties whose system failures could have an impact
on the Fund's operations currently is being evaluated. The companies or
governments in which the Fund invests also may be adversely affected by Year
2000 issues. This may affect the value of the Fund's investments. The potential
materiality of any impact is not known at this time.
<PAGE>
Appendix A
1998 Federal tax-exempt and taxable equivalent yield calculation
These tables will help you determine your federal taxable yield equivalents for
given rates of tax-exempt income.
STEP 1:
Using your Taxable Income and Adjusted Gross Income figures as guides, you can
locate your Marginal Tax Rate in the table below.
First locate your Taxable Income in a filing status and income range in the
left-hand column. Then, locate your Adjusted Gross Income at the top of the
chart. At the point where your Taxable Income line meets your Adjusted Gross
Income column the percentage indicated is an approximation of your federal
Marginal Tax Rate. For example: Let's assume you are married filing jointly,
your taxable income is $138,000 and your adjustable gross income is $175,000.
Under Taxable Income married filing jointly status, $138,000 is in the
$102,300-$155,950 range. Under Adjusted Gross Income, $175,000 is in the
$124,500 to $186,800 column. The Taxable Income line and Adjusted Gross Income
column meet at 31.93%. This is the rate you'll use in Step 2.
Adjusted gross income*
- -------------------------------------------------------------------------------
Taxable income** $0 $124,500 $186,800 Over
to to to
$124,500(1) $186,800(2) $309,300(3) $309,300(2)
- -------------------------------------------------------------------------------
Married Filing Jointly
$ 0 - $ 42,350 15.00%
42,350 - 102,300 28.00 28.84%
102,300 - 155,950 31.00 31.93 33.27%
155,950 - 278,450 36.00 37.08 38.64 37.08%
278,450 + 39.60 42.50*** 40.79
- -------------------------------------------------------------------------------
Adjusted gross income*
- -------------------------------------------------------------------------------
Taxable income** $0 $124,500 Over
to to
$124,500(1) $247,000(3) $247,000(2)
- -------------------------------------------------------------------------------
Single
$ 0 - $ 25,350 15.00%
25,350 - 61,400 28.00
61,400 - 128,100 31.00 32.60%
128,100 - 278,450 36.00 37.86 37.08%
278,450 + 39.60 40.79
- -------------------------------------------------------------------------------
*Gross income with certain adjustments before taking itemized deductions and
personal exemptions.
**Amount subject to federal income tax after itemized deductions (or standard
deduction) and personal exemptions.
***This rate is applicable only in the limited case where your adjusted gross
income is less than $309,300 and your taxable income exceeds $278,450.
(1) No Phase-out -- Assumes no phase-out of itemized deductions or personal
exemptions.
(2) Itemized Deductions Phase-out -- Assumes a phase-out of itemized
deductions and no current phase-out of personal exemptions.
(3) Itemized Deductions and Personal Exemption Phase-outs -- Assumes a single
taxpayer has one personal exemption, joint taxpayers have two personal
exemptions, personal exemptions phase-out and itemized deductions continue
to phase-out.
<PAGE>
If these assumptions do not apply to you, it will be necessary to construct your
own personalized tax equivalency table.
STEP 2: Determining your federal taxable yield equivalents.
Using 31.93%, you may determine that a tax-exempt yield of 4% is equivalent to
earning a taxable 5.88% yield.
For these Tax-Exempt Rates:
---------------------------------------------------------------
3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
---------------------------------------------------------------
Marginal Equal the Taxable Rates shown below:
Tax Rates
- -------------------------------------------------------------------------------
15.00% 3.53 4.12 4.71 5.29 5.88 6.47 7.06 7.65
28.00% 4.17 4.86 5.56 6.25 6.94 7.64 8.33 9.03
28.84% 4.22 4.92 5.62 6.32 7.03 7.73 8.43 9.13
31.00% 4.35 5.07 5.80 6.52 7.25 7.97 8.70 9.42
31.93% 4.41 5.14 5.88 6.61 7.35 8.08 8.81 9.55
32.60% 4.45 5.19 5.93 6.68 7.42 8.16 8.90 9.64
33.27% 4.50 5.25 5.99 6.74 7.49 8.24 8.99 9.74
36.00% 4.69 5.47 6.25 7.03 7.81 8.59 9.38 10.16
37.08% 4.77 5.56 6.36 7.15 7.95 8.74 9.54 10.33
37.86% 4.83 5.63 6.44 7.24 8.05 8.85 9.66 10.46
38.64% 4.89 5.70 6.52 7.33 8.15 8.96 9.78 10.59
39.60% 4.97 5.79 6.62 7.45 8.28 9.11 9.93 10.76
40.79% 5.07 5.91 6.76 7.60 8.44 9.29 10.13 10.98
42.50% 5.22 6.09 6.96 7.83 8.70 9.57 10.43 11.30
- -------------------------------------------------------------------------------
<PAGE>
Appendix B
Descriptions of derivative instruments
What follows are brief descriptions of derivative instruments the Fund may use.
At various times the Fund may use some or all of these instruments and is not
limited to these instruments. It may use other similar types of instruments if
they are consistent with the Fund's investment goal and policies. For more
information on these instruments, see the SAI.
Options and futures contracts - An option is an agreement to buy or sell an
instrument at a set price during a certain period of time. A futures contract is
an agreement to buy or sell an instrument for a set price on a future date. The
Fund may buy and sell options and futures contracts to manage its exposure to
changing interest rates, security prices and currency exchange rates. Options
and futures may be used to hedge the Fund's investments against price
fluctuations or to increase market exposure.
Asset-backed and mortgage-backed securities - Asset-backed securities include
interests in pools of assets such as motor vehicle installment sale contracts,
installment loan contracts, leases on various types of real and personal
property, receivables from revolving credit (credit card) agreements or other
categories of receivables. Mortgage-backed securities include collateralized
mortgage obligations and stripped mortgage-backed securities. Interest and
principal payments depend on payment of the underlying loans or mortgages. The
value of these securities may also be affected by changes in interest rates, the
market's perception of the issuers and the creditworthiness of the parties
involved. The non-mortgage related asset-backed securities do not have the
benefit of a security interest in the related collateral. Stripped
mortgage-backed securities include interest only (IO) and principal only (PO)
securities. Cash flows and yields on IOs and POs are extremely sensitive to the
rate of principal payments on the underlying mortgage loans or mortgage-backed
securities.
Indexed securities - The value of indexed securities is linked to currencies,
interest rates, commodities, indexes or other financial indicators. Most indexed
securities are short- to intermediate-term fixed income securities whose values
at maturity or interest rates rise or fall according to the change in one or
more specified underlying instruments. Indexed securities may be more volatile
than the underlying instrument itself.
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
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. 28, 1998
This Statement of Additional Information (SAI) is not a prospectus. It should be
read together with the prospectus and the financial statements contained in the
Annual Report which may be obtained from your American Express financial advisor
or by writing to American Express Shareholder Service, P.O. Box 534,
Minneapolis, MN 55440-0534.
This SAI is dated Aug. 28, 1998, and it is to be used with the prospectus
dated Aug. 28, 1998, and the Annual Report for the fiscal year ended Aug. 28,
1998.
<PAGE>
TABLE OF CONTENTS
Goal and Investment Policies...................................See Prospectus
Additional Investment Policies..........................................p. 4
Security Transactions...................................................p. 7
Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation...................................p.10
Performance Information..................................................p.10
Valuing Fund Shares......................................................p.13
Investing in the Fund....................................................p.15
Redeeming Shares.........................................................p.19
Pay-out Plans............................................................p.19
Capital Loss Carryover...................................................p.21
Taxes....................................................................p.21
Agreements...............................................................p.23
The Trusts...............................................................p.27
Organizational Information...............................................p.27
Board Members and Officers...............................................p.27
Compensation for Fund Board Members......................................p.31
Principal Holders of Securities..........................................p.34
Independent Auditors.....................................................p.34
Financial Statements........................................See Annual Report
Prospectus...............................................................p.35
<PAGE>
Appendix A: Description of Ratings of Tax-Exempt Securities
and Short-Term Securities..........................p.36
Appendix B: Options and Interest Rate Futures Contracts.............p.41
Appendix C: State Risk Factors......................................p.47
Appendix D: Dollar-Cost Averaging...................................p.57
<PAGE>
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 that 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 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.
<PAGE>
`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. 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 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 derivative instruments
that are illiquid. In determining the liquidity of municipal lease obligations,
the investment manager, under guidelines established by the board, will consider
the essential nature of the lease property, the likelihood that the municipality
will continue appropriating funding for the leased property, and other relevant
factors related to the general credit quality of the municipality and the
marketability of the municipal lease 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.
<PAGE>
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.
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.
<PAGE>
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.
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 with respect to the Funds and other funds and trusts in the IDS
MUTUAL FUND GROUP for which it acts as investment advisor.
<PAGE>
Research provided by brokers supplements AEFC's own research activities. Such
services include economic data on, and analysis of, U.S. and foreign economies;
information on specific industries; information about specific companies,
including earnings estimates; purchase recommendations for stocks and bonds;
portfolio strategy services; political, economic, business and industry trend
assessments; historical statistical information; market data services providing
information on specific issues and prices; and technical analysis of various
aspects of the securities markets, including technical charts. Research services
may take the form of written reports, computer software or personal contact by
telephone or at seminars or other meetings. AEFC has obtained, and in the future
may obtain, computer hardware from brokers, including but not limited to
personal computers that will be used exclusively for investment decision-making
purposes, which include the research, portfolio management and trading functions
and other services to the extent permitted under an interpretation by the
Securities and Exchange Commission.
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 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 represented that under all three
procedures the amount of commission paid will be reasonable and competitive in
relation to the value of the brokerage services performed or research provided.
All other transactions shall be placed on the basis of obtaining the best
available price and the most favorable execution. In so doing, if in the
professional opinion of the person responsible for selecting the broker or
dealer, several firms can execute the transaction on the same basis,
consideration will be given 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.
<PAGE>
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.
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.
<TABLE>
<CAPTION>
For the fiscal years ending June 30, each Fund paid the following brokerage
commissions on financial futures contracts.
<S> <C> <C> <C> <C> <C> <C>
CA MA MI MN NY OH
----------------- ----------------- ----------------- ----------------- ------------------ -----------------
1998 $ 1,224 $ 408 $ 420 $ 1,572 $2,076 $ 408
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
</TABLE>
No transactions were directed to brokers because of research services they
provided to each Fund.
As of the fiscal year ended June 30, 1998, 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.
<TABLE>
<CAPTION>
The portfolio turnover rates for the fiscal years ended June 30, were as
follows:
<S> <C> <C> <C> <C> <C> <C>
CA MA MI MN NY OH
----------------- ----------------- ----------------- ----------------- ------------------ -----------------
1998 15% 9% 10% 8% 10% 10%
1997 14 8 21 14 12 9
</TABLE>
Higher turnover rates may result in higher brokerage expenses. A high turnover
rate (in excess of 100%) results in higher fees and expenses.
<PAGE>
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.
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.
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)
<PAGE>
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
<PAGE>
The following table gives an annualized yield quotation for each of the funds:
30-Day Period Ended June 30, Class A Class B
Fund 1998 Yield Yield
- --------------- ------------------------------- ----------------- --------------
California 3.80% 3.25%
Massachusetts 3.74 3.20
Michigan 3.68 3.13
Minnesota 4.18 3.65
New York 3.81 3.26
Ohio 3.84 3.29
- --------------- ------------------------------- ----------------- --------------
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>
Federal
Marginal Tax Equivalent Yield
Income Tax for 30 Day Period Ended June 30, 1998
-------------------------------------
Bracket
- ----------------
<S> <C> <C> <C> <C> <C> <C>
California Massachusetts Michigan Minnesota New York Ohio
---------- ------------- -------- --------- -------- ----
Class A
15.0% 4.47% 4.40% 4.33% 4.92% 4.48% 4.52%
28.0% 5.28% 5.19% 5.11% 5.81% 5.29% 5.33%
31.0% 5.51% 5.42% 5.33% 6.06% 5.52% 5.57%
36.0% 5.94% 5.84% 5.75% 6.53% 5.95% 6.00%
39.6% 6.29% 6.19% 6.09% 6.92% 6.31% 6.36%
Class B
15.0% 3.82%% 3.76% 3.68% 4.29% 3.84% 3.87%
28.0% 4.51% 4.44% 4.35% 5.07% 4.53% 4.57%
31.0% 4.71% 4.64% 4.54% 5.29% 4.72% 4.77%
36.0% 5.08% 5.00% 4.89% 5.70% 5.09% 5.14%
39.6% 5.38% 5.30% 5.18% 6.04% 5.40% 5.45%
</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, 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>
VALUING FUND SHARES
<TABLE>
<CAPTION>
The value of an individual share is determined by using the net asset value
before shareholder transactions for the day. On July 1, 1998, the first business
day following the end of the year, the computation looked like this:
<S> <C> <C> <C> <C> <C>
Net assets before Shares outstanding at Net asset value
shareholder the end of previous of one share
transactions day
----------------------- ------------ ----------------------- ------- -----------------
California divided by equals
Class A $239,332,021 44,726,597 $5.351
Class B 14,967,775 2,797,715 5.350
Massachusetts
Class A 66,701,505 11,988,049 5.564
Class B 13,007,636 2,337,821 5.564
Michigan
Class A 76,923,144 13,820,184 5.566
Class B 5,128,930 921,475 5.566
Minnesota
Class A 384,773,918 71,162,182 5.407
Class B 31,215,536 5,773,171 5.407
New York
Class A 105,491,904 19,930,456 5.293
Class B 9,793,559 1,850,285 5.293
Ohio
Class A 67,221,731 12,226,579 5.498
Class B 5,294,519 962,990 5.498
</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 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.
<PAGE>
`Securities included in the NASDAQ National Market System are valued at the
last-quoted sales price in this market.
`Securities included in the NASDAQ National Market System for which a
last-quoted sales price is not readily available, and other securities traded
over-the-counter but not included in the NASDAQ National Market System are
valued at the mean of the closing bid and asked prices.
`Futures and options traded on major exchanges are valued at their last-quoted
sales price on their primary exchange.
`Short-term securities maturing more than 60 days from the valuation date are
valued at the readily available market price or approximate market value based
on current interest rates. Short-term securities maturing in 60 days or less
that originally had maturities of more than 60 days at acquisition date are
valued at amortized cost using the market value on the 61st day before maturity.
Short-term securities maturing in 60 days or less at acquisition date are valued
at amortized cost. Amortized cost is an approximation of market value determined
by systematically increasing the carrying value of a security if acquired at a
discount, or systematically reducing the carrying value if acquired at a
premium, so that the carrying value is equal to the maturity value on maturity
date.
`Securities without a readily available market price 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.
<PAGE>
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 adjusted for the sales charge for
Class A. 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, 1998, was determined as
follows: The sales charge is paid to American Express Financial Advisors Inc.
(AEFA) by the person buying the shares.
Divided by
Net asset (1.00 - 0.05) for a Public
Fund value of one share sales charge offering price
- ---------- ---------------------- ----------------------- --------------
California $5.351 / 0.95 = $5.63
Massachusetts 5.564 / 0.95 = $5.86
Michigan 5.566 / 0.95 = $5.86
Minnesota 5.407 / 0.95 = $5.69
New York 5.293 / 0.95 = $5.57
Ohio 5.498 / 0.95 = $5.79
Class A - Calculation of the Sales Charge
Sales charges are determined as follows:
Within each
increment, sales
charge as a
percentage of:
------------------------------------------------
Amount of Investment Public Net
Offering Price Amount Invested
First $50,000 5.0% 5.26%
Next 50,000 4.5 4.71
Next 400,000 3.8 3.95
Next 500,000 2.0 2.04
$1,000,000 or more 0.00 0.00
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.
<PAGE>
In the case of the $85,000 investment, the first $50,000 also incurs a sales
charge of $2,500 (5.0% x $50,000) and $35,000 incurs a sales charge of $1,575
(4.5% x $35,000). The total sales charge of $4,075 is 4.79% of the public
offering price and 5.04% of the net amount invested.
The following table shows the range of sales charges as a percentage of the
public offering price and of the net amount invested on total investments at
each applicable level.
On total
investment, sales
charge as a
percentage of:
---------------------------------------------------
Public Net
Offering Price Amount Invested
Amount of Investment ranges from:
---------------------------------------------------
First $50,000 5.00% 5.26%
Next 50,000 to 100,000 5.00-4.50 5.26-4.71
Next 100,000 to 500,000 4.50-3.80 4.71-3.95
Next 500,000 to 999,999 3.80-2.00 3.95-2.04
$1,000,000 or more 0.00 0.00
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.
<PAGE>
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 a 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 sales
charge previously paid.
Systematic Investment Programs
After you make your initial investment of $100 or more, you must make additional
payments of $100 or more on at least a monthly basis until your balance reaches
$2,000. 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.
<PAGE>
How does this work? Your regular investment amount will purchase more shares
when the net asset value per share decreases, and fewer shares when the net
asset value per share increases. Each purchase is a separate transaction. After
each purchase your new shares will be added to your account. Shares bought
through these programs are exactly the same as any other fund shares. They can
be bought and sold at any time. A systematic investment program is not an option
or an absolute right to buy shares.
The systematic investment program itself cannot ensure a profit, nor can it
protect against a loss in a declining market. If you decide to discontinue the
program and redeem your shares when their net asset value is less than what you
paid for them, you will incur a loss.
For a discussion on dollar-cost averaging, see Appendix D.
Automatic Directed Dividends
Dividend and capital gain distributions, paid by another fund in the IDS MUTUAL
FUND GROUP subject to a sales charge, may be used to automatically purchase
shares in the same class of any of these Funds without paying a sales charge.
Dividends may be directed to existing accounts only. Dividends declared by a
Fund are exchanged to one of these Funds the following day. Dividends can be
exchanged into 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.
<PAGE>
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, as amended
(the 1940 Act), declares a period of emergency to exist.
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.
<PAGE>
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.
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.
<PAGE>
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 $364,073, $15,918, $206,533, $419,215, $1,329,019, and $166,361,
respectively, at June 30, 1998, that if not offset by subsequent capital gains
will expire as set out below:
Fund 2005 2006 2007
- ---- ---- ---- ----
California $364,073
Massachusetts $ 15,918
Michigan $206,533
Minnesota 260,814 158,401
New York 1,329,019
Ohio 166,361
It is unlikely that the board will authorize a distribution of any net realized
capital gains until the available capital loss carryover has been offset or has
expired except as required by Internal Revenue Service rules.
TAXES
If you buy shares in one of the Funds and then exchange into another fund, it is
considered a redemption and subsequent purchase of shares. Under tax laws, if
this exchange is done within 91 days, any sales charge waived on Class A shares
on a subsequent purchase of shares applies to the new shares acquired in the
exchange. Therefore, you cannot create a tax loss or reduce a tax gain
attributable to the sales charge when exchanging shares within 91 days.
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.
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.
<PAGE>
Capital gain distributions, if any, received by corporate shareholders should be
treated as long-term capital gains regardless of how long they owned their
shares. Capital gain distributions, if any, received by individuals should be
treated as long-term if held for more than one year; however, recent tax laws
have divided long-term capital gains into two holding periods: (1) shares held
more than one year but not more than 18 months and (2) shares held more than 18
months. Short-term capital gains earned by the Fund are paid to shareholders as
part of their ordinary income dividend and are taxable.
The Funds 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 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.
<PAGE>
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. Each class of the
Fund pays its proportionate share of the fee.
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, 1998, the daily rate applied to the Funds' net assets was equal to
0.470% for California, Massachusetts, Michigan, New York and Ohio and 0.460% 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.
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 1998 1997 1996
----- ---- ----
- ----------------
California $1,171,054 $1,136,825 $1,138,491
Massachusetts 358,885 349,582 344,729
Michigan 379,412 382,131 381,069
Minnesota 1,872,006 1,856,870 1,895,243
New York 545,320 555,919 578,413
Ohio 336,754 335,881 355,739
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 1998 1997 1996
----- ---- ----
- ---------------
California $36,849 $79,107 $92,077
Massachusetts 46,784 64,534 77,636
Michigan 59,281 66,202 71,022
Minnesota 45,166 44,674 174,109
New York 48,628 64,887 94,745
Ohio 52,683 55,835 64,467
<PAGE>
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, 1998, 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 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, 1998:
California $103,284
Massachusetts 32,602
Michigan 34,433
Minnesota 160,057
New York 48,804
Ohio 31,132
Transfer Agency Agreement
Each Fund has a Transfer Agency Agreement with American Express Client Service
Corporation (AECSC). This agreement governs AECSC's responsibility for
administering and/or performing transfer agent functions, for acting as service
agent in connection with dividend and distribution functions and for performing
shareholder account administration agent functions in connection with the
issuance, exchange and redemption or repurchase of each Fund's shares. Under the
agreement, AECSC 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 AECSC 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, 1998:
California $86,827
Massachusetts 41,922
Michigan 36,321
Minnesota 201,805
New York 58,119
Ohio 34,828
<PAGE>
<TABLE>
<CAPTION>
Distribution Agreement
Under a Distribution Agreement, sales charges deducted for distributing Fund
shares are paid to AEFA 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.
<S> <C> <C> <C> <C> <C> <C> <C>
Year California Massachusetts Michigan Minnesota New York Ohio
- -------- ------- -------------- -------------- --------------- -------------- --------------- --------------
1998 (1) $590,397 $319,341 $165,232 $996,195 $288,596 $115,270
(2) 76,867 13,498 16,959 134,545 33,874 (24,371)
1997 (1) 447,310 217,111 132,029 815,821 244,183 107,454
(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
</TABLE>
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 AEFA defray the cost of distribution and servicing,
not covered by the sales charges received under the Distribution Agreement, each
Fund and AEFA entered into a Plan and Agreement of Distribution (Plan). These
costs relate to most aspects of distributing each Fund's shares including AEFA
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, AEFA is paid a fee at an annual
rate of 0.75% of each Fund's average daily net assets attributable to Class B
shares.
The Plan must be approved annually by the board, 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
<PAGE>
a majority of the outstanding voting securities of each Fund's Class B shares or
by AEFA. The Plan (or any agreement related to it) will terminate in the event
of its assignment, as that term is defined in the 1940 Act. The Plan may not be
amended to increase the amount to be spent for distribution without
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, 1998
- --------------------------- ---------------------------------------------
California $93,078
Massachusetts 77,012
Michigan 32,733
Minnesota 196,995
New York 65,703
Ohio 32,154
Custodian Agreement
The Funds' securities and cash are held by U.S. 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.
Total fees and expenses
Each Fund paid the following total fees and nonadvisory expenses for the fiscal
year ended June 30, 1998:
Total fees and
nonadvisory
expenses
- ------------------------------ --------------------------------------------
California $1,922,979
Massachusetts 689,935
Michigan 682,529
Minnesota 3,184,154
New York 967,716
Ohio 612,191
<PAGE>
THE TRUSTS
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 1940 Act. 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
Retired 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 and Union
Pacific Resources.
William H. Dudley**
Born in 1932
2900 IDS Tower
Minneapolis, MN
Senior advisor to the chief executive officer of AEFC.
David R. Hubers+**
Born in 1943
2900 IDS Tower
Minneapolis, MN
President, chief executive officer and director of AEFC.
Heinz F. Hutter+'
Born in 1929
P.O. Box 2187
Minneapolis, MN
Retired 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. (electronics), C-Cor
Electronics, Inc., and Amnex, Inc. (communications).
<PAGE>
William R. Pearce+*
Born in 1927
901 S. Marquette Ave.
Minneapolis, MN
Chairman of the board, Board Services Corporation (provides administrative
services to boards). Director, trustee and officer of registered investment
companies whose boards are served by the company. Retired 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) and Biogen
(pharmaceuticals).
Edson W. Spencer+
Born in 1926
4900 IDS Center
80 S. 8th St.
Minneapolis, MN
President, Spencer Associates Inc. (consulting). Retired chairman of the board
and chief executive officer, Honeywell Inc. Director, Boise Cascade Corporation
(forest products). Member of International Advisory Council of NEC (Japan).
John R. Thomas**
Born in 1937
2900 IDS Tower
Minneapolis, MN
Senior vice president of AEFC.
Wheelock Whitney+
Born in 1926
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN
Chairman, Whitney Management Company (manages family assets).
<PAGE>
C. Angus Wurtele'
Born in 1934
Valspar Corporation
Suite 1700
Foshay Tower
Minneapolis, MN
Chairman of the board and retired chief executive officer, The Valspar
Corporation (paints). Director, Bemis Corporation (packaging), Donaldson Company
(air cleaners & mufflers) and General Mills, Inc.
(consumer foods).
+ Member of executive committee.
' Member of joint audit committee.
* Interested person by reason of being an officer and employee of the Fund.
**Interested person by reason of being an officer, board member, employee and/or
shareholder of AEFC or American Express.
The board also has appointed officers who are responsible for day-to-day
business decisions based on policies it has established.
In addition to Mr. Pearce, who is chairman of the board and Mr. Thomas, who is
president, the Fund's other officers are:
Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN
President 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>
Frederick C. Quirsfeld
Born in 1947
IDS Tower 10
Minneapolis, MN
Vice president - taxable mutual fund investments of AEFC. Vice president - fixed
income investments for the Fund.
Matthew N. Karstetter
Born in 1961
IDS Tower 10
Minneapolis, MN
Vice president of Investment Accounting for AEFC since 1996. Prior to joining
AEFC, he served as vice president of State Street Bank's mutual fund service
operation from 1991 to 1996. Treasurer for the Fund.
COMPENSATION FOR FUND BOARD MEMBERS
Members of the Fund board who are not officers of the Funds or of AEFC receive
an annual fee of $100 for California, Massachusetts, Michigan, New York and
Ohio, $200 for Minnesota, and the chair of the Contracts Committee receives an
additional fee of $86. Board members receive a $50 per day attendance fee for
board meetings. The attendance fee for meetings of the Contracts and Investment
Review Committees is $50; for meetings of the Audit Committee and Personnel
Committee $25 and for traveling from out-of-state $1, for all except Minnesota
which is $2. Expenses for attending meetings are reimbursed.
<PAGE>
During the fiscal year ended June 30, 1998, the independent members of the
board, for attending up to 27 meetings, received the following compensation:
<TABLE>
<CAPTION>
Compensation Table
IDS California Tax-Exempt Fund
<S> <C> <C> <C> <C>
Total cash
compensation from
Aggregate Pension or the IDS MUTUAL
compensation Retirement Estimated annual FUND GROUP and
Board member from the Fund benefits accrued benefit upon Preferred Master
as Fund expenses retirement Trust Group
- ---------------------- --------------------- -------------------- --------------------- --------------------
H. Brewster Atwater, $ 900 $0 $0 $ 98,200
Jr.
Lynne V. Cheney 756 0 0 92,200
Robert F. Froehlke 442 0 0 44,800
Heinz F. Hutter 950 0 0 101,200
Anne P. Jones 806 0 0 95,200
Melvin R. Laird 285 0 0 32,600
Alan K. Simpson 630 0 0 84,200
Edson W. Spencer 1,125 0 0 111,700
Wheelock Whitney 1,025 0 0 105,700
C. Angus Wurtele 1,050 0 0 107,200
Compensation Table
IDS Massachusetts Tax-Exempt Fund
Total cash
compensation from
Aggregate Pension or the IDS MUTUAL
compensation Retirement Estimated annual FUND GROUP and
Board member from the Fund benefits accrued benefit upon Preferred Master
as Fund expenses retirement Trust Group
- ---------------------- --------------------- -------------------- --------------------- --------------------
H. Brewster Atwater, $ 900 $0 $0 $ 98,200
Jr.
Lynne V. Cheney 756 0 0 92,200
Robert F. Froehlke 442 0 0 44,800
Heinz F. Hutter 950 0 0 101,200
Anne P. Jones 806 0 0 95,200
Melvin R. Laird 285 0 0 32,600
Alan K. Simpson 630 0 0 84,200
Edson W. Spencer 1,125 0 0 111,700
Wheelock Whitney 1,025 0 0 105,700
C. Angus Wurtele 1,050 0 0 107,200
<PAGE>
Compensation Table
IDS Michigan Tax-Exempt Fund
Total cash
compensation from
Aggregate Pension or the IDS MUTUAL
compensation Retirement Estimated annual FUND GROUP and
Board member from the Fund benefits accrued benefit upon Preferred Master
as Fund expenses retirement Trust Group
- ---------------------- --------------------- -------------------- --------------------- --------------------
H. Brewster Atwater, $ 900 $0 $0 $ 98,200
Jr.
Lynne V. Cheney 756 0 0 92,200
Robert F. Froehlke 442 0 0 44,800
Heinz F. Hutter 950 0 0 101,200
Anne P. Jones 806 0 0 95,200
Melvin R. Laird 285 0 0 32,600
Alan K. Simpson 630 0 0 84,200
Edson W. Spencer 1,125 0 0 111,700
Wheelock Whitney 1,025 0 0 105,700
C. Angus Wurtele 1,050 0 0 107,200
Compensation Table
IDS Minnesota Tax-Exempt Fund
Total cash
compensation from
Aggregate Pension or the IDS MUTUAL
compensation Retirement Estimated annual FUND GROUP and
Board member from the Fund benefits accrued benefit upon Preferred Master
as Fund expenses retirement Trust Group
- ---------------------- --------------------- -------------------- --------------------- --------------------
H. Brewster Atwater, $ 950 $0 $0 $ 98,200
Jr.
Lynne V. Cheney 809 0 0 92,200
Robert F. Froehlke 442 0 0 44,800
Heinz F. Hutter 1,000 0 0 101,200
Anne P. Jones 860 0 0 95,200
Melvin R. Laird 285 0 0 32,600
Alan K. Simpson 683 0 0 84,200
Edson W. Spencer 1,175 0 0 111,700
Wheelock Whitney 1,075 0 0 105,700
C. Angus Wurtele 1,100 0 0 107,200
Compensation Table
IDS New York Tax-Exempt Fund
Total cash
compensation from
Aggregate Pension or the IDS MUTUAL
compensation Retirement Estimated annual FUND GROUP and
Board member from the Fund benefits accrued benefit upon Preferred Master
as Fund expenses retirement Trust Group
- ---------------------- --------------------- -------------------- --------------------- --------------------
H. Brewster Atwater, $ 900 $0 $0 $ 98,200
Jr.
Lynne V. Cheney 756 0 0 92,200
Robert F. Froehlke 442 0 0 44,800
Heinz F. Hutter 950 0 0 101,200
Anne P. Jones 806 0 0 95,200
Melvin R. Laird 285 0 0 32,600
Alan K. Simpson 630 0 0 84,200
Edson W. Spencer 1,125 0 0 111,700
Wheelock Whitney 1,025 0 0 105,700
C. Angus Wurtele 1,050 0 0 107,200
<PAGE>
Compensation Table
IDS Ohio Tax-Exempt Fund
Total cash
compensation from
Aggregate Pension or the IDS MUTUAL
compensation Retirement Estimated annual FUND GROUP and
Board member from the Fund benefits accrued benefit upon Preferred Master
as Fund expenses retirement Trust Group
- ---------------------- --------------------- -------------------- --------------------- --------------------
H. Brewster Atwater, $ 900 $0 $0 $ 98,200
Jr.
Lynne V. Cheney 756 0 0 92,200
Robert F. Froehlke 442 0 0 44,800
Heinz F. Hutter 950 0 0 101,200
Anne P. Jones 806 0 0 95,200
Melvin R. Laird 285 0 0 32,600
Alan K. Simpson 630 0 0 84,200
Edson W. Spencer 1,125 0 0 111,700
Wheelock Whitney 1,025 0 0 105,700
C. Angus Wurtele 1,050 0 0 107,200
</TABLE>
On June 30, 1998, the Fund's board members and officers as a group owned less
than 1% of the outstanding shares of any class of each Fund. The following
illustrates the amount all board members and officers as a group earned from
each Fund.
PRINCIPAL HOLDERS OF SECURITIES
As of July 31, 1998, the following held more than 5% of a Fund's shares:
IDS Ohio Tax-Exempt Fund
1. DeCola D. Miller, 5.28%
2. The Emily Perrin Trust, Margarete Perrin Trustee, 5.03%
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, 1998 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.
<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, 1998, pursuant to Section 30(d) of the 1940 Act, are hereby incorporated in
this SAI by reference. No other portion of the Annual Report, however, is
incorporated by reference.
PROSPECTUS
The prospectus for IDS State Tax-Exempt Funds, dated Aug. 28, 1998, 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 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.
<PAGE>
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.
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.
<PAGE>
Short-term Tax-exempt Securities
A portion of each Fund's assets are in cash and short-term securities for
day-to-day operating purposes. The investments will usually be in short-term
municipal bonds and notes. These include:
(1) Tax anticipation notes sold to finance working capital needs of
municipalities in anticipation of receiving taxes on a future date.
(2) Bond anticipation notes sold on an interim basis in anticipation of a
municipality issuing a longer term bond in the future.
(3) Revenue anticipation notes issued in anticipation of revenues from sources
other than taxes, such as federal revenues available under the Federal Revenue
Sharing Program.
(4) Tax and revenue anticipation notes issued in anticipation of revenues from
taxes and other sources of revenue, except bond placements.
(5) Construction loan notes insured by the Federal Housing Administration which
remain outstanding until permanent financing 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.
<PAGE>
Moody's MIG 2/VMIG 2 indicates high quality. Margins of protection are ample
although not so large as in the preceding group.
Moody's MIG 3/VMIG 3 indicates favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Moody's MIG 4/VMIG 4 indicates adequate quality. Protection commonly regarded as
required of an investment security is present and although not distinctly or
predominantly speculative, there is specific risk.
Standard & Poor's rating SP-1 indicates very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
Standard & Poor's rating SP-2 indicates satisfactory capacity to pay principal
and interest.
Standard & Poor's rating SP-3 indicates speculative capacity to pay principal
and interest.
Short-term Taxable Securities and Repurchase 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;
<PAGE>
(5) Letters of credit which are short-term notes issued in bearer form with a
bank letter of credit obligating the bank to pay the bearer the amount of the
note;
(6) Commercial paper rated in the two highest grades by 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.
<PAGE>
APPENDIX B
OPTIONS AND INTEREST RATE FUTURES CONTRACTS
Each Fund may buy or write options traded on any U.S. exchange or in the
over-the-counter market. Each Fund may enter into interest rate futures
contracts traded on any U.S. exchange. Each Fund also may buy or write put and
call options on these futures. Bond options in the over-the-counter market will
be purchased only when the investment manager believes a liquid secondary market
exists for the options and only from dealers and institutions the investment
manager believes present a minimal credit risk. Some options are exercisable
only on a specific date. In that case, or if a liquid secondary market does not
exist, a Fund could be required to buy or sell securities at disadvantageous
prices, thereby incurring losses.
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.
<PAGE>
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 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.
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.
<PAGE>
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.
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
<PAGE>
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 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
<PAGE>
previously sold. The cost to close the option and terminate a Fund's obligation,
however, might be more or less than the premium received when it originally
wrote the option. Furthermore, a Fund might not be able to close the option
because of insufficient activity in the options market.
A risk in employing futures contracts to protect against the price volatility of
portfolio securities is that the prices of securities subject to futures
contracts may not correlate perfectly with the behavior of the cash prices of
that Fund's 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.
The IRS has ruled publicly that an exchange-traded call option is a security for
purposes of the 50%-of-assets test and that its issuer is the issuer of the
underlying security, not the writer of the option, for purposes of the
diversification requirements.
<PAGE>
Accounting for futures contracts will be according to generally accepted
accounting principles. Initial margin deposits will be recognized as assets due
from a broker (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.
<PAGE>
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 continues to rebound after several years of hardship. To
date, the State's economy doesn't seem to be severely impacted by the Asian
financial crisis. The State Department of Finance's May budget revision reflects
a balanced budget and a reserve of more than $1.6 billion for fiscal year
1998-1999, equal to about 3% of the State's budget -the largest in recent years.
Employment and personal income are growing at their strongest rate since the mid
- -1980's.
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
<PAGE>
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.
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.
<PAGE>
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 related legislation or have
interpreted them in such a manner as to avoid the necessity for direct
determination of constitutional issues.
FACTORS AFFECTING MASSACHUSETTS
The Massachusetts economy continues its upswing. Employment is strong, consumer
confidence is high and tax revenues are up. Massachusetts's April unemployment
rate was 2.9%, its lowest rate posted in eleven years and 1.1% below the U.S.
rate of 4.0%. Job growth is steady; over the past year (through April 1998) the
Commonwealth has added 98,600 jobs representing a +3.2% growth rate. Consumer
confidence set another record high as of the most recent measurement (January
1998) and Massachusetts' tax revenues are up a strong 5.8% on a rolling 12-month
basis through April 1998.
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.
<PAGE>
All of the 351 cities and towns in Massachusetts have achieved a property tax
level of no more than 2.5% of full property values. Legislation that effected
this leveling is Proposition 2 1/2. Under Proposition 2 1/2, cities and towns
may increase the property tax levy annually. In most cases property taxes can
increase by 2.5% of the prior year's tax levy plus 2.5% of the value of new
properties and of significant improvements to property.
The reductions in local revenues and reductions in local personnel and services
resulting from Proposition 2 1/2 created a strong demand for substantial
increases in state-funded local aid, with increases in fiscal years 1982 through
1987. The effect of this increase in local aid was to shift a major part of the
impact of Proposition 2 1/2 to the Commonwealth. Legislation had been enacted
providing for certain local option taxes.
Efforts to limit and reduce the levels of taxation in Massachusetts have been
underway for several years. Chapter 62F of the Massachusetts General Laws
establishes a state tax revenue growth limit and does not exclude principal and
interest payments on Commonwealth debt obligations from the scope of the limit.
FACTORS AFFECTING MICHIGAN
Michigan's economy and operating funds continue to be successful. The stability
is provided by the state's replenished reserve, anticipated expenditure
controls, and by the state's improved economy. However, the state's principal
pension fund's performance continues to corrode and unfunded liabilities have
increased significantly.
With auto sales at the highest levels in 10 years, Michigan's economy has shown
remarkable strength and durability through this business cycle. However, the
recent strike at the Flint plants, and its subsequent spread throughout General
Motors, may cause a slowdown. Unemployment rates have continued to decline, with
overall state levels currently in the 3.5% range. Look for continuing
prosperity, despite the setbacks caused by the GM strike. 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.
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.
<PAGE>
FACTORS AFFECTING MINNESOTA
Minnesota's economy is diverse with positive levels of wealth, and the frequent
reforecasting enables prompt reaction to change. Since 1997, the State has been
funding work on The Minnesota Year 2000 Project to address Y2K concerns, with
funds needed through at least the year 2001. Collaboration is required of all
levels of government and private industry. Special attention is being given to
the Departments of Transportation, Human Services, Public Services, and
countries, as well as, private and public utilities in the state.
The abundance of jobs and low unemployment rate have assisted the state's
economy and the state's financial condition. Employment growth, however, is
believed to be hindered by the reduction in workers available for work and the
corresponding increase in labor costs.
Some local economies have been significantly affected by recent weather
conditions.
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. Taxpayer and "Price of Government"
pressures on revenue increases could result in budgetary constraints for local
units.
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
The 1998-1999 State Budget was adopted relatively on time. It calls for General
Fund receipts of $37.56 billion, disbursements of $36.78 billion and a closing
balance of $1.42 billion. There are several new tax reduction initiatives and
significant increases in spending for education. A new $50 million Debt
Reduction Reserve is a positive development for bond holders. In spite of recent
surpluses, ongoing structural budget gaps remain due to the imbalance between
recurring revenues and the cost of maintaining
<PAGE>
State programs. The economic forecast is for employment growth to gradually slow
during 1998 and the unemployment rate to fall 6.1%.
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
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.
<PAGE>
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.
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 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.
<PAGE>
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.
FACTORS AFFECTING OHIO
While manufacturing continues to be the largest sector in the state employment
picture, other sectors are showing strength and depth as economic momentum
continues in a positive trend. Current state tax revenues are running about 4.7%
over estimates, with disbursements at 3% below estimated outlays. The current
biennium, which ends June 30, 1999, is projected to end with a reserve of nearly
$1 billion dollars.
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.
<PAGE>
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.
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.
<PAGE>
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.
<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>
IDS SPECIAL TAX-EXEMPT SERIES TRUST
STATEMENT OF ADDITIONAL INFORMATION
FOR
IDS INSURED TAX-EXEMPT FUND
Aug. 28, 1998
This Statement of Additional Information (SAI) is not a prospectus. It should be
read together with the prospectus and the financial statements contained in the
Annual Report which may be obtained from your American Express financial advisor
or by writing to American Express Shareholder Service, P.O. Box 534,
Minneapolis, MN 55440-0534.
This SAI is dated Aug. 28, 1998, and it is to be used with the prospectus dated
Aug. 28, 1998, and the Annual Report for the fiscal year ended June 30, 1998.
<PAGE>
TABLE OF CONTENTS
Goal and Investment Policies...................................See Prospectus
Additional Investment Policies...........................................p. 4
Security Transactions....................................................p. 7
Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation...................................p. 9
Performance Information..................................................p. 9
Valuing Fund Shares......................................................p.12
Investing in the Fund....................................................p.14
Redeeming Shares.........................................................p.17
Pay-out Plans............................................................p.18
Taxes....................................................................p.19
Agreements...............................................................p.21
The Trust................................................................p.24
Organizational Information...............................................p.24
Board Members and Officers...............................................p.24
Compensation for Fund Board Members......................................p.28
Independent Auditors.....................................................p.28
Financial Statements........................................See Annual Report
Prospectus...............................................................p.29
<PAGE>
Appendix A: Description of Ratings of Tax-Exempt Securities
and Short-Term Securities................................p.30
Appendix B: Options and Interest Rate Futures Contracts..............p.34
Appendix C: Insured Fund.............................................p.39
Appendix D: Dollar-Cost Averaging....................................p.43
<PAGE>
ADDITIONAL INVESTMENT POLICIES
These are investment policies in addition to those presented in the prospectus.
The policies below are fundamental policies of IDS Insured Tax-Exempt Fund, (the
Fund) and may be changed only with shareholder approval. Unless holders of a
majority of the outstanding voting securities agree to make the change the Fund
will not:
`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 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
<PAGE>
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.
`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, but it 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 restriction, collateral arrangements for margin
deposits on a futures contract are not deemed to be a pledge of assets.
`Invest more than 5% of its total assets in securities whose issuer or guarantor
of principal and interest has been in operation for less than three years.
`Invest in voting securities, securities of investment companies or exploration
or development programs, such as oil, gas or mineral leases.
`Invest more than 5% of its net assets in warrants.
`Invest more than 10% of the Fund's assets in securities and derivative
instruments that are illiquid. In determining the liquidity of municipal lease
obligations, the investment manager, under guidelines established by the board,
will consider the essential nature of the lease property, the likelihood that
the municipality will continue appropriating funding for the leased property,
and other relevant factors related to the general credit quality of the
municipality and the marketability of the municipal lease 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.
<PAGE>
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.
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.
<PAGE>
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.
On occasion it may be desirable to compensate a broker for research services or
for brokerage services by paying a commission that might not otherwise be
charged or a commission in excess of the amount another broker might charge. The
board has adopted a policy authorizing AEFC to do so to the extent authorized by
law, if AEFC determines, in good faith, that such commission is reasonable in
relation to the value of the brokerage or research services provided by a broker
or dealer, viewed either in the light of that transaction or AEFC's overall
responsibilities with respect to the Fund and other funds and trusts in the IDS
MUTUAL FUND GROUP for which it acts as investment advisor.
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).
<PAGE>
When paying a commission that might not otherwise be charged or a commission in
excess of the amount another broker might charge, AEFC must follow procedures
authorized by the board. To date, three procedures have been authorized. One
procedure permits AEFC to direct an order to buy or sell a security traded on a
national securities exchange to a specific broker for research services it has
provided. The second procedure permits AEFC, in order to obtain research, to
direct an order on an agency basis to buy or sell a security traded in the
over-the-counter market to a firm that does not make a market in that security.
The commission paid generally includes compensation for research services. The
third procedure permits AEFC, in order to obtain research and brokerage
services, to cause the Fund to pay a commission in excess of the amount another
broker might have charged. AEFC has advised the Fund it is necessary to do
business with a number of brokerage firms on a continuing basis to obtain such
services as the handling of large orders, the willingness of a broker to risk
its own money by taking a position in a security, and the specialized handling
of a particular group of securities that only certain brokers may be able to
offer. As a result of this arrangement, some portfolio transactions may not be
effected at the lowest commission, but AEFC believes it may obtain better
overall execution. AEFC has represented that under all three procedures the
amount of commission paid will be reasonable and competitive in relation to the
value of the brokerage services performed or research provided.
All other transactions shall be placed on the basis of obtaining the best
available price and the most favorable execution. In so doing, if in the
professional opinion of the person responsible for selecting the broker or
dealer, several firms can execute the transaction on the same basis,
consideration will be given by such person to those firms offering research
services. Such services may be used by AEFC in providing advice to all the funds
in the IDS MUTUAL FUND GROUP even though it is not possible to relate the
benefits to any particular fund or account.
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 $7,740 for the fiscal year ended
June 30, 1998, $0 for fiscal year 1997, and $21,654 for fiscal year 1996.
Substantially all firms through whom transactions were executed provide research
services.
<PAGE>
No transactions were directed to brokers because of research services they
provided to the Fund.
As of the fiscal year ended June 30, 1998, 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 17% in the fiscal year ended June 30, 1998, and
33% in fiscal year 1997. A high turnover rate (in excess of 100%) results in
higher fees and expenses.
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH AMERICAN EXPRESS FINANCIAL
CORPORATION
Affiliates of American Express Company (American Express) (of which AEFC is a
wholly-owned subsidiary) may engage in brokerage and other securities
transactions on behalf of the Fund according to procedures adopted by that
Fund's board and to the extent consistent with applicable provisions of the
federal securities laws. AEFC will use an American Express affiliate only if (i)
AEFC determines that the Fund will receive prices and executions at least as
favorable as those offered by qualified independent brokers performing similar
brokerage and other services for the Fund and (ii) the affiliate charges the
Fund commission rates consistent with those the affiliate charges comparable
unaffiliated customers in similar transactions and if such use is consistent
with terms of the Investment Management Services Agreement.
No brokerage commissions were paid to brokers affiliated with AEFC for the three
most recent fiscal years.
PERFORMANCE INFORMATION
The Fund may quote various performance figures to illustrate past performance.
Average annual total return and current yield quotations used by the Fund are
based on standardized methods of computing performance as required by the SEC.
An explanation of the methods used by the Fund to compute performance follows
below.
<PAGE>
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.
Yield is calculated according to the following formula:
Yield = 2[(a-b + 1)6 - 1]
cd
<PAGE>
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 3.78% for Class A, 3.22% for Class B, and 4.11%
for Class Y for the 30-day period ended June 30, 1998.
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 4.72% for Class A, 4.23% for Class B, and
5.11% for Class Y for the 30-day period ended June 30, 1998.
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, 1998.
Federal Marginal Tax-Equivalent
Income Tax Bracket Yield Distribution Annualized
- ------------------ ------------------ ----------
Class A
15.0% 5.55% 4.45%
28.0% 6.56% 5.25%
31.0% 6.84% 5.48%
36.0% 7.38% 5.91%
39.6% 7.81% 6.26%
<PAGE>
Class B
15.0% 4.98% 3.79%
28.0% 5.88% 4.47%
31.0% 6.13% 4.67%
36.0% 6.61% 5.03%
39.6% 7.00% 5.33%
Class Y
15.0% 6.01% 4.84%
28.0% 7.10% 5.71%
31.0% 7.41% 5.96%
36.0% 7.98% 6.42%
39.6% 8.46% 6.80%
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
<TABLE>
<CAPTION>
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, 1998, the
first business day following the end of the fiscal year, the computation looked
like this:
<S> <C> <C> <C> <C> <C>
Net assets Shares
before outstanding at Net asset value
shareholder the end of of one share
transactions previous day
----------------- ----------------- ----------------- ----------------- -----------------
Class A $454,822,027 divided by 80,785,440 equals $5.63
Class B 44,206,951 7,852,034 5.63
Class Y 1,241 220 5.64
</TABLE>
In determining net assets before shareholder transactions, the Fund's securities
are valued as follows as of the close of business of the New York Stock Exchange
(the Exchange):
`Securities traded on a securities exchange for which a last-quoted sales price
is readily available are valued at the last-quoted sales price on the exchange
where such security is primarily traded.
<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 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.
<PAGE>
INVESTING IN THE FUND
Sales Charge
Shares of the Fund are sold at the public offering price determined at the close
of business on the day an application is accepted. The public offering price is
the net asset value of one share adjusted for the sales charge for Class A. For
Class B and Class Y, there is no initial sales charge so the public offering
price is the same as the net asset value. For Class A, the public offering price
for an investment of less than $50,000, made July 1, 1998, was determined by
dividing the net asset value of one share, $5.63, by 0.95 (1.00-0.05 for a
maximum 5% sales charge) for a public offering price of $5.93. The sales charge
is paid to American Express Financial Advisors Inc. (AEFA) 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.
<PAGE>
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 apercentage of:
Public Net
Offering Price Amount Invested
Amount of Investment ranges from:
- -------------------- ---------------- ------------
First $50,000 5.00% 5.26%
Next 50,000 to 100,000 5.00-4.50 5.26-4.71
Next 100,000 to 500,000 4.50-3.80 4.71-3.95
Next 500,000 to 999,999 3.80-2.00 3.95-2.04
$1,000,000 or more 0.00 0.00
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.
<PAGE>
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 a 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.
Systematic Investment Programs
After you make your initial investment of $100 or more, you must make additional
payments of $100 or more on at least a monthly basis until your balance reaches
$2,000. 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.
<PAGE>
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.
The Fund's investment goal is described in its prospectus along with other
information, including fees and expense ratios. Before exchanging dividends into
another fund, you should read that fund's prospectus. You will receive a
confirmation that the automatic directed dividend service has been set up for
your account.
REDEEMING SHARES
You have a right to redeem your shares at any time. For an explanation of
redemption procedures, please see the prospectus.
During an emergency, the board can suspend the computation of net asset value,
stop accepting payments for purchase of shares or suspend the duty of the Fund
to redeem shares for more than seven days. Such emergency situations would occur
if:
`The Exchange closes for reasons other than the usual weekend and holiday
closings or trading on the Exchange is restricted, or
<PAGE>
`Disposal of the Fund's securities is not reasonably practicable or it is not
reasonably practicable for the Fund to determine the fair value of its net
assets, or
`The SEC, under the provisions of the Investment Company Act of 1940, as amended
(the 1940 Act), declares a period of emergency to exist.
Should the Fund stop selling shares, the board may make a deduction from the
value of the assets held by the Fund to cover the cost of future liquidations of
the assets so as to distribute fairly these costs among all shareholders.
The Fund has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates the Fund to redeem shares in cash, with respect to any one shareholder
during any 90-day period, up to the lesser of $250,000 or 1% of the net assets
of the Fund at the beginning of the period. Although redemptions in excess of
this limitation would normally be paid in cash, the Fund reserves the right to
make these payments in whole or in part in securities or other assets in case of
an emergency, or if the payment of a redemption in cash would be detrimental to
the existing shareholders of the Fund as determined by the board. In these
circumstances, the securities distributed would be valued as set forth in the
prospectus. Should the Fund distribute securities, a shareholder may incur
brokerage fees or other transaction costs in converting the securities to cash.
PAY-OUT PLANS
You can use any of several pay-out plans to redeem your investment in regular
installments. If you redeem Class B shares you may be subject to a contingent
deferred sales charge as discussed in the prospectus. While the plans differ on
how the pay-out is figured, they all are based on the redemption of your
investment. Net investment income dividends and any capital gain distributions
will automatically be reinvested, unless you elect to receive them in cash.
Applications for a systematic investment in a class of any fund subject to a
sales charge normally will not be accepted while a pay-out plan for any of those
funds is in effect. Occasional investments, however, may be accepted.
To start any of these plans, please write American Express Shareholder Service,
P.O. Box 534, Minneapolis, MN 55440-0534, or call American Express Financial
Advisors Telephone Transaction Service at 800-437-3133 (National/Minnesota) or
612-671-3800 (Mpls./St. Paul). Your authorization must be received in the
Minneapolis headquarters at least five days before the date you want your
payments to begin. The initial payment must be at least $50. Payments will be
made on a monthly, bimonthly, quarterly, semiannual or annual basis. Your choice
is effective until you change or cancel it.
The following pay-out plans are designed to take care of the needs of most
shareholders in a way AEFC can handle efficiently and at a reasonable cost. If
you need a more irregular schedule of payments, it may be necessary for you to
make a series of individual
<PAGE>
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.
TAXES
If you buy shares in one of the funds and then exchange into another fund, it is
considered a redemption and subsequent purchase of shares. Under tax laws, if
this exchange is done within 91 days, any sales charge waived on Class A shares
on a subsequent purchase of shares applies to the new shares acquired in the
exchange. Therefore, you cannot create a tax loss or reduce a tax gain
attributable to the sales charge when exchanging shares within 91 days.
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.
<PAGE>
Capital gain distributions, if any, received by corporate shareholders should be
treated as long-term capital gains regardless of how long they owned their
shares. Capital gain distributions, if any, received by individuals should be
treated as long-term if held for more than one year; however, recent tax laws
have divided long-term capital gains into two holding periods: (1) shares held
more than one year but not more than 18 months and (2) shares held more than 18
months. Short-term capital gains earned by the Fund are paid to shareholders as
part of their ordinary income dividend and are taxable.
The Fund may purchase tax-exempt securities at a discount from the price at
which they were originally issued, especially during periods of rising interest
rates. For federal income tax purposes, some or all of this market discount will
be included in the Fund's ordinary income and will be taxable income when it is
distributed to you.
If you are a "substantial user" (or related person) of facilities financed by
industrial development bonds, you should consult your tax advisor before
investing. The income from such bonds may not be tax-exempt for you.
Interest on private activity bonds generally issued after August 1986 is a
preference item for purposes of the individual and corporate alternative minimum
taxes. "Private-activity" (non-governmental purpose) municipal bonds include
industrial revenue bonds, student loan bonds and multi- and single-family
housing bonds. An exception is made for private-activity bonds issued for
qualified--501(c)(3)--organizations, including non-profit colleges, universities
and hospitals. These bonds will continue to be tax-exempt and will not be
subject to the alternative minimum tax for individuals. To the extent a fund
earns income subject to the alternative minimum tax, it will flow through to
that fund's shareholders and may subject some shareholders, depending on their
tax status, to the alternative minimum tax. The Fund reports the percentage of
its income earned from these bonds to shareholders with their other tax
information.
State law determines whether interest income on a particular municipal bond is
tax-exempt for state tax purposes. It also determines the tax treatment of those
bonds when earned by a mutual fund and paid to the Fund's shareholders. The Fund
will tell you the percentage of interest income from municipal bonds it received
during the year on a state-by-state basis. Your tax advisor should help you
report this income for state tax purposes.
Under federal tax law, and an election made by the Fund under federal tax rules,
by the end of a calendar year the Fund must declare and pay dividends
representing 98% of ordinary income through Dec. 31 and 98% of net capital gains
(both long-term and 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.
<PAGE>
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. Each class of the
Fund pays its proportionate share of the fee.
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, 1998, the daily rate applied to the Fund's net assets was equal to
0.45% on an annual basis. The fee is calculated for each calendar day on the
basis of net assets as of the close of business two business days prior to the
day for which the calculation is made.
The management fee is paid monthly. Under the agreement, the total amount paid
was $2,244,150 for the fiscal year ended June 30, 1998, $2,269,770 for fiscal
year 1997, and $2,346,243 for fiscal year 1996.
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 $48,096 for the fiscal year ended June 30, 1998, $130,318 for fiscal year
1997, and $213,545 for fiscal year 1996.
<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, 1998, the daily rate applied to the Fund's net assets was equal to
0.04% on an annual basis. The fee is calculated for each calendar day on the
basis of net assets as of the close of business two business days prior to the
day for which the calculation is made. Under the agreement, the Fund paid fees
of $205,702 for the fiscal year ended June 30, 1998.
Transfer Agency Agreement
The Fund has a Transfer Agency Agreement with American Express Client Service
Corporation (AECSC). This agreement governs AECSC's responsibility for
administering and/or performing transfer agent functions, for acting as service
agent in connection with dividend and distribution functions and for performing
shareholder account administration agent functions in connection with the
issuance, exchange and redemption or repurchase of the Fund's shares. Under the
agreement, AECSC will earn a fee from the Fund determined by multiplying the
number of shareholder accounts at the end of the day by a rate determined for
each class per year and dividing by the number of days in the year. The rate for
Class A and Class Y is $15.50 per year and for Class B is $16.50 per year. The
fees paid to AECSC may be changed from time to time upon agreement of the
parties without shareholder approval. Under the agreement, the Fund paid fees of
$213,051 for the fiscal year ended June 30, 1998.
Distribution Agreement
Under a Distribution Agreement, sales charges deducted for distributing Fund
shares are paid to AEFA daily. These charges amounted to $1,028,640 for the
fiscal year ended June 30, 1998. After paying commissions to personal financial
advisors, and other expenses, the amount retained was $42,382. The amounts were
$1,002,387 and $115,180 for fiscal year 1997, and $1,300,606 and $66,902 for
fiscal year 1996.
<PAGE>
Shareholder Service Agreement
The Fund pays a fee for service provided to shareholders by financial advisors
and other servicing agents. The fee is calculated at a rate of 0.175% of average
daily net assets for Class A and Class B and 0.10% for Class Y.
Plan and Agreement of Distribution
For Class B shares, to help AEFA defray the cost of distribution and servicing,
not covered by sales charges received under the Distribution Agreement, the Fund
and AEFA entered into a Plan and Agreement of Distribution (Plan). These costs
relate to most aspects of distributing the Fund's shares including AEFA 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, AEFA is paid a fee at an annual
rate of 0.75% of the Fund's average daily net assets attributable to Class B
shares.
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 AEFA. 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. The Plan may not be amended to increase the
amount to be spent for distribution without shareholder approval, and all
material amendments to the Plan must be approved by a majority of the board
members, including a majority of the board members who are not interested
persons of the 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, 1998, under the agreement, the
Fund paid fees of $283,583.
Custodian Agreement
The Fund's securities and cash are held by U.S. 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.
<PAGE>
Total fees and expenses
The Fund paid total fees and nonadvisory expenses, net of earnings credits, of
$3,857,170 for the fiscal year ended June 30, 1998.
THE TRUST
The Trust is a Massachusetts business trust. 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 1940 Act. 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
Retired chairman and chief executive officer, General Mills, Inc. Director,
Merck & Co., Inc. and Darden Restaurants, Inc.
Lynne V. Cheney'
Born in 1941
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W. Washington, D.C.
Distinguished Fellow AEI. Former Chair of National Endowment of the Humanities.
Director, The Reader's Digest Association Inc., Lockheed-Martin and Union
Pacific Resources.
<PAGE>
William H. Dudley**
Born in 1932
2900 IDS Tower
Minneapolis, MN
Senior advisor to the chief executive officer of AEFC.
David R. Hubers+**
Born in 1943
2900 IDS Tower
Minneapolis, MN
President, chief executive officer and director of AEFC.
Heinz F. Hutter+'
Born in 1929
P.O. Box 2187
Minneapolis, MN
Retired 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. (electronics), C-Cor
Electronics, Inc., and Amnex, Inc. (communications).
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. Retired vice chairman of the
board, Cargill, Incorporated (commodity merchants and processors).
<PAGE>
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) and Biogen
(pharmaceuticals).
Edson W. Spencer+
Born in 1926
4900 IDS Center
80 S. 8th St.
Minneapolis, MN
President, Spencer Associates Inc. (consulting). Retired chairman of the board
and chief executive officer, Honeywell Inc. Director, Boise Cascade Corporation
(forest products). Member of International Advisory Council of NEC (Japan).
John R. Thomas**
Born in 1937
2900 IDS Tower
Minneapolis, MN
Senior vice president of AEFC.
Wheelock Whitney+
Born in 1926
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN
Chairman, Whitney Management Company (manages family assets).
C. Angus Wurtele'
Born in 1934
Valspar Corporation
Suite 1700
Foshay Tower
Minneapolis, MN
<PAGE>
Chairman of the board and retired chief executive officer, The Valspar
Corporation (paints). Director, Bemis Corporation (packaging), Donaldson Company
(air cleaners & mufflers) and General Mills, Inc.
(consumer foods).
+ Member of executive committee.
'Member of joint audit committee.
* Interested person by reason of being an officer and employee of the Fund.
**Interested person by reason of being an officer, board member, employee and/or
shareholder of AEFC or American Express.
The board also has appointed officers who are responsible for day-to-day
business decisions based on policies it has established.
In addition to Mr. Pearce, who is chairman of the board and Mr. Thomas, who is
president, the Fund's other officers are:
Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN
President 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.
Frederick C. Quirsfeld
Born in 1947
IDS Tower 10
Minneapolis, MN
Vice president - taxable mutual fund investments of AEFC. Vice president - fixed
income investments for the Fund.
<PAGE>
Matthew N. Karstetter
Born in 1961
IDS Tower 10
Minneapolis, MN
Vice president of Investment Accounting for AEFC since 1996. Prior to joining
AEFC, he served as vice president of State Street Bank's mutual fund service
operation from 1991 to 1996. Treasurer for the Fund.
COMPENSATION FOR FUND BOARD MEMBERS
Members of the Fund board who are not officers of the Fund or of AEFC receive an
annual fee of $300 and the chair of the Contracts Committee receives an
additional fee of $83. 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 $3. Expenses for attending
meetings are reimbursed.
During the fiscal year ended June 30, 1998, the independent members of the
board, for attending up to 27 meetings, received the following compensation:
<TABLE>
<CAPTION>
Compensation Table
<S> <C> <C> <C> <C>
Total cash
compensation from
Aggregate Pension or the IDS MUTUAL
compensation Retirement Estimated annual FUND GROUP and
Board member from the Fund benefits accrued benefit upon Preferred Master
as Fund expenses retirement Trust Group
- ---------------------- --------------------- -------------------- --------------------- --------------------
H. Brewster Atwater,Jr. $1,000 $0 $0 $ 98,200
Lynne V. Cheney 862 0 0 92,200
Robert F. Froehlke 442 0 0 44,800
Heinz F. Hutter 1,050 0 0 101,200
Anne P. Jones 914 0 0 95,200
Melvin R. Laird 285 0 0 32,600
Alan K. Simpson 736 0 0 84,200
Edson W. Spencer 1,225 0 0 111,700
Wheelock Whitney 1,125 0 0 105,700
C. Angus Wurtele 1,150 0 0 107,200
</TABLE>
On June 30, 1998, the Fund's board members and officers as a group owned less
than 1% of the outstanding shares of any class.
INDEPENDENT AUDITORS
The financial statements contained in the Annual Report to shareholders for the
fiscal year ended June 30, 1998, 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, 1998, pursuant to Section 30(d) of the 1940 Act, are hereby incorporated in
this SAI by reference. No other portion of the Annual Report, however, is
incorporated by reference.
PROSPECTUS
The prospectus for IDS Insured Tax-Exempt Fund, dated Aug. 28, 1998, 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.
<PAGE>
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.
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.
<PAGE>
(3) Revenue anticipation notes issued in anticipation of revenues from sources
other than taxes, such as federal revenues available under the Federal Revenue
Sharing Program.
(4) Tax and revenue anticipation notes issued in anticipation of revenues from
taxes and other sources of revenue, except bond placements.
(5) Construction loan notes insured by the Federal Housing Administration which
remain outstanding until permanent financing by the Federal National Mortgage
Association (FNMA) or the Government National Mortgage Association (GNMA) at the
end of the project construction period.
(6) Tax-exempt commercial paper with a stated maturity of 365 days or less
issued by agencies of state and local governments to finance seasonal working
capital needs or as short-term financing in anticipation of longer-term
financing.
(7) 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.
<PAGE>
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;
(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
<PAGE>
commission. It then pays a second commission on the purchase or sale of the
underlying security when the option is exercised. For record-keeping and tax
purposes, the price obtained on the purchase of the underlying security will be
the combination of the exercise price, the premium and both commissions. When
using options as a trading technique, commissions on the option will be set as
if only the underlying securities were traded.
Put and call options also may be held by the Fund for investment purposes.
Options permit the Fund to experience the change in the value of a security with
a relatively small initial cash investment. The risk the Fund assumes when it
buys an option is the loss of the premium. To be beneficial to the Fund, the
price of the underlying security must change within the time set by the option
contract. Furthermore, the change must be sufficient to cover the premium paid,
the commissions paid both in the acquisition of the option and in a closing
transaction or in the exercise of the option and subsequent sale (in the case of
a call) or purchase (in the case of a put) of the underlying security. Even then
the price change in the underlying security does not ensure a profit since
prices in the option market may not reflect such a change.
Writing covered options. The Fund will write covered options when it feels it is
appropriate and will follow these guidelines:
`Underlying securities will continue to be bought or sold solely on the basis of
investment considerations consistent with the Fund's goal.
`All options written by the Fund will be covered. For covered call options if a
decision is made to sell the security, the Fund will attempt to terminate the
option contract through a closing purchase transaction.
Net premiums on call options closed or premiums on expired call options are
treated as short-term capital gains.
If a covered call option is exercised, the security is sold by the Fund. The
Fund will recognize a capital gain or loss based upon the difference between the
proceeds and the security's basis.
Options on many securities are listed on options exchanges. If the Fund writes
listed options, it will follow the rules of the options exchange. Options are
valued at the close of the New York Stock Exchange. An option listed on a
national exchange, Chicago Board Options Exchange (CBOE) or NASDAQ will be
valued at the last-quoted sales price or, if such a price is not readily
available, at the mean of the last bid and asked prices.
FUTURES CONTRACTS. A futures contract is an agreement between two parties to buy
and sell a security for a set price on a future date. They have been established
by boards of trade which have been designated contracts markets by the Commodity
Futures Trading Commission (CFTC). Futures contracts trade on these markets in a
manner
<PAGE>
similar to the way a stock trades on a stock exchange, and the boards of trade,
through their clearing corporations, guarantee performance of the contracts.
Currently, there are futures contracts based on such debt securities as
long-term U.S. Treasury bonds, Treasury notes, GNMA modified pass-through
mortgage-backed securities, three-month U.S. Treasury bills and bank
certificates of deposit. While futures contracts based on debt securities do
provide for the delivery and acceptance of securities, such deliveries and
acceptances are very seldom made. Generally, the futures contract is terminated
by entering into an offsetting transaction. An offsetting transaction for a
futures contract sale is effected by the Fund entering into a futures contract
purchase for the same aggregate amount of the specific type of financial
instrument and same delivery date. If the price in the sale exceeds the price in
the offsetting purchase, the Fund immediately is paid the difference and
realizes a gain. If the offsetting purchase price exceeds the sale price, the
Fund pays the difference and realizes a loss. Similarly, closing out a futures
contract purchase is effected by the Fund entering into a futures contract sale.
If the offsetting sale price exceeds the purchase price, the Fund realizes a
gain, and if the offsetting sale price is less than the purchase price, the Fund
realizes a loss. At the time a futures contract is made, a good-faith deposit
called initial margin is set up within a segregated account at the Fund's
custodian bank. The initial margin deposit is approximately 1.5% of a contract's
face value. Daily thereafter, the futures contract is valued and the payment of
variation margin is required so that each day the Fund would pay out cash in an
amount equal to any decline in the contract's value or receive cash equal to any
increase. At the time a futures contract is closed out, a nominal commission is
paid, which is generally lower than the commission on a comparable transaction
in the cash markets.
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
<PAGE>
futures contracts could be liquidated and the Fund's cash reserves could then be
used to buy long-term bonds on the cash market. The Fund could accomplish
similar results by selling bonds with long maturities and investing in bonds
with short maturities when interest rates are expected to increase or by buying
bonds with long maturities and selling bonds with short maturities when interest
rates are expected to decline. But by using futures contracts as an investment
tool, given the greater liquidity in the futures market than in the cash market,
it might be possible to accomplish the same result more easily and more quickly.
Successful use of futures contracts depends on the investment manager's ability
to predict the future direction of interest rates. If the investment manager's
prediction is incorrect, the Fund would have been better off had it not entered
into futures contracts.
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
<PAGE>
profit from the difference between a contract or security price and their cost
of borrowed funds. Such distortions are generally minor and would diminish as
the contract approached maturity.
Another risk is that the Fund's investment manager could be incorrect in
anticipating as to the direction or extent of various interest rate movements or
the time span within which the movements take place. For example, if the Fund
sold futures contracts for the sale of securities in anticipation of an increase
in interest rates, and interest rates declined instead, the Fund would lose
money on the sale.
TAX TREATMENT. As permitted under federal income tax laws, the Fund intends to
identify futures contracts as mixed straddles and not mark them to market, that
is, not treat them as having been sold at the end of the year at market value.
Such an election may result in the Fund being required to defer recognizing
losses incurred by entering into futures contracts and losses on underlying
securities identified as being hedged against.
Federal income tax treatment of gains or losses from transactions in options on
futures contracts and indexes will depend on whether such option is a section
1256 contract . If the option is a non-equity option, the Fund will either make
a 1256(d) election and treat the option as a mixed straddle or mark to market
the option at fiscal year end and treat the gain/loss as 40% short-term and 60%
long-term. Certain provisions of the Internal Revenue Code may also limit the
Fund's ability to engage in futures contracts and related options transactions.
For example, at the close of each quarter of the Fund's taxable year, at least
50% of the value of its assets must consist of cash, government securities and
other securities, subject to certain diversification requirements.
The IRS has ruled publicly that an exchange-traded call option is a security for
purposes of the 50%-of-assets test and that its issuer is the issuer of the
underlying security, not the writer of the option, for purposes of the
diversification requirements.
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. Premiums are paid from the Fund's assets,
and will reduce the current yield on its portfolio by the amount thereof.
Currently, there are no issuers insured under a Portfolio Insurance Policy.
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. Currently, there are no issuers insured under a Portfolio
Insurance Policy.
In determining whether to insure any municipal obligation, Financial Guaranty
applies its own standards, which are not necessarily the same as the criteria
used in regard to the selection of municipal obligations by the Fund's
investment adviser. Financial Guaranty's decision is made prior to the Fund's
purchase of the municipal obligations. Contracts to purchase municipal
obligations are not covered by the Portfolio Insurance Policy although municipal
obligations underlying the contracts are covered by this insurance upon their
physical delivery to the Fund or its Custodian.
Secondary Market Insurance. The Fund may at any time purchase from Financial
Guaranty a secondary market insurance policy (Secondary Market Policy) on any
municipal obligation currently covered by the Portfolio Insurance Policy. The
coverage and obligation to pay monthly premiums under the Portfolio Insurance
Policy would cease with the purchase by the Fund of a Secondary Market Policy.
By purchasing a Secondary Market Policy, the Fund would, upon payment of a
single premium, obtain insurance against nonpayment of scheduled principal and
interest for the remaining term of the municipal obligation, regardless of
whether the Fund then owned the obligation. This insurance coverage would be
noncancelable and would continue in force so long as the municipal obligations
so insured are outstanding. The purpose of acquiring such a Policy would be to
enable the Fund to sell a municipal obligation to a third party as a Aaa/AAA
rated insured obligation at a market price higher than what otherwise might be
obtainable if the obligation were sold without the insurance coverage. This
rating is not automatic, however, and must specifically be requested for each
obligation. Any difference between the excess of an obligation's market value as
a Aaa/AAA rated security over its market value without this rating and the
single premium payment would inure to the Fund in determining the net capital
gain or loss realized by the Fund upon the sale of the obligation.
<PAGE>
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.
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.
<PAGE>
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, 1998 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 nine-year period ended June 30, 1998, the six months ended June 30,
1989 and the one-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,
1998, 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, 1998, 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.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
August 7, 1998
<PAGE>
<TABLE>
<CAPTION>
FINANCIALS FOR STATETE
Financial statements
Statements of assets and liabilities
IDS California Tax-Exempt Trust
IDS Special Tax-Exempt Series Trust
June 30, 1998
Assets
California Massachusetts Michigan
Tax-Exempt Tax-Exempt Tax-Exempt
Fund Fund Fund
Investments in securities, at value (Note 1)
(identified cost $228,798,705, $72,795,512
<S> <C> <C> <C>
and $75,127,548) $251,342,096 $79,153,985 $82,645,285
Cash in bank on demand deposit 532,070 -- 95,973
Accrued interest receivable 4,444,900 1,624,937 1,277,247
Receivable for investment securities sold 105,625 4,688 4,688
------- ----- -----
Total assets 256,424,691 80,783,610 84,023,193
----------- ---------- ----------
Liabilities
Disbursements in excess of cash on demand deposit -- 23,910 --
Dividends payable to shareholders 175,871 52,423 56,082
Payable for investment securities purchased 1,895,851 974,789 1,879,032
Accrued investment management services fee 3,262 1,026 1,056
Accrued distribution fee 306 267 105
Accrued service fee 1,216 382 393
Accrued transfer agency fee 235 116 96
Accrued administrative services fee 277 87 90
Other accrued expenses 29,992 21,480 31,975
------ ------ ------
Total liabilities 2,107,010 1,074,480 1,968,829
--------- --------- ---------
Net assets applicable to outstanding shares $254,317,681 $79,709,130 $82,054,364
============ =========== ===========
Represented by
Shares of beneficial interest-- $.01 par value (Note 1) $ 475,243 $ 143,259 $ 147,417
Additional paid-in capital 236,565,157 74,140,300 75,749,921
Undistributed (excess of distributions over) net investment income (55) (51) --
Accumulated net realized gain (loss) (Note 6) (5,308,242) (945,507) (1,373,367)
Unrealized appreciation (depreciation) on investments 22,585,578 6,371,129 7,530,393
---------- --------- ---------
Total-- representing net assets applicable to outstanding shares $254,317,681 $79,709,130 $82,054,364
============ =========== ===========
Net assets applicable to outstanding shares: Class A $239,349,495 $66,702,144 $76,925,321
Class B $ 14,968,186 $13,006,986 $ 5,129,043
Outstanding shares of beneficial interest: Class A shares 44,726,597 11,988,049 13,820,184
Class B shares 2,797,715 2,337,821 921,475
Net asset value per share: Class A $ 5.35 $ 5.56 $ 5.57
Class B $ 5.35 $ 5.56 $ 5.57
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of assets and liabilities
IDS California Tax-Exempt Trust
IDS Special Tax-Exempt Series Trust
June 30, 1998
Assets
Minnesota New York Ohio
Tax-Exempt Tax-Exempt Tax-Exempt
Fund Fund Fund
Investments in securities, at value (Note 1)
(identified cost $377,775,178, $103,106,602
<S> <C> <C> <C>
and $67,145,401) $409,016,779 $113,191,090 $72,797,453
Cash in bank on demand deposit 72,088 -- 37,027
Accrued interest receivable 8,320,088 2,254,449 967,258
Receivable for investment securities sold 97,500 12,500 4,688
------ ------ -----
Total assets 417,506,455 115,458,039 73,806,426
----------- ----------- ----------
Liabilities
Disbursements in excess of cash on demand deposit -- 110,829 --
Dividends payable to shareholders 309,689 77,480 50,998
Payable for investment securities purchased 1,112,293 -- 1,223,779
Accrued investment management services fee 5,242 1,486 933
Accrued distribution fee 640 200 109
Accrued service fee 1,994 553 347
Accrued transfer agency fee 543 153 297
Accrued administrative services fee 433 126 79
Other accrued expenses 4,284 636 18,709
----- --- ------
Total liabilities 1,435,118 191,463 1,295,251
--------- ------- ---------
Net assets applicable to outstanding shares $416,071,337 $115,266,576 $72,511,175
============ ============ ===========
Represented by
Shares of beneficial interest-- $.01 par value (Note 1) $ 769,354 $ 217,807 $ 131,896
Additional paid-in capital 392,663,822 107,360,165 67,968,818
Excess of distributions over net investment income (9,944) (193) (1,809)
Accumulated net realized gain (loss) (Note 6) (8,627,246) (2,429,441) (1,252,438)
Unrealized appreciation (depreciation) on investments 31,275,351 10,118,238 5,664,708
---------- ---------- ---------
Total-- representing net assets applicable to outstanding shares $416,071,337 $115,266,576 $72,511,175
============ ============ ===========
Net assets applicable to outstanding shares: Class A $384,851,149 $105,474,105 $67,216,918
Class B $ 31,220,188 $ 9,792,471 $ 5,294,257
Outstanding shares of beneficial interest: Class A shares 71,162,182 19,930,456 12,226,579
Class B shares 5,773,171 1,850,285 962,990
Net asset value per share: Class A $ 5.41 $ 5.29 $ 5.50
Class B $ 5.41 $ 5.29 $ 5.50
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statements of operations
IDS California Tax-Exempt Trust
IDS Special Tax-Exempt Series Trust
Year ended June 30, 1998
Investment income
California Massachusetts Michigan
Tax-Exempt Tax-Exempt Tax-Exempt
Fund Fund Fund
Income:
<S> <C> <C> <C>
Interest $14,898,862 $4,563,906 $4,835,951
----------- ---------- ----------
Expenses (Note 2):
Investment management services fee 1,171,054 358,885 379,412
Distribution fee-- Class B 93,078 77,012 32,733
Transfer agency fee 86,402 41,563 36,152
Incremental transfer agency fee-- Class B 425 359 169
Service fee
Class A 410,510 114,879 132,861
Class B 21,377 17,851 7,488
Administrative services fees and expenses 103,284 32,602 34,433
Compensation of board members 7,969 7,969 7,969
Custodian fees 12,382 8,978 10,109
Postage 13,144 5,096 2,877
Registration fees 23,479 20,748 29,630
Reports to shareholders 5,934 1,333 1,713
Audit fees 17,000 15,500 15,500
Other 1,402 1,541 2,652
----- ----- -----
Total expenses 1,967,440 704,316 693,698
Earnings credits on cash balances (Note 2) (44,461) (14,381) (11,169)
------- ------- -------
Total net expenses 1,922,979 689,935 682,529
--------- ------- -------
Investment income (loss)-- net 12,975,883 3,873,971 4,153,422
---------- --------- ---------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 1,700,201 222,121 (19,058)
Financial futures contracts 225,838 55,279 58,859
------- ------ ------
Net realized gain (loss) on investments 1,926,039 277,400 39,801
Net change in unrealized appreciation (depreciation) on investments 3,558,638 1,722,338 1,755,887
--------- --------- ---------
Net gain (loss) on investments 5,484,677 1,999,738 1,795,688
--------- --------- ---------
Net increase (decrease) in net assets resulting from operations $18,460,560 $5,873,709 $5,949,110
=========== ========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of operations
IDS California Tax-Exempt Trust
IDS Special Tax-Exempt Series Trust
Year ended June 30, 1998
Investment income
Minnesota New York Ohio
Tax-Exempt Tax-Exempt Tax-Exempt
Fund Fund Fund
Income:
<S> <C> <C> <C>
Interest $25,781,427 $6,956,316 $4,322,643
----------- ---------- ----------
Expenses (Note 2):
Investment management services fee 1,872,006 545,320 336,754
Distribution fee-- Class B 196,995 65,703 32,154
Transfer agency fee 200,779 57,772 34,664
Incremental transfer agency fee-- Class B 1,026 347 164
Service fee
Class A 662,340 185,919 117,144
Class B 45,785 15,223 7,496
Administrative services fees and expenses 160,057 48,804 31,132
Compensation of board members 8,379 7,969 7,969
Custodian fees 32,031 13,859 12,349
Postage 24,564 5,596 4,520
Registration fees 22,254 22,843 24,783
Reports to shareholders 8,198 -- 1,812
Audit fees 18,000 17,000 15,500
Other 3,995 288 1,170
----- --- -----
Total expenses 3,256,409 986,643 627,611
Earnings credits on cash balances (Note 2) (72,255) (18,927) (15,420)
------- ------- -------
Total net expenses 3,184,154 967,716 612,191
--------- ------- -------
Investment income (loss)-- net 22,597,273 5,988,600 3,710,452
---------- --------- ---------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 665,616 336,317 386,207
Financial futures contracts 201,657 412,131 55,279
------- ------- ------
Net realized gain (loss) on investments 867,273 748,448 441,486
Net change in unrealized appreciation (depreciation) on investments 7,572,218 2,313,952 1,193,891
--------- --------- ---------
Net gain (loss) on investments 8,439,491 3,062,400 1,635,377
--------- --------- ---------
Net increase (decrease) in net assets resulting from operations $31,036,764 $9,051,000 $5,345,829
=========== ========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statements of changes in net assets
IDS California Tax-Exempt Trust
IDS Special Tax-Exempt Series Trust
Year ended June 30,
Operations and distributions
1998 1997 1998 1997
California Massachusetts
Tax-Exempt Fund Tax-Exempt Fund
<S> <C> <C> <C> <C>
Investment income (loss)-- net $ 12,975,883 $ 13,603,961 $ 3,873,971 $ 3,910,959
Net realized gain (loss) on investments 1,926,039 1,428,855 277,400 244,141
Net change in unrealized appreciation (depreciation) on investments 3,558,638 3,063,495 1,722,338 1,390,465
--------- --------- --------- ---------
Net increase (decrease) in net assets resulting from operations 18,460,560 18,096,311 5,873,709 5,545,565
---------- ---------- --------- ---------
Distributions to shareholders from:
Net investment income
Class A (12,717,817) (12,900,026) (3,418,898) (3,608,592)
Class B (572,424) (394,958) (455,124) (308,683)
Net realized gain
Class A (9,568) (518,965) -- --
Class B (507) (17,699) -- --
---- ------- -------- --------
Total distributions (13,300,316) (13,831,648) (3,874,022) (3,917,275)
----------- ----------- ---------- ----------
Share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 27,263,050 19,424,292 9,567,532 6,908,468
Class B shares 5,637,162 4,411,205 5,760,628 3,032,071
Reinvestment of distributions at net asset value
Class A shares 8,796,579 9,248,935 2,647,896 2,774,110
Class B shares 436,950 327,596 392,654 269,072
Payments for redemptions
Class A shares (33,740,758) (34,815,979) (13,778,211) (12,428,315)
Class B shares (Note 2) (1,396,348) (1,214,600) (1,502,976) (889,801)
---------- ---------- ---------- --------
Increase (decrease) in net assets from share transactions 6,996,635 (2,618,551) 3,087,523 (334,395)
--------- ---------- --------- --------
Total increase (decrease) in net assets 12,156,879 1,646,112 5,087,210 1,293,895
Net assets at beginning of year 242,160,802 240,514,690 74,621,920 73,328,025
----------- ----------- ---------- ----------
Net assets at end of year $254,317,681 $242,160,802 $79,709,130 $74,621,920
============ ============ =========== ===========
Undistributed (excess of distributions over) net investment income $ (55) $ 310,708 $ (51) $ --
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
1998 1997 1998 1997
Michigan Minnesota
Tax-Exempt Fund Tax-Exempt Fund
<S> <C> <C> <C> <C>
Investment income (loss)-- net $4,153,422 $4,357,220 $22,597,273 $23,303,678
Net realized gain (loss) on investments 39,801 178,720 867,273 1,732,758
Net change in unrealized appreciation (depreciation) on investments 1,755,887 1,046,406 7,572,218 6,062,416
--------- --------- --------- ---------
Net increase (decrease) in net assets resulting from operations 5,949,110 5,582,346 31,036,764 31,098,852
--------- --------- ---------- ----------
Distributions to shareholders from:
Net investment income
Class A (3,959,928) (4,220,612) (21,338,695) (22,346,136)
Class B (194,070) (145,774) (1,277,193) (975,607)
Net realized gain
Class A -- (19,158) -- --
Class B -- (747) -- --
---- ---- ---- ----
Total distributions (4,153,998) (4,386,291) (22,615,888) (23,321,743)
---------- ---------- ----------- -----------
Share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 6,481,056 4,657,190 55,067,262 37,612,445
Class B shares 2,106,132 1,464,265 10,919,373 7,437,173
Reinvestment of distributions at net asset value
Class A shares 2,829,652 3,050,415 16,634,462 17,393,622
Class B shares 153,120 108,932 1,015,306 781,646
Payments for redemptions
Class A shares (10,742,181) (11,286,452) (71,239,533) (78,924,930)
Class B shares (Note 2) (849,531) (582,299) (3,414,186) (2,465,251)
-------- -------- ---------- ----------
Increase (decrease) in net assets from share transactions (21,752) (2,587,949) 8,982,684 (18,165,295)
------- ---------- --------- -----------
Total increase (decrease) in net assets 1,773,360 (1,391,894) 17,403,560 (10,388,186)
Net assets at beginning of year 80,281,004 81,672,898 398,667,777 409,055,963
---------- ---------- ----------- -----------
Net assets at end of year $82,054,364 $80,281,004 $416,071,337 $398,667,777
=========== =========== ============ ============
Undistributed (excess of distributions over) net investment income $ -- $ 479 $ (9,944) $ 9,570
----------- ----------- ------------ ------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statements of changes in net assets
IDS California Tax-Exempt Trust
IDS Special Tax-Exempt Series Trust
Year ended June 30,
Operations and distributions
1998 1997 1998 1997
New York Ohio
Tax-Exempt Fund Tax-Exempt Fund
<S> <C> <C> <C> <C>
Investment income (loss)-- net $5,988,600 $6,530,033 $3,710,452 $3,889,654
Net realized gain (loss) on investments 748,448 1,161,146 441,486 470,175
Net change in unrealized appreciation (depreciation) on investments 2,313,952 939,832 1,193,891 744,941
--------- ------- --------- -------
Net increase (decrease) in net assets resulting from operations 9,051,000 8,631,011 5,345,829 5,104,770
--------- --------- --------- ---------
Distributions to shareholders from:
Net investment income
Class A (5,597,877) (6,237,111) (3,541,325) (3,739,886)
Class B (391,627) (294,055) (193,178) (129,674)
Net realized gain
Class A -- -- -- (7,128)
Class B -- -- -- (297)
---- ---- ---- ----
Total distributions (5,989,504) (6,531,166) (3,734,503) (3,876,985)
---------- ---------- ---------- ----------
Share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 13,077,412 11,232,398 6,692,901 5,210,610
Class B shares 3,058,971 3,038,506 1,943,456 1,817,909
Reinvestment of distributions at net asset value
Class A shares 4,046,559 4,709,717 2,702,866 2,867,182
Class B shares 331,272 250,963 143,123 98,384
Payments for redemptions
Class A shares (22,106,362) (25,606,182) (10,309,437) (14,289,613)
Class B shares (Note 2) (1,358,542) (800,957) (415,851) (607,746)
---------- -------- -------- --------
Increase (decrease) in net assets from share transactions (2,950,690) (7,175,555) 757,058 (4,903,274)
---------- ---------- ------- ----------
Total increase (decrease) in net assets 110,806 (5,075,710) 2,368,384 (3,675,489)
Net assets at beginning of year 115,155,770 120,231,480 70,142,791 73,818,280
----------- ----------- ---------- ----------
Net assets at end of year $115,266,576 $115,155,770 $72,511,175 $70,142,791
============ ============ =========== ===========
Undistributed (excess of distributions over) net investment income $ (193) $ 711 $ (1,809) $ 22,242
------------ ------------ ----------- -----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
IDS California Tax-Exempt Trust
IDSSpecial 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). The Funds are
non-diversified, open-end management investment companies as defined in
the Investment Company Act of 1940 (as amended). Each Fund has unlimited
authorized shares of beneficial interest.
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 and such shares automatically convert to Class A
shares during the ninth calendar year of ownership.
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
traded on national securities exchanges or included in national market
systems are valued at the last quoted sale price. Debt securities are
generally traded in the over-the-counter market and are valued at a price
deemed best to reflect fair value as quoted by dealers who make markets in
these securities or by an independent pricing service. Securities for
which market quotations are not readily available are valued at fair value
according to methods selected in good faith by the board. Short-term
securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current
interest rates; those maturing in 60 days or less are valued at amortized
cost.
Option transactions
In order to produce incremental earnings, protect gains and facilitate
buying and selling of securities for investment purposes, the 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.
<PAGE>
<TABLE>
<CAPTION>
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:
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> <C>
Undistributed net investment income $3,595 $-- $97 $(899) $-- $--
Accumulated net realized gain (loss) (3,595) -- (97) 899 -- --
Additional paid-in capital increase (decrease) $ -- $-- $-- $ -- $-- $--
</TABLE>
<PAGE>
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
American Express Financial Corporation (AEFC) for managing its portfolio
and providing administrative services. Under an 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 an 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, organizational expenses and any other
expenses properly payable by the Fund and approved by the board.
Under a separate Transfer Agency Agreement, American Express Client
Service Corporation (AECSC) maintains shareholder accounts and records.
Each Fund pays AECSC an annual fee per shareholder account for this
service as follows:
o Class A $15.50
o Class 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, 1998, are as
follows:
Fund Class A Class B
IDS California $574,736 $15,661
IDS Massachusetts 291,838 27,503
IDS Michigan 156,901 8,331
IDS Minnesota 953,988 42,207
IDS New York 268,715 19,881
IDS Ohio 113,275 1,995
During the year ended June 30, 1998, 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 $44,461
IDS Massachusetts 14,381
IDS Michigan 11,169
IDS Minnesota 72,255
IDS New York 18,927
IDS Ohio 15,420
3
Securities
transactions
For the year ended June 30, 1998, cost of purchases and proceeds from
sales (other than short-term obligations) aggregated for each Fund are as
follows:
Fund Purchases Proceeds
IDS California $41,746,601 $36,765,691
IDS Massachusetts 10,072,961 6,401,324
IDS Michigan 8,819,522 8,284,077
IDS Minnesota 42,728,992 33,009,649
IDS New York 10,786,281 15,136,097
IDS Ohio 9,021,086 7,168,670
Net realized gains and losses on investment sales are determined on an
identified cost basis.
4
Capital share
transactions
Transactions in shares of each Fund for the years indicated are as
follows:
California Tax-Exempt Fund
Year ended June 30, 1998
Class A Class B
Sold 5,116,223 1,058,071
Issued for reinvested distributions 1,651,772 82,051
Redeemed (6,331,307) (262,162)
Net increase (decrease) 436,688 877,960
Year ended June 30, 1997
Class A Class B
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
<PAGE>
Massachusetts Tax-Exempt Fund
Year ended June 30, 1998
Class A Class B
Sold 1,728,151 1,040,229
Issued for reinvested distributions 479,241 71,032
Redeemed (2,493,940) (271,030)
Net increase (decrease) (286,548) 840,231
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
Michigan Tax-Exempt Fund
Year ended June 30, 1998
Class A Class B
Sold 1,170,022 380,067
Issued for reinvested distributions 511,164 27,650
Redeemed (1,941,314) (153,133)
Net increase (decrease) (260,128) 254,584
Year ended June 30, 1997
Class A Class B
Sold 859,824 270,029
Issued for reinvested distributions 563,716 20,129
Redeemed (2,086,380) (107,455)
Net increase (decrease) (662,840) 182,703
<PAGE>
Minnesota Tax-Exempt Fund
Year ended June 30, 1998
Class A Class B
Sold 10,219,416 2,026,791
Issued for reinvested distributions 3,090,353 188,593
Redeemed (13,225,380) (633,606)
Net increase (decrease) 84,389 1,581,778
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
New York Tax-Exempt Fund
Year ended June 30, 1998
Class A Class B
Sold 2,476,927 580,183
Issued for reinvested distributions 768,096 62,867
Redeemed (4,193,469) (257,849)
Net increase (decrease) (948,446) 385,201
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
<PAGE>
Ohio Tax-Exempt Fund
Year ended June 30, 1998
Class A Class B
Sold 1,224,084 354,262
Issued for reinvested distributions 493,970 26,147
Redeemed (1,882,921) (75,894)
Net increase (decrease) (164,867) 304,515
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
5
Interest rate
futures contracts
Investments in securities at June 30, 1998, included securities that were
valued and pledged as collateral to cover initial margin deposits, (see
"Summary of significant accounting policies") as follows:
Open
Market purchase
Fund value contracts
IDS California $3,051,650 50
IDS Massachusetts 1,561,720 15
IDS Michigan 2,172,937 15
IDS Minnesota 6,574,000 40
IDS New York 3,358,733 40
IDS Ohio 2,169,805 15
The market value of the open purchase contracts at June 30, 1998, was as
follows:
Net
Market unrealized
Fund value gain (loss)
IDS California $6,223,438 $42,187
IDS Massachusetts 1,867,031 12,656
IDS Michigan 1,867,031 12,656
IDS Minnesota 4,978,750 33,750
IDS New York 4,978,750 33,750
IDS Ohio 1,867,031 12,656
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.
<PAGE>
6
Capital loss
carryover
For federal income tax purposes, capital loss carryovers were as follows
at June 30, 1998:
Expiration
Fund Carryover date
IDS California $364,073 2006
IDS Massachusetts 15,918 2005
IDS Michigan 206,533 2007
IDS Minnesota 419,215 2005 - 2007
IDS New York 1,329,019 2005
IDS Ohio 166,361 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>
<PAGE>
<TABLE>
<CAPTION>
Investments in securities
IDS California Tax-Exempt Fund
June 30, 1998
(Percentages represent value of
investments compared to net assets)
Municipal bonds (97.0%)
Name of issuer Coupon Principal Value(a)
and title of issue (b,c,d) rate amount
ABAG Financial Authority for Nonprofit Corporations
Certificate of Participation International School
Series 1996
<S> <C> <C> <C>
05-01-26 7.375% $2,200,000 $2,295,304
Anaheim Public Finance Authority Revenue Bonds
Electric Utilities San Juan Series 2 (FGIC Insured)
10-01-22 5.75 11,100,000 11,603,496
Brea Redevelopment Agency Tax Allocation Refunding Bonds
Redevelopment Project AB (MBIA Insured)
08-01-17 5.50 1,800,000 1,843,362
Burbank Redevelopment Agency Tax Allocation Bonds
Golden State Series 1993A
12-01-23 6.00 2,000,000 2,092,340
Calleguas-Las Virgines Public Finance Authority
Refunding Revenue Bonds
Las Virgines Municipal Water District (FSA Inusred)
11-01-23 5.00 1,000,000 976,070
Chapman College Educational Facilities Authority
Revenue Bonds Series 1991B
01-01-18 7.50 500,000 550,340
Clearlake Redevelopment Agency
Highlands Park Community Development
Tax Allocation Bonds Series 1993
10-01-23 6.40 1,420,000 1,505,015
Corona Community Facilities District 90-1
Special Tax Refunding Bonds Series 1998A (MBIA Insured)
09-01-20 4.70 7,905,000 7,447,459
Eastern Municipal Water District Riverside County
Water & Sewer Pre-refunded Revenue
Certificates of Participation Series 1991 (FGIC Insured)
07-01-20 6.50 3,000,000 3,270,660
Eastern Municipal Water District Riverside County
Water & Sewer Revenue Certificates of Participation
Series 1991
07-01-23 6.00 1,000,000 1,074,110
El Centro Financial Authority Water & Wastewater
Revenue Bonds Series 1997A (AMBAC Insured)
10-01-27 5.125 1,200,000 1,184,676
Encinitas Unified School District
Unlimited General Obligation Bonds
Zero Coupon Series 1996 (MBIA Insured)
08-01-15 5.85 2,500,000(g) 1,052,150
08-01-16 5.85 1,000,000(g) 397,260
Fontana Redevelopment Agency
Refunding Certificate of Participation
Police Facility Series 1993
04-01-16 5.625 4,500,000 4,627,980
Fontana Unified School District
San Bernardino County General Obligation
Convertible Capital Appreciation Bonds
Series 1995C (FGIC Insured)
05-01-20 6.15 3,470,000 3,836,224
Fontana Unified School District
Unlimited Tax General Obligation Bonds
Zero Coupon Series D (FGIC Insured)
05-01-22 6.28 2,000,000(i) 1,940,320
Foothill/Eastern Transportation Corridor Agency Toll Road
Senior Lien Revenue Bonds Series 1995A
01-01-34 6.00 1,775,000 1,879,086
Garden Grove Agency Community Development
Tax Allocation Refunding Bonds
Garden Grove Community
10-01-23 5.875 3,000,000 3,095,190
Garden Grove Certificate of Participation
Bahia Village/Emerald Isle
(FSA Insured)
08-01-23 5.70 2,660,000 2,771,427
Huntington Beach Certificate of Participation Revenue Bonds
Civic Center Refinancing (AMBAC Insured)
08-01-16 5.50 1,715,000 1,749,917
Irwindale Redevelopment Agency Sub Lien
Tax Allocation Bonds Series 1996
12-01-19 7.00 1,700,000 1,884,977
Janesville Union School District
Lassen County General Obligation Bonds
Series 1996
08-01-21 6.45 875,000 929,591
Lake Elsinore Public Financing Authority
Local Agency Revenue Bonds Series 1997F
09-01-20 7.10 3,000,000 3,233,100
Lake Elsinore School Financing Authority
Revenue Bonds Series 1997
09-01-19 6.125 1,235,000 1,305,247
Los Angeles Convention & Exhibition Center
Pre-refunded Certificate of Participation
Series 1989A
08-15-09 7.30 1,000,000 1,054,420
08-15-18 7.375 2,900,000(e) 3,060,196
08-15-20 7.00 5,000,000 5,255,750
Los Angeles County Transportation Commission
Sales Tax Pre-refunded Revenue Bonds
Series 1988A
07-01-08 7.875 500,000 510,055
Los Angeles County Transportation Commission
Sales Tax Refunding Revenue Bonds
Series 1989A
07-01-15 7.40 2,000,000 2,105,240
Los Angeles County Transportation Commission
Sales Tax Refunding Revenue Bonds Series A
07-01-19 7.00 4,150,000 4,360,654
Los Angeles Department of Airports Revenue Bonds
Los Angeles International Airport Series D
(FGIC Insured) A.M.T.
05-15-15 5.50 1,000,000 1,029,640
Los Angeles Department of Water & Power
Waterworks Refunding Revenue Bonds
Series 2 (Secondary FGIC Insured)
05-15-18 4.50 3,000,000 2,741,580
Los Angeles Mutli-family Housing Revenue Bonds
Park Parthenia Series 1986A
(GNMA Insured) A.M.T.
01-20-22 7.40 1,000,000 1,027,850
LosAngeles Single Family Home Mortgage Revenue Bonds Series 1991A (GNMA & FNMA
Insured) A.M.T.
06-01-25 6.875 770,000 811,395
Los Angeles State Harbor Revenue Bonds
Escrowed to Maturity
10-01-18 7.60 1,000,000 1,276,420
Los Angeles State Harbor Revenue Bonds
Series 1996B (MBIA Insured) A.M.T.
11-01-19 5.375 2,000,000 2,022,780
11-01-23 5.375 1,300,000 1,316,874
Los Angeles Wastewater System
Refunding Revenue Bonds Series D (FGIC Insured)
11-01-17 4.70 1,000,000 946,890
Los Angeles Water & Power
Electric Plant Revenue Bonds Series 1990
05-15-30 7.125 6,500,000 6,981,845
Millbrae Residential Facility Revenue Bonds
Magnolia of Millbrae Series 1997A A.M.T.
09-01-27 7.375 2,500,000 2,592,200
Modesto Irrigation District Finance Authority
Refunding Revenue Bonds Domestic Water
Series 1998D (AMBAC Insured)
09-01-22 4.75 2,000,000 1,887,340
Mount Diablo Hospital District Hospital
Pre-refunded Revenue Bonds
Series 1990A (AMBAC Insured)
12-01-17 7.00 3,000,000 3,268,950
North City West Community School Facility
Authority Special Tax Refunding Revenue Bonds
Series 1995B (CGIC Insured)
09-01-15 5.75 1,000,000 1,069,840
Northern California Public Power Authority Power
Pre-refunded Revenue Bonds Hydroelectric
3rd Series 1986B
07-01-24 8.00 2,000,000 2,000,240
Northern California Public Power Authority Power
Pre-refunded Revenue Bonds Hydroelectric 1
1st Series 1986B
07-01-24 8.00 2,100,000 2,100,252
Northern California Transmission Agency
California-Oregon Transmission
Pre-refunded Revenue Bonds
05-01-24 7.00 2,000,000 2,139,960
Northern California Transmission Select Auction
Variable Rate Security & Residual Interest Revenue Bonds
Inverse Floater (MBIA Insured)
04-29-24 5.50 4,500,000(h) 4,638,195
Novato Community Facility District 1 Vintage Oaks
Public Improvement Special Tax Refunding Bonds
08-01-21 7.25 2,000,000 2,189,060
Orange County Special Tax Community Facilities Bonds
Aliso Veijo District 88-1 Series 1992A
08-15-18 7.35 3,000,000 3,425,730
Pleasanton Joint Powers Financing Authority Reassessment
Revenue Bonds Series 1993A
09-02-12 6.15 1,790,000 1,922,263
Port of Oakland Refunding Revenue Bonds
Series 1997G (MBIA Insured) A.M.T.
11-01-25 5.375 3,080,000 3,117,607
Rancho Cucamonga Redevelopment Agency
Allocation Pre-refunded Bonds Series 1990
(MBIA Insured)
09-01-19 7.125 3,540,000 3,747,763
Rancho Mirage Joint Powers Finance Authority
Certificate of Participation Eisenhower Memorial Hospital
03-01-22 7.00 4,250,000 4,739,940
Redding Redevelopment Agency Tax Allocation
Refunding Bonds Canby Hilltop Cypress
Series D (CGIC Insured)
09-01-23 5.00 4,700,000 4,581,419
Redwood City Elementary School District Capital
Appreciation General Obligation Bonds
San Mateo County Zero Coupon
Series 1997 (FGIC Insured)
08-01-20 5.65 5,475,000(g) 1,754,354
Richmond Elementary School District
Lassen County General Obligation Bonds
Series 1996
08-01-21 6.50 649,000 706,800
Richmond Joint Powers Financing Authority
Leases and Gas Tax Refunding Revenue Bonds
Series 1995A
05-15-13 5.25 2,000,000 2,033,800
Richmond Redevelopment Agency Tax Allocation
Refunding Bonds Harbour Redevelopment
Series 1998A (MBIA Insured)
07-01-23 4.75 2,000,000 1,885,540
Rural Home Mortgage Financing Authority Single Family Mortgage Revenue Bonds
3rd Series 1997A (GNMA Insured) A.M.T.
09-01-29 6.25 1,500,000 1,696,995
Sacramento Cogeneration Authority
Revenue Bonds
Procter & Gamble Series 1995
07-01-10 6.375 1,000,000 1,101,420
Sacramento County Certificate of Participation
(AMBAC Insured)
10-01-17 4.75 3,000,000 2,857,830
Sacramento Municipal Utility District Pre-refunded Bonds
Series V
08-15-18 7.50 2,775,000 2,788,237
Sacramento Municipal Utility District Pre-refunded Bonds
Series W
08-15-18 7.50 1,980,000 1,989,445
Sacramento Municipal Utility District Pre-refunded Bonds
Series Y (MBIA Insured)
09-01-19 6.75 3,400,000 3,744,046
Sacramento Power Authority Cogeneration
Revenue Bonds Campbell Soup Series 1995
07-01-22 6.00 1,000,000 1,054,600
San Diego Community Facilities District 1
Special Tax Refunding Bonds
Series 1998 (MBIA Insured)
09-01-20 4.75 2,000,000 1,897,380
San Diego County Capital Asset Lease
Certificate of Participation
Series 1993 Inverse Floater (AMBAC Insured)
09-01-07 6.92 3,200,000(h) 3,736,000
San Diego Regional Transportation Commission Sales Tax
Pre-refunded Revenue Bonds Limited Tax Series 1989A
04-01-08 6.25 5,030,000 5,128,890
San Francisco City & County Airport Commission
International Airport Revenue Bonds Issue 15B
2nd Series 1998 (MBIA Insured)
05-01-20 4.90 2,000,000 1,939,860
San Joaquin County Certificate of Participation
Jail & Sheriff's Operation Center (MBIA Insured)
11-15-15 6.75 2,000,000 2,120,720
San Joaquin County Pre-refunded Certificate of Participation
Human Services Facility Series 1989 (BIG Insured)
05-15-09 6.70 3,500,000 3,660,755
San Jose Redevelopment Agency Merged Area
Redevelopment Tax Allocation Bonds
Series 1993 (MBIA Insured)
08-01-24 4.75 3,055,000 2,872,219
San Jose Redevelopment Agency Merged Area
Tax Allocation Bonds Series 1993 Inverse Floater
(MBIA Insured)
08-01-14 6.96 3,000,000(h) 3,172,500
San Ysidro School District General Obligation Bonds
San Diego County Series 1997 (AMBAC Insured)
08-01-21 6.125 1,000,000 1,135,670
Santa Clara County Mountain View
Los Altos Union High School District Unlimited Tax
General Obligation Bonds Series A
08-01-15 5.75 1,200,000 1,276,740
Santa Cruz Certificate of Participation
08-01-07 8.375 1,140,000 1,166,995
Sierra Madre Finance Authority Water & Sewer
Refunding Revenue Bonds Series 1998A (MBIA Insured)
11-01-18 5.00 2,010,000 1,962,222
South Tahoe Joint Powers Financing Authority
Refunding Revenue Bonds Series 1995B
10-01-20 6.25 2,700,000 2,887,461
Southern California Home Financing Authority
Single Family Mortgage Revenue Bonds 1990B
(GNMA Insured) A.M.T.
03-01-24 7.75 530,000 557,528
Southern California Public Power Authority Transmission
Special Bonds
07-01-12 6.00 2,700,000 2,897,559
State Department Water Resource
Water Systems Revenue Bonds Center Valley
Series 1995O
12-01-18 4.75 2,000,000 1,909,300
State Department Water Resource Water System
Revenue Bonds Central Valley Series L
12-01-23 5.50 3,000,000 3,063,210
State Education Facility Authority
Revenue Bonds Ponoma College
02-15-17 6.00 3,000,000 3,178,080
State Education Facility Authority
Revenue Bonds Series 1997B
04-01-21 6.30 1,000,000 1,079,360
State Health Facility Finance Authority
Pre-refunded Revenue Bonds
St. Joseph Health System Series 1989A
07-01-14 6.90 3,500,000 3,675,945
State Housing Finance Agency Home Mortgage
Revenue Bonds Series 1986B
08-01-16 6.90 1,770,000 1,793,453
State Pollution Control Finance Authority Pollution Control
Revenue Bonds Southern California Edison
Series 1988A A.M.T.
09-01-06 6.90 2,000,000 2,101,140
State Public Works Board California Community
Colleges Lease Revenue Bonds Series 1994B
03-01-19 7.00 2,000,000 2,315,760
State Public Works Board Lease Revenue Bonds
Department of Correction Substance Abuse Treatment
Facility & State Prison at Corcoran Series 1996A (AMBAC Insured)
01-01-21 5.25 1,870,000 1,872,300
State Public Works Board University of California Lease
Pre-refunded Revenue Bonds Series 1990A
09-01-15 7.00 2,250,000 2,438,078
State University Refunding Revenue Bonds
Series C (AMBAC Insured)
09-01-23 5.00 2,000,000 1,949,540
State Unlimited Tax General Obligation Bonds
(Secondary FGIC Insured)
09-01-23 4.75 1,325,000(e) 1,247,050
State Unlimited Tax General Obligation Refunding Bonds
02-01-21 5.00 3,000,000 2,936,280
Statewide Community Development Authority
Revenue Certificate of Participation
St. Joseph Health System Group
07-01-15 6.50 5,500,000 6,235,075
Statewide Community Development Authority Health Facilities
Unihealth America Certificate of Participation
Series 1993 Inverse Floater (AMBAC Insured)
10-01-11 7.16 5,000,000(h) 5,881,250
Stockton Single Family Mortgage Revenue Bonds
Series 1990A (GNMA Insured) A.M.T.
02-01-23 7.50 110,000 119,390
University of Southern California Educational
Facilities Authority Pre-refunded Revenue Bonds
Series 1989B
10-01-15 6.75 5,000,000 5,259,850
Upland Certificate of Participation Water System
Refunding Bonds (FGIC Insured)
08-01-16 6.60 1,000,000 1,093,820
Total municipal bonds
(Cost: $224,098,705) $246,642,096
Short-term securities (1.8%)
Issuer (c,d,f) Effective Amount Value(a)
yield payable at
maturity
Irvine Ranch Water District
Bank of America Series 1993 V.R.
04-01-33 3.30% $400,000 $400,000
Orange County Improvement Bonds
District 88 V.R.
09-02-18 3.50 1,100,000 1,100,000
Statewide Community Development Authority
Certificates of Participation V.R.
08-15-27 3.55 1,800,000 1,800,000
Statewide Community Development Authority
Certificates of Participation
Northern California Retirement Officers V.R.
06-01-26 3.25 200,000 200,000
State Health Facilities
St. Joseph Health System Series 1991B V.R.
07-01-09 3.25 500,000 500,000
State Health Facilities Finance Authority
Revenue Bonds Sutter Health Series 1996B V.R.
(AMBAC Insured)
03-01-12 3.25 100,000 100,000
State Health Facilities Finance Authority
Revenue Bonds Sutter Health
Series B V.R. (AMBAC Insured)
03-01-20 3.25 200,000 200,000
State Pollution Control Finance Authority
Pollution Control Revenue Bonds (Shell Oil Company)
Series 1991B V.R.
10-01-11 3.25 400,000 400,000
Total short-term securities
(Cost: $4,700,000) $4,700,000
Total investments in securities
(Cost: $228,798,705)(j) $251,342,096
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 6-30-98 6-30-97
AAA 68% 61%
AA 14 19
A 6 9
BBB 7 8
BB and below 5 3
Non-rated -- --
Total 100% 100%
(c) The following abbreviations may be used in portfolio descriptions to
identify the insurer of the issue:
ACA -- ACA Financial Guaranty Corporation
AMBAC -- American Municipal Bond Association Corporation
BIG -- Bond Investors Guarantee
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guarantee Insurance Corporation
FHA -- Federal Housing Authority
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
MBIA -- Municipal Bond Investors Assurance
(d) The following abbreviations may be used in the portfolio descriptions:
A.M.T. -- Alternative Minimum Tax -- As of June 30, 1998, the value of
securities subject to alternative minimum tax represented 6.4%
of net assets.
B.A.N. -- Bond Anticipation Note
C.P. -- Commercial Paper
R.A.N. -- Revenue Anticipation Note
T.A.N. -- Tax Anticipation Note
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
(e) Partially pledged as initial margin 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 Sept. 1998 $5,000,000
(f) The Fund is entitled to receive principal amount from issuer or corporate
guarantor, if indicated
in parentheses, after a day or a week's notice. The maturity date disclosed
represents the final maturity. Interest rate varies to reflect current market
conditions; rate shown is the effective rate on June 30, 1998.
(g) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(h) 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, 1998. Inverse floaters in the aggregate represent 6.9%
of the Fund's net assets as of June 30, 1998.
(i) 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.
(j) At June 30, 1998, the cost of securities for federal income tax purposes was
$228,451,574 and the gross unrealized appreciation and depreciation based on
that cost was:
Unrealized appreciation ..........................................$22,945,131
Unrealized depreciation ..............................................(54,609)
Net unrealized appreciation...................................... $22,890,522
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Investments in securities
IDS Massachusetts Tax-Exempt Fund
June 30, 1998
(Percentages represent value of
investments compared to net assets)
Municipal bonds (98.2%)
Name of issuer Coupon Principal Value(a)
and title of issue (b,c,d) rate amount
Bay Transit Authority Series B (Secondary CGIC Insured)
<S> <C> <C> <C>
03-01-21 5.50% $500,000 $510,260
Bay Transportation Authority General Transportation System
Refunding Bonds Series 1992B
03-01-16 6.20 1,500,000 1,719,015
Boston City Hospital Pre-refunded Revenue Bonds
Series A (FHA Insured)
02-15-21 7.625 1,000,000 1,088,800
Boston City Hospital Refunding Revenue Bonds
Series B (FHA Insured)
02-15-23 5.75 3,000,000(f) 3,081,600
Boston General Obligation Bonds
Series 1991A (MBIA Insured)
07-01-11 6.75 500,000 547,570
Boston General Obligation Refunding Bonds
Series 1993A (AMBAC Insured)
02-01-09 5.65 1,500,000(f) 1,603,560
Boston Industrial Development Financing Authority
Revenue Bonds Massachusetts College of Pharmacy
Series 1993A (Connie Lee Insured)
10-01-26 5.25 1,000,000 1,000,580
Boston Water & Sewer Commission
General Pre-refunded Revenue Bonds
Senior Series 1991A (FGIC Insured)
11-01-18 7.00 1,000,000 1,109,940
Boston Water & Sewer Commission
General Subordinate Revenue Bonds
Series A (MBIA Insured)
11-01-08 6.00 500,000 503,795
Commonwealth General Obligation Consolidated Loan
Pre-refunded Bonds
Series 1990A (FGIC Insured)
03-01-09 7.25 500,000 536,700
Haverhill City Unlimited Tax General Obligation Bonds
Series 1997 (FGIC Insured)
06-15-17 5.00 1,000,000 986,720
Health & Educational Facilities Authority
Pre-refunded Bonds Northeastern University
Series 1989C (AMBAC Insured)
10-01-06 7.10 1,000,000 1,058,620
Health & Educational Facilities Authority
Pre-refunded Bonds Northeastern University
Series E (MBIA Insured)
10-01-22 6.55 1,000,000 1,100,740
Health & Educational Facilities Authority
Pre-refunded Revenue Bonds
Beverly Hospital Series D (MBIA Insured)
07-01-19 7.30 400,000 422,004
Health & Educational Facilities Authority
Pre-refunded Revenue Bonds
Stonehill College Series 1990D (AMBAC Insured)
07-01-20 7.70 1,000,000 1,091,450
Health & Educational Facilities Authority
Pre-refunded Revenue Bonds
Wentworth Institute of Technology
04-01-10 7.40 750,000 808,680
Health & Educational Facilities Authority
Refunding Revenue Bonds
Beth Israel Hospital Series 1989E
07-01-09 7.00 300,000 314,223
07-01-14 7.00 250,000 261,802
Health & Educational Facilities Authority
Revenue Bonds Berkshire Health Systems
Series A (MBIA Insured)
10-01-08 7.50 500,000 514,790
Health & Educational Facilities Authority
Revenue Bonds Berkshire Health Systems
Series C
10-01-11 5.90 1,000,000 1,042,160
Health & Educational Facilities Authority
Revenue Bonds Boston College
Series J (FGIC Insured)
07-01-21 6.625 2,000,000 2,167,240
Health & Educational Facilities Authority
Revenue Bonds Brigham & Women's Hospital
Series 1991D
07-01-24 6.75 1,000,000 1,094,250
Health & Educational Facilities Authority
Revenue Bonds Brigham & Women's Hospital
Series C
06-01-21 6.75 500,000 523,620
Health & Educational Facilities Authority
Revenue Bonds Cape Cod Health System
Series A (Connie Lee Insured)
11-15-21 5.25 2,500,000 2,501,350
Health & Educational Facilities Authority
Revenue Bonds Charlton Memorial Hospital
Series 1991B
07-01-13 7.25 1,750,000 1,938,405
Health & Educational Facilities Authority
Revenue Bonds Holyoke Hospital
Series B
07-01-15 6.50 1,000,000 1,067,700
Health & Educational Facilities Authority
Revenue Bonds Melrose-Wakefield Hospital
Series 1992B
07-01-16 6.375 1,000,000 1,112,670
Health & Educational Facilities Authority
Revenue Bonds New England Deaconess Hospital
Series 1992D
04-01-12 6.625 1,000,000 1,102,990
Health & Educational Facilities Authority
Revenue Bonds Newton Wellesley Hospital
Series 1991D (MBIA Insured)
07-01-15 7.00 1,000,000 1,100,650
Health & Educational Facilities Authority
Revenue Bonds North Adams Regional Hospital
Series C
07-01-18 6.625 1,000,000 1,087,720
Health & Educational Facilities Authority
Revenue Bonds South Shore Hospital
Series 1992D (MBIA Insured)
07-01-22 6.50 1,000,000 1,088,870
Health & Educational Facilities Authority
Revenue Bonds Suffolk University
Series B (Connie Lee Insured)
07-01-22 6.35 2,495,000 2,698,392
Health & Educational Facilities Authority
Revenue Bonds Valley Regional Health System
Series C (Connie Lee Insured)
07-01-18 5.75 1,000,000 1,047,630
Industrial Finance Agency Assumption College
Revenue Bonds Series 1996 (Connie Lee Insured)
07-01-26 6.00 1,000,000 1,079,590
Industrial Finance Agency Hampshire College
Revenue Bonds Series 1997
10-01-17 5.80 1,105,000 1,129,642
Industrial Finance Agency Pollution Control
Refunding Revenue Bonds Eastern Edison
Series 1993
08-01-08 5.875 2,000,000 2,079,660
Industrial Finance Agency Resource Recovery Revenue Bonds Ogden Haverhill
Series 1986A (AMBAC Insured) A.M.T.
12-01-11 7.375 175,000 178,070
Industrial Finance Agency Resource Recovery
Revenue Bonds SEMASS Series 1991A
07-01-15 9.00 1,500,000 1,680,405
Industrial Finance Agency Revenue Bonds
Museum of Science Series 1989 (FSA Insured)
11-01-09 7.30 1,000,000 1,065,390
Leominster General Obligation Bonds (MBIA Insured)
04-01-09 7.50 1,000,000 1,079,910
Mansfield General Obligation Bonds (AMBAC Insured)
11-15-11 6.70 1,000,000 1,103,140
Municipal Wholesale Electric Power
Supply System Pre-refunded Revenue Bonds
Series 1992B
07-01-17 6.75 1,395,000 1,554,462
Municipal Wholesale Electric Power
Supply System Refunding Revenue Bonds
Series B (MBIA Insured)
07-01-11 4.75 1,750,000 1,723,312
Municipal Wholesale Electric Power
Supply System Revenue Bonds
Special Parts & Inflows (AMBAC Insured)
07-01-18 5.45 1,600,000 1,635,808
Nantucket General Obligation Bonds
12-01-11 6.80 1,000,000 1,105,400
New Bedford General Obligation Bonds
Series 1995 (AMBAC Insured)
10-15-15 5.50 700,000 725,704
North Andover General Obligation Bonds (MBIA Insured)
09-15-08 7.35 310,000 339,999
North Andover Unlimited Tax General
Obligation Municipal Purpose Loan Bonds
Series 1998 (FGIC Insured)
01-15-18 4.75 1,000,000 953,430
North Attleborough Unlimited General Obligation Bonds
Series 1997 (AMBAC Insured)
03-01-17 5.25 1,000,000 1,012,120
Port Authority Revenue Bonds
Series 1990A (FGIC Insured) A.M.T.
07-01-20 7.50 1,000,000 1,077,140
Southeastern University Building Refunding Revenue Bonds
Series A (AMBAC Insured)
05-01-16 5.75 1,250,000 1,323,525
Southern Berkshire Regional School District Unlimited Tax
General Obligation Pre-refunded Bonds (AMBAC Insured)
04-15-10 7.55 1,000,000 1,082,700
State Education Loan Authority Educational Loan Revenue Bonds Issue E Series B
(AMBAC Insured) A.M.T.
01-01-12 6.00 915,000 979,992
State General Obligation Consolidated Loan Bonds
Series 1991A (FGIC Insured)
06-01-11 6.00 1,095,000 1,155,137
State Health & Education Facilities Authority
Hospital Revenue Bonds Milford-Whitinsville
Regional Hospital Series 1998C
07-15-28 5.375 1,065,000 1,050,133
State Health & Education Facilities Authority
Revenue Bonds Southcoast Health System
Series 1998A (MBIA Insured)
07-01-27 4.75 1,000,000 931,570
State Health & Education Facility Authority
Hospital Revenue Bonds Boston Medical Center
Series 1998A (MBIA Insured)
07-01-19 5.00 1,000,000 970,890
State Housing Authority Residential
Development Bonds Series 1992A (FNMA Insured)
11-15-11 6.875 1,000,000 1,085,810
State Housing Finance Agency Single Family Housing
Revenue Bonds Series 13 A.M.T.
06-01-23 7.95 420,000 443,050
State Housing Finance Authority
Single Family Mortgage Housing Revenue Bonds
Series 7 A.M.T.
06-01-20 8.10 245,000 250,211
State Industrial Finance Agency Assisted Living
Facility Revenue Bonds Marina Bay LLC
Series 1997 A.M.T.
12-01-27 7.50 1,000,000 1,040,950
State Industrial Finance Agency Assisted Living Facility
Revenue Bonds Newton Group Properties LLC
Series 1997 A.M.T.
09-01-27 8.00 1,160,000 1,237,117
State Industrial Finance Agency College Revenue
Bonds Tufts University Series 1998H (MBIA Insured)
02-15-28 4.75 1,000,000 938,050
State Industrial Finance Agency Miscellaneous
Revenue Bonds Cambridge Friends School
Series 1998
09-01-28 5.80 700,000 712,789
State Industrial Finance Agency School Bonds
St. John's High School of Worcester County
Series 1998
06-01-28 5.35 500,000 489,030
State Turnpike Authority Metro Highway System
Senior Lien Revenue Bonds Toll Road
Series 1997A (MBIA Insured)
01-01-37 5.00 1,000,000 960,450
State Water Resource Authority Revenue Bonds
Series A (Secondary MBIA Insured)
07-15-22 5.50 1,100,000 1,157,222
University of Massachusetts Building Authority
Revenue Bonds Escrowed to Maturity
05-01-11 7.50 110,000 130,819
Water Resource Authority General
Pre-refunded Revenue Bonds Series 1990A
04-01-14 7.625 500,000 541,005
Water Resource Authority General
Pre-refunded Revenue Bonds Series 1991A
12-01-19 6.50 1,000,000 1,096,920
Water Resource Authority General Revenue Bonds
Series B (MBIA Insured)
03-01-22 5.00 1,365,000 1,329,797
Worcester General Obligation Refunding Bonds
Series 1995G (MBIA Insured)
07-01-15 5.30 1,000,000 1,019,210
Worcester Unlimited Tax General
Obligation Bonds Series 1998A (FSA Insured)
07-01-17 4.90 1,000,000 969,930
Total municipal bonds
(Cost: $71,895,512) $78,253,985
Short-term securities (1.1%)
Issuer (d,e) Effective Amount Value(a)
yield payable at
maturity
Municipal notes
State Health & Education Facility
Series 1985C V.R.
07-01-05 3.60% $500,000 $500,000
State Health & Education Facility
Series 1985D V.R.
01-01-35 3.90 200,000 200,000
State Health & Education Facility
Series 1990E V.R.
01-01-35 3.70 200,000 200,000
Total short-term securities
(Cost: $900,000) $900,000
Total investments in securities
(Cost: $72,795,512)(g) $79,153,985
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 06-30-98 06-30-97
AAA 73% 64%
AA 8 9
A 3 16
BBB 11 9
BB and below 5 2
Non-rated -- --
Total 100% 100%
(c) The following abbreviations may be used in portfolio descriptions to
identify the insurer of the issue:
ACA -- ACA Financial Guaranty Corporation
AMBAC -- American Municipal Bond Association Corporation
BIG -- Bond Investors Guarantee
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guarantee Insurance Corporation
FHA -- Federal Housing Authority
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 the portfolio descriptions:
A.M.T. -- Alternative Minimum Tax-- As of June 30, 1998, the value of
securities subject to alternative minimum tax represented 6.5%
of net assets.
B.A.N. -- Bond Anticipation Note
C.P. -- Commercial Paper
R.A.N. -- Revenue Anticipation Note
T.A.N. -- Tax Anticipation Note
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
(e) The Fund is entitled to receive principal amount from issuer or corporate
guarantor, if indicated in parentheses, after a day or a week's notice.
The maturity date disclosed represents the final maturity. Interest rate
varies to reflect current market conditions; rate shown is the effective rate
on June 30, 1998.
(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 Sept. 1998 $1,500,000
(g) At June 30, 1998, the cost of securities for federal income tax purposes was
$72,719,513 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation ..............................$6,456,164
Unrealized depreciation .................................(21,692)
Net unrealized appreciation.......................... $6,434,472
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Michigan Tax-Exempt Fund
June 30, 1998
(Percentages represent value of
investments compared to net assets)
Municipal bonds (98.9%)
Name of issuer Coupon Principal Value(a)
and title of issue (b,c,d) rate amount
Auburn Hills Limited Tax General Obligation
Street Improvement Bonds
<S> <C> <C> <C>
05-01-04 6.00% $200,000(e) $205,436
Battle Creek Calhoun County Downtown
Development Authority Bonds Series 1994
05-01-22 7.65 1,250,000 1,479,937
Battle Creek Water Supply System
Pre-refunded Revenue Bonds Series 1990B
09-01-08 6.375 485,000 496,853
09-01-09 6.375 555,000 568,564
09-01-10 6.375 600,000 614,664
Belding Area Schools Unlimited Tax General
Obligation Refunding Bonds Series 1998
(AMBAC Insured)
05-01-26 5.00 1,000,000 972,110
Buena Vista School District Saginaw County
School Building & Site Unlimited Tax
General Obligation Pre-refunded Bonds Series 1991
05-01-16 7.20 1,500,000(e) 1,654,065
Central Michigan University Revenue Bonds
Series 1997 (FGIC Insured)
10-01-26 5.50 750,000 774,510
Chippewa County Hospital Financial Authority
Hospital Refunding Revenue Bonds
Chippewa County War Memorial Hospital
Series 1997B
11-01-14 5.625 500,000 507,285
Chippewa Valley School District Unlimited Tax
General Obligation Bonds (FGIC Insured)
05-01-21 5.00 1,000,000 974,680
Chippewa Valley Schools Unlimited Tax
General Obligation Refunding Bonds
Series 1998 (AMBAC Insured)
05-01-23 4.75 1,000,000 942,900
Comstock Park Public School Kent County Unlimited Tax
General Obligation Pre-refunded Bonds Series 1989
05-01-10 6.875 260,000 271,887
05-01-16 6.00 400,000 415,468
Detroit Downtown Development Authority
Development Area Project 1 Junior Lien
Tax Increment Refunding Bonds Series 1996D
07-01-25 6.50 1,000,000 1,074,560
Detroit General Obligation Pre-refunded Bonds
Distributable State Aid Series 1989 (AMBAC Insured)
05-01-09 7.20 1,000,000 1,048,730
Detroit Sewer Disposal Revenue Bonds (FGIC Insured)
07-01-23 5.70 2,000,000(e) 2,083,780
Detroit Unlimited Tax General Obligation
Pre-refunded Bonds Series A
04-01-09 7.25 1,000,000 1,046,340
Detroit Unlimited Tax General Obligation Bonds
Series 1995A
04-01-15 6.80 1,000,000 1,153,610
Detroit Water Supply System Pre-refunded Revenue Bonds
Series 1988 (MBIA Insured)
07-01-08 7.875 400,000 408,044
Detroit Water Supply System Second Lien
Revenue Bonds Series 1995A (MBIA Insured)
07-01-25 5.50 1,500,000 1,542,000
East Lansing School District School Building & Site
Unlimited Tax General Obligation
Pre-refunded Bonds Series 1991
05-01-14 6.625 1,000,000 1,086,880
Famington Hills Hospital Finance Authority
Revenue Bonds Botsford General Hospital
Series 1992A (MBIA Insured)
02-15-22 6.50 1,500,000 1,647,000
Ferris State University Board of Trustees
General Refunding Revenue Bonds
Series 1995 (MBIA Insured)
10-01-20 5.25 1,000,000 1,001,240
Forest Hills School District Unlimited Tax
General Obligation Pre-refunded Bonds
05-01-15 7.375 1,000,000 1,070,050
Frenchtown Resort Drainage District Monroe County Drain
Pre-refunded Revenue Bonds Series 1987
05-01-11 7.50 200,000 210,236
05-01-12 7.50 415,000 436,240
Garden City Hospital Finance Authority
Hospital Revenue Bonds Series 1998
09-01-17 5.75 1,000,000 993,600
Genesee County General Obligation Bonds
Sewer Disposal System Series A (AMBAC Insured)
04-01-15 5.40 1,400,000 1,440,726
Grand Ledge Public Schools Unlimited Tax General Obligation
Refunding Bonds of Eaton, Clinton & Ionia Counties
Series 1995 (MBIA Insured)
05-01-24 5.375 2,000,000 2,034,320
Grand Rapids Community College Limited Tax
General Obligation Bonds Series 1996 (MBIA Insured)
05-01-19 5.375 1,000,000 1,017,890
Grand Rapids Sanitary Sewer System Refunding
Revenue Bonds Series 1998A (FGIC Insured)
01-01-28 4.75 1,000,000 935,350
Grand Rapids Tax Increment Revenue Bonds
Series 1994 (MBIA Insured)
06-01-24 6.875 380,000 432,478
Grand Rapids Water Supply System Improvement
Pre-refunded Revenue Bonds Series 1990 (FGIC Insured)
01-01-20 7.25 1,250,000 1,335,462
Hillman Community Schools General Obligation Bonds
Series 1997 (FGIC Insured)
05-01-23 5.25 1,000,000 1,002,030
Inkster School District Unlimited Tax General Obligation
Pre-refunded Bonds (AMBAC Insured)
05-01-18 7.00 450,000 480,910
Iosco County Water Supply System Limited Tax
General Obligation Bonds (AMBAC Insured)
05-01-08 5.50 175,000 179,076
05-01-09 5.50 200,000 204,610
05-01-10 5.50 200,000 204,556
Kalamazoo Hospital Finance Authority
Hospital Refunding Revenue Bonds
Bronson Methodist Hospital Series 1998 (MBIA Insured)
05-15-18 5.25 500,000 499,355
Kent County Hospital Pre-refunded Revenue Bonds
Butterworth Hospital Series 1989A
01-15-13 7.25 500,000 519,590
Lake Orion Community School District Unlimited
Tax General Obligation Bonds Series 1998 (FGIC Insured)
05-01-23 5.125 1,000,000 989,530
Lake Orion School District General Obligation Bonds
(AMBAC Insured)
05-01-20 5.50 1,000,000 1,027,450
Lincoln Park School District Wayne County
School Building & Site Unlimited Tax
General Obligation Bonds (FGIC Insured)
05-01-26 5.90 1,000,000 1,111,180
Marquette Hospital Finance Authority
Pre-refunded Revenue Bonds
Marquette General Hospital Series 1989C
04-01-07 7.50 175,000 183,390
04-01-19 7.50 650,000 681,161
Monroe County Pollution Control Revenue Bonds Detroit Edison Fermi 2 Plants
Series CC (AMBAC Insured) A.M.T.
12-01-19 7.50 1,750,000 1,875,353
Monroe County Pollution Control Revenue Bonds Detroit Edison Fermi Plants
Series 1990I (FGIC Insured) A.M.T.
09-01-20 7.65 1,000,000 1,084,660
Muskegon Hospital Finance Authority
Refunding Revenue Bonds
Hackley Hospital Series 1988A
02-01-08 8.00 400,000 408,736
Northville Public Schools Unlimited Tax
General Obligation Bonds Series 1991B
05-01-08 7.00 1,500,000 1,644,390
Ovid-Elsie School District Unlimited Tax
General Obligation Bonds (Secondary MBIA Insured)
05-01-21 5.60 1,000,000 1,039,090
Redford General Obligation Bonds (MBIA Insured)
04-01-16 5.25 1,450,000 1,464,587
Richmond Limited Obligation Refunding Revenue Bonds
K mart Series A
01-01-07 6.625 530,000 571,033
Rochester Hill Unlimited Tax General Obligation Bonds
Series 1990A
11-01-09 6.00 355,000 364,869
11-01-10 6.00 380,000 390,564
Rockford Public Schools Kent County Unlimited Tax
General Obligation Pre-refunded Revenue Bonds
05-01-19 7.375 1,000,000 1,068,950
Romulus Township School District Unlimited Tax
General Obligation Refunding Bonds (FGIC Insured)
05-01-22 5.75 2,500,000 2,614,600
Schoolcraft Community School District
County of Kalamazoo School Building
and Site Unlimited General Obligation Bonds (FGIC Insured)
05-01-26 5.375 1,000,000 1,017,160
South Lake District Unlimited Tax General Obligation
Pre-refunded Bonds
05-01-10 6.80 355,000 386,464
South Redford School District Unlimited
General Obligation Bonds
Series 1996 (FGIC Insured)
05-01-22 5.50 1,000,000 1,030,250
State Building Authority Refunding
Revenue Bonds Series 1991I
10-01-20 6.25 2,200,000 2,350,414
State Hospital Finance Authority
Hospital Pre-refunded Revenue Bonds
Detroit Medical Center Series 1988A
08-15-12 8.125 310,000 317,871
State Hospital Finance Authority
Hospital Pre-refunded Revenue Bonds
Detroit Medical Center Series 1988B
08-15-08 8.00 500,000 512,620
State Hospital Finance Authority
Hospital Pre-refunded Revenue Bonds
McLaren Obligated Group Series 1991A
09-15-21 7.50 1,750,000 1,960,560
State Hospital Finance Authority
Hospital Refunding Revenue Bonds
Detroit Medical Center Series 1988A
08-15-12 8.125 90,000 92,239
State Hospital Finance Authority
Hospital Refunding Revenue Bonds
Detroit Medical Center Series A
08-15-13 6.25 1,200,000 1,299,816
State Hospital Finance Authority
Hospital Refunding Revenue Bonds
Sinai Hospital of Greater Detroit Series 1995
01-01-26 6.70 1,000,000 1,111,100
State Hospital Finance Authority
Pre-refunded Revenue Bonds
Henry Ford Hospital Series 1990A
07-01-10 7.00 1,000,000 1,077,070
State Hospital Finance Authority
Pre-refunded Revenue Bonds
Oakwood Hospital Group Series 1990A (FGIC Insured)
07-01-18 7.10 1,000,000 1,078,980
State Hospital Finance Authority
Refunding Revenue Bonds
Presbyterian Villages Obligated Group Series 1995
01-01-25 6.50 1,000,000 1,074,780
State Hospital Finance Authority
Revenue Bonds Central Michigan Community Hospital
10-01-27 6.25 1,000,000 1,057,670
State Hospital Finance Authority
Revenue Bonds Presbyterian Villages of Michigan
Obligated Group Series 1997
01-01-25 6.375 700,000 748,951
State Hospital Finance Authority
Revenue Bonds St. John's Hospital & Medical Center
(AMBAC Insured)
05-15-26 5.25 1,400,000 1,399,916
State Public Power Agency Belle River
Refunding Revenue Bonds Series A
01-01-18 5.25 1,000,000 1,001,090
State Strategic Fund Limited Tax Obligation Refunding
Revenue Bonds Detroit Edison
Series 1990BB (MBIA Insured)
07-15-08 7.00 1,000,000 1,200,180
State Strategic Fund Limited Tax Obligation Refunding
Revenue Bonds Detroit Edison Series 1992BB
(FGIC Insured)
02-15-16 6.50 1,500,000 1,621,605
State Strategic Fund Limited Tax Obligation Refunding
Revenue Bonds Ford Motor
Series 1991A
02-01-06 7.10 1,650,000(e) 1,929,757
State Strategic Fund Limited Obligation Refunding
Revenue Bonds Great Lakes Pulp & Fibre
Zero Coupon Series 1994 A.M.T.
12-01-27 8.00 614,560(g) 589,978
State Strategic Fund Limited Tax Obligation
Refunding Revenue Bonds
Oxford Institute Escrowed to Maturity
08-15-05 7.875 150,000 169,983
State Trunk Line Bonds Series A (FGIC Insured)
11-15-20 5.75 1,065,000 1,122,020
State Trunk Line Refunding Revenue Bonds
Series 1998A (MBIA Insured)
11-01-20 4.75 1,000,000 945,940
State University Revenue Bonds Series A
08-15-22 5.50 560,000 588,795
Troy City Downtown Development Authority
County of Oakland Development Bonds
Series 1995A Asset Guaranty
11-01-18 6.375 1,500,000 1,661,760
Van Buren Township Tax Increment Revenue Bonds
Series 1994
10-01-16 8.40 1,000,000 1,148,580
Wayne County Airport Revenue Bonds
Detroit Metropolitan Airport
Series 1990A (AMBAC Insured) A.M.T.
12-01-20 7.00 1,080,000 1,163,171
Total municipal bonds
(Cost: $73,627,548) $81,145,285
Short-term securities (1.8%)
Issuer (d,f) Effective Amount Value(a)
yield payable at
maturity
State Strategic Fund (Consumers Power)
Series 1988A V.R.
04-15-18 3.80% $300,000 $300,000
Regents of the University of Michigan Hospital
Revenue Bonds Series 1992A V.R.
12-01-19 3.80 900,000 900,000
Regents of the University of Michigan Hospital
Revenue Bonds Series 1995A V.R.
12-01-27 3.80 300,000 300,000
Total short-term securities
(Cost: $1,500,000) $1,500,000
Total investments in securities
(Cost: $75,127,548)(h) $82,645,285
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 6-30-98 6-30-97
AAA 76% 74%
AA 8 11
A 6 5
BBB 7 9
BB and below 3 1
Non-rated -- --
Total 100% 100%
(c) The following abbreviations may be used in portfolio descriptions to
identify the insurer of the issue:
ACA -- ACA Financial Guaranty Corporation
AMBAC -- American Municipal Bond Association Corporation
BIG -- Bond Investors Guarantee
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guarantee Insurance Corporation
FHA -- Federal Housing Authority
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
MBIA -- Municipal Bond Investors Assurance
(d) The following abbreviations may be used in the portfolio descriptions:
A.M.T. -- Alternative Minimum Tax--As of June 30, 1998, the value of
securities subject to alternative minimum tax represented 5.7%
of net assets.
B.A.N. -- Bond Anticipation Note
C.P. -- Commercial Paper
R.A.N. -- Revenue Anticipation Note
T.A.N. -- Tax Anticipation Note
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
(e) Partially pledged as initial margin 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 Sept. 1998 $1,500,000
(f) The Fund is entitled to receive principal amount from issuer or corporate
guarantor, if indicated in parentheses, after a day or a week's notice.
The maturity date disclosed represents the final maturity. Interest rate
varies to reflect current market conditions; rate shown is the effective rate
on June 30, 1998.
(g) Non-income producing. Item identified is in default as to payment of
interest and/or principal.
(h) At June 30, 1998, the cost of securities for federal income tax purposes was
$75,070,135 and the gross unrealized appreciation and depreciation based on that
cost was:
Unrealized appreciation ............................$7,614,563
Unrealized depreciation ...............................(39,413)
Net unrealized appreciation........................ $7,575,150
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Investments in securities
IDS Minnesota Tax-Exempt Fund
June 30, 1998
(Percentages represent value of
investments compared to net assets)
Municipal bonds (97.9%)
Name of issuer Coupon Principal Value(a)
and title of issue (b,c,d) rate amount
Albert Lea Independent School District 241
Unlimited Tax General Obligation Bonds
Series 1998 (MBIA Insured)
<S> <C> <C> <C> <C> <C>
02-01-16 4.80% $2,555,000 $2,489,745
Anoka County General Obligation Capital
Improvement Revenue Bonds Series 1989B
02-01-07 7.00 1,525,000 1,553,838
02-01-08 7.00 1,650,000 1,681,202
02-01-09 7.00 1,775,000 1,809,080
02-01-10 7.00 3,000,000 3,056,730
Anoka County Resource Recovery Revenue Bonds
Northern States Power Series 1985
12-01-08 7.15 3,750,000 3,963,825
Becker Pollution Control Revenue Bonds Northern
States Power Sherburne County Generating Station
Units 1 & 2 Series 1987A
12-01-05 7.25 2,000,000 2,005,880
Becker Solid Waste Disposal Facility Revenue Bonds
Liberty Paper Series 1994B A.M.T.
08-01-15 9.00 3,825,000 4,102,045
Bemidji Hospital Facilities 1st Mortgage Pre-refunded
Revenue Bonds North Country Health Services
Series 1991
09-01-21 7.00 1,755,000 1,938,871
Brooklyn Center Tax Credit Investor Refunding
Revenue Bonds Four Courts Apartment Series 1995B
A.M.T.
06-01-09 7.58 2,450,000 2,495,864
Burnsville Multi-family Housing Refunding Revenue
Bonds Summit Park Apartments Series 1993
(FHA Insured)
07-01-33 6.00 4,000,000 4,107,920
Columbia Heights Multi-family Housing Revenue
Bonds Crestview Lutheran Home Royce Place
Series 1991
06-01-32 10.00 545,000 651,498
Columbia Heights Multi-family Housing Revenue
Bonds Crestview Lutheran Home Royce Place
Series 1991 (FHA Insured)
06-01-32 7.75 2,715,000 3,060,077
Duluth Economic Development Authority Health Care
Facilities Pre-refunded Revenue Bonds Benedictine
Health System St. Mary's Medical Center
Series 1990
02-15-20 8.375 2,000,000 2,178,020
Duluth Economic Development Authority Health Care
Facilities Revenue Bonds BSM Properties
Series 1998A
12-01-28 5.875 500,000 500,485
Duluth Housing & Redevelopment Authority
1st Mortgage Revenue Bonds Lakeshore
Lutheran Home
07-01-09 8.25 125,000 125,289
Eden Prairie Housing Development Refunding
Revenue Bonds Eden Commons Series 1990
(FHA Insured)
03-01-25 8.25 6,155,000 6,342,050
Edina Hospital System Pre-refunded Revenue Bonds
Fairview Hospital & Health Care Services
Series 1989A
07-01-19 7.125 2,500,000 2,633,250
Edina Multi-family Housing Revenue Bonds
Walker Assisted Living Series 1991
09-01-31 9.00 6,670,000 7,366,948
Faribault Rice & Goodhue Counties Independent
School District 656 General Obligation School
Building Bonds (FSA Insured)
06-01-15 5.75 6,900,000 7,208,706
Faribault Single Family Mortgage Refunding
Revenue Bonds Series 1991A
12-01-11 7.50 1,185,000 1,254,891
Farmington Independent School District 192
Unlimited Tax General Obligation Capital
Appreciation School Building Bonds Zero Coupon
Series 1998B (FSA Insured)
02-01-15 5.30 2,070,000(g) 883,207
Fergus Falls Health Care Facilities Revenue Bonds
LRHC Long-Term Care Facility Series 1995
12-01-25 6.50 1,500,000 1,636,275
Harmony Multi-family Housing Refunding Revenue
Bonds Zedakah Foundation Series 1997A
09-01-20 5.95 1,240,000 1,276,605
Hennepin County Lease Revenue Certificates of
Participation Series 1991
05-15-17 6.80 7,250,000 7,878,792
Hopkins Pre-refunded Revenue Bonds Blake School
09-01-24 6.70 3,120,000 3,516,365
Hubbard County Solid Waste Disposal Revenue
Bonds Potlatch Series 1989 A.M.T.
08-01-13 7.375 5,610,000 5,890,500
International Falls Solid Waste Disposal Revenue
Bonds Boise Cascade Series 1990 A.M.T.
01-01-15 7.75 4,000,000 4,196,720
Little Canada Multi-family Housing Revenue Bonds
Housing Alternative Development Company
Series 1997A
12-01-27 6.25 1,000,000 1,003,460
Little Canada Multi-family Housing Revenue Bonds
Little Canada Series 1996 A.M.T.
02-01-27 7.00 3,850,000 4,022,865
Mahtomedi Multi-family Housing Revenue Bonds
Briarcliff A.M.T.
06-01-36 7.35 2,265,000 2,351,976
Maplewood Elder Care Facility Revenue Bonds
Care Institute Series 1994
01-01-24 7.75 3,830,000 4,236,555
Maplewood Multi-family Housing Refunding
Revenue Bonds Carefree Cottages of Maplewood III
Series 1995 A.M.T.
11-01-32 7.20 2,895,000 2,963,785
Maplewood Multi-family Housing Revenue Bonds
Maplewood (FHA Insured) A.M.T.
07-15-21 7.75 2,015,000 2,025,901
Minneapolis & St. Paul Housing & Redevelopment
Authority Health Care System Revenue Bonds
Healthspan Series 1993A (AMBAC Insured)
11-15-18 4.75 13,500,000 12,773,835
Minneapolis & St. Paul Housing Board Multi-family
Mortgage Revenue Bonds Collateral Mortgage
Revenue Loan (GNMA Insured) A.M.T.
12-20-30 8.25 3,945,000 4,063,942
Minneapolis & St. Paul Metropolitan Airports
Commission Airport Revenue Bonds Series 1998A
(AMBAC Insured)
01-01-22 5.00 2,500,000 2,448,225
Minneapolis Community Development Agency
Limited Tax Supported Development Revenue
Common Bond Fund
06-01-11 6.00 980,000 1,018,710
Minneapolis Community Development Agency
Supported Development Limited Tax General
Obligation Bonds Common Bond Fund
Series 1997A A.M.T.
06-01-12 5.50 250,000 258,150
Minneapolis Community Development Agency
Supported Development Limited Tax Revenue
Bonds Common Bond Fund 5th Series 1997
12-01-27 5.70 680,000 704,521
Minneapolis General Obligation Bonds Sports Arena
Series 1996
10-01-24 5.20 4,940,000 4,992,315
Minneapolis Hospital Facilities Pre-refunded Revenue
Bonds Lifespan Incorporated Series 1989A
12-01-14 7.00 5,000,000 5,319,750
Minneapolis Nursing Home Revenue Bonds Walker
Cityview & Southview Series 1992
07-01-22 8.50 5,345,000 5,959,087
Minneapolis Special School District 1 Certificates of
Participation Series 1997A (MBIA Insured)
02-01-17 5.375 2,400,000 2,450,328
Minneapolis Special School District 1 Certificates of
Participation Series 1998A (FGIC Insured)
02-01-19 4.75 2,800,000 2,662,156
Minnetonka Multi-family Housing Refunding
Revenue Bonds Cedar Hills West (FHA Insured)
06-01-26 7.75 5,430,000 5,629,878
Minnetonka Multi-family Housing Revenue Bonds
Cedar Hills Series 1985
12-01-17 7.50 500,000 518,755
Minnetonka Senior Housing Revenue Bonds
Westridge
09-01-17 6.75 650,000 670,033
09-01-27 7.00 500,000 518,635
NewBrighton Tax Credit Investor Revenue Bonds Polynesian Village Apartments
Series 1995B A.M.T.
07-15-09 7.75 2,355,000 2,424,378
North St. Paul General Obligation School Bonds
Series 1996A
02-01-25 5.125 6,310,000 6,277,945
Northern Municipal Power Agency Electric System
Pre-refunded Revenue Bonds Series 1989A
(AMBAC Insured)
01-01-18 7.40 1,000,000 1,038,710
Northern Municipal Power Agency Electric System
Pre-refunded Revenue Bonds Series 1989B
(AMBAC Insured)
01-01-18 7.40 1,800,000 1,865,628
Northern Municipal Power Agency Electric System
Refunding Revenue Bonds Series 1989A
01-01-16 7.25 5,475,000 5,682,612
Olmsted County Health Care Facilities Revenue
Bonds Olmsted Medical Center
07-01-19 5.55 1,125,000 1,126,361
Owatonna Public Utilities Pre-refunded Revenue
Bonds Series 1991
01-01-16 6.75 1,000,000 1,065,610
Plymouth Multi-family Housing Revenue Bonds Harbor Lane Apartments Series 1993
(Asset Guaranty Insured) A.M.T.
09-01-13 5.90 2,325,000 2,405,701
Richfield Independent School District 280 Unlimited
Tax General Obligation School Building Bonds
Inverse Floater Series 1993C
02-01-10 6.43 3,300,000(f) 3,469,125
02-01-12 6.53 2,510,000(f) 2,616,675
Richfield Multi-family Housing Refunding Revenue
Bonds Village Shores Apartments Series 1996
08-01-31 7.625 2,970,000 3,069,257
Robbinsdale Hospital Pre-refunded Revenue Bonds
North Memorial Medical Center Series 1989
(AMBAC Insured)
01-01-19 7.375 2,200,000 2,284,678
Robbinsdale Multi-family Housing Revenue Bonds
Copperfield Hill Series 1996A
12-01-31 7.35 3,260,000 3,321,418
Rochester Health Care Facility Revenue Bonds
Mayo Foundation Series 1992A
11-15-19 4.95 5,000,000 4,845,200
Rochester Multi-family Housing Development
Revenue Bonds Civic Square Series 1991
(FHA Insured) A.M.T.
07-15-31 7.45 4,360,000 4,633,721
Roseville Housing Facilities Nursing Home
Refunding Revenue Bonds College Properties
Incorporated Series 1998
10-01-28 5.875 2,000,000 1,988,580
Shoreview Senior Housing Revenue Bonds
Series 1996
02-01-26 7.25 2,700,000 2,740,689
Southeastern Multi-county Housing & Redevelopment
Authority Winona County Unlimited Tax General
Obligation Bonds Series 1997
01-01-28 5.35 1,170,000 1,190,779
Southern Minnesota Municipal Power Agency
Power Supply System Revenue Bonds Zero Coupon
(MBIA Insured)
01-01-19 6.67 19,500,000(g) 6,888,765
Southern Minnesota Municipal Power Agency
Power Supply System Revenue Bonds Zero Coupon
Series 1994A (MBIA Insured)
01-01-22 6.88 12,000,000(g) 3,640,560
01-01-24 6.08 5,150,000(g) 1,411,564
Southern Minnesota Municipal Power Agency
Pre-refunded Revenue Bonds Escrowed to Maturity
Series 1992A (Secondary MBIA Insured)
01-01-18 5.75 1,970,000 2,120,849
Southern Minnesota Municipal Power Agency
Revenue Bonds (Secondary MBIA Insured)
01-01-16 4.75 9,165,000 8,796,567
Southern Minnesota Municipal Power Agency
Un-refunded Balance Power Revenue Bonds
Series 1992A
01-01-18 5.75 1,895,000 1,960,321
Spring Park Health Care Facility Revenue Bonds
Twin Birch Health Care Center Series 1991
08-01-11 8.25 1,780,000 1,922,916
St. Cloud Certificates of Participation
12-01-17 5.90 400,000 406,720
St. Cloud Hospital Facility Pre-refunded Revenue
Bonds St. Cloud Hospital Series 1990B
(AMBAC Insured)
07-01-20 7.00 5,000,000(h) 5,503,250
St. Cloud Hospital Facility Refunding Revenue Bonds
Series 1993C (AMBAC Insured)
10-01-20 5.30 1,515,000 1,520,303
St. Louis Park Health Care Facilities Pre-refunded
Revenue Bonds Park Nicollet Medical Center
Series 1990A
01-01-20 9.25 4,000,000 4,387,560
St. Louis Park Health Care Facilities Pre-refunded
Revenue Bonds Park Nicollet Medical Center
Series 1991A
01-01-21 8.625 2,000,000 2,216,720
St. Louis Park Health Care Facilities Revenue Bonds
Healthsystem Minnesota Obligated Group
Inverse Floater Series 1993B (AMBAC Insured)
07-01-13 6.03 7,000,000(f) 7,122,500
St. Louis Park Health Care Facilities Revenue Bonds
Healthsystem Minnesota Obligated Group
Series 1993 (AMBAC Insured)
07-01-23 5.20 5,000,000 4,958,550
St. Louis Park Multi-family Housing Refunding
Revenue Bonds Park Boulevard Towers
Series 1996A
04-01-31 7.00 3,940,000 4,071,478
St. Michael Independent School District 885
General Obligation Unlimited Bonds
02-01-16 4.875 500,000 488,150
St. Paul & Minneapolis Housing & Redevelopment
Authority Health Care Facility Revenue Bonds
Group Health Plan Series 1992
12-01-13 6.75 10,500,000(h) 11,494,035
St. Paul Housing & Development Bonds
Highland Retirement (FHA Insured)
03-01-26 7.01 5,210,000(i) 5,157,900
St. Paul Housing & Redevelopment Authority Health
Care Facility Revenue Bonds Lyngblomsten
Care Center Series 1993A
11-01-06 7.125 890,000 955,664
11-01-17 7.125 1,840,000 1,975,148
St. Paul Housing & Redevelopment Authority Health
Care Facility Revenue Bonds Lyngblomsten
Multi-family Rental Housing Series 1993B
11-01-24 7.00 1,870,000 1,896,816
St. Paul Housing & Redevelopment Authority Sales
Tax Revenue Bonds Civic Center Escrowed to
Maturity (Secondary MBIA Insured)
11-01-23 5.55 7,500,000 7,816,500
St. Paul Housing & Redevelopment Authority Single
Family Mortgage Refunding Revenue Bonds Middle
Income Phase II Mortgage-backed (FNMA Insured)
03-01-28 6.80 3,345,000 3,602,331
St. Paul Port Authority Unlimited Tax General
Obligation Bonds
03-01-24 5.125 4,770,000 4,770,811
St. Paul Unlimited Tax General Obligation Bonds
Series 1998A
02-01-25 4.75 2,000,000 1,887,540
State Agricultural and Economic Development Board
Health Care System Fairview Hospital & Healthcare
Service Series 1997A (MBIA Insured)
11-15-26 5.75 2,000,000 2,127,020
State General Obligation Various Purpose
Pre-refunded Bonds Series 1990
03-01-09 7.00 6,250,000 6,512,062
State General Obligation Various Purpose
Pre-refunded Bonds Series 1991
08-01-11 6.70 8,000,000 8,623,280
State Higher Education Facilities Authority Augsburg
College Mortgage Revenue Bonds Series 4-F1
05-01-23 6.25 1,750,000 1,880,183
State Higher Education Facilities Authority College
Revenue Bonds University of St. Thomas
4th Series 1997P
04-01-23 5.40 580,000 588,839
State Higher Education Facilities Authority General
Obligation Revenue Bonds Carleton College
Series 1997N
11-01-18 5.00 1,000,000 986,120
State Higher Education Facilities Authority Macalester
College Revenue Bonds 4th Series 1997J
03-01-17 5.55 1,000,000 1,052,610
State Higher Education Facilities Authority Mortgage
Pre-refunded Revenue Bonds St. Mary's College
Series 2-M
05-01-17 8.375 1,000,000 1,037,640
State Housing Finance Agency Single Family
Mortgage Bonds Series 1989A A.M.T.
07-01-29 8.00 1,165,000 1,197,434
State Housing Finance Agency Single Family
Mortgage Bonds Series 1990A A.M.T.
07-01-22 7.95 3,015,000 3,170,453
State Housing Finance Agency Single Family
Mortgage Bonds Series 1991A A.M.T.
07-01-22 7.45 3,470,000 3,660,919
State Housing Finance Agency Single Family
Mortgage Bonds Series 1992A
07-01-16 6.95 2,830,000 3,027,449
State Housing Finance Agency Single Family
Mortgage Revenue Bonds Series 1994L A.M.T.
07-01-20 6.70 1,025,000 1,090,077
State Housing Finance Agency Single Family
Mortgage Revenue Bonds Series 1997D A.M.T.
07-01-19 5.85 2,520,000 2,603,866
State Housing Finance Authority Agency Housing
Development Single Family Mortgage Bonds
Series 1986B
07-01-16 7.25 305,000 310,185
State Public Facilities Authority Water Pollution
Control Pre-refunded Revenue Bonds Series 1989A
08-01-09 7.00 7,850,000 8,333,795
State Public Facilities Authority Water Pollution
Control Revenue Bonds Series 1998A
03-01-16 4.75 3,500,000 3,389,925
State University Board of Regents General Obligation
Bonds Inverse Floater Series 1993A
08-15-03 5.67 5,000,000(f) 5,306,250
State University Board of Regents General Obligation
Bonds Series 1996A
07-01-21 5.50 12,500,000 13,242,625
State University Board of Regents General Obligation
Pre-refunded Bonds Escrowed to Maturity
Series 1989A
02-01-11 6.00 4,625,000 4,565,245
State University Board State University System
Pre-refunded Revenue Bonds Series 1989A
(MBIA Insured)
06-30-19 7.40 2,250,000 2,332,800
Vadnais Heights Multi-family Housing Refunding
Revenue Bonds Cottages of Vadnais Heights
Series 1995 A.M.T.
12-01-31 7.00 3,170,000 3,243,703
Vadnais Heights Multi-family Housing Tax Credit
Revenue Bonds Series 1997 A.M.T.
07-15-09 7.00 1,080,000 1,091,837
Washington County General Obligation Capital
Improvement Bonds Series 1989A
02-01-09 7.00 2,125,000 2,166,671
02-01-10 7.00 2,300,000 2,345,103
Washington County Housing & Redevelopment
Authority Refunding Revenue Bonds Woodbury
Multi-family Housing Series 1996
12-01-23 6.95 1,955,000 2,002,858
Western Minnesota Municipal Power Agency
Revenue Bonds Escrowed to Maturity
(AMBAC Insured)
01-01-16 6.75 5,935,000 6,374,427
Western Minnesota Municipal Power Agency
Supply Refunding Revenue Bonds Series 1987A
(Secondary MBIA Insured)
01-01-15 5.50 11,250,000 11,254,438
White Bear Lake Industrial Development Revenue
Bonds Taylor Series 1988A A.M.T.
09-01-08 8.75 2,250,000 2,310,840
Total municipal bonds
(Cost: $376,005,178) $407,246,779
Short-term securities (0.4%)
Issuer (d,e) Effective Amount Value(a)
yield payable at
maturity
Municipal notes
Cohasset Revenue Bonds (Minnesota Power & Light)
Series 1997B V.R.D.N.
06-01-13 4.00% $300,000 $300,000
Cohasset Revenue Bonds (Minnesota Power & Light)
Series 1997C V.R.D.N.
06-01-13 4.00 350,000 350,000
Minneapolis & St. Paul Housing & Redevelopment
Authority Health Care System Revenue Bonds
(Children's Hospital) Series 1995B V.R.
08-15-25 4.05 1,120,000 1,120,000
Total short-term securities
(Cost: $1,770,000) $1,770,000
Total investments in securities
(Cost: $377,775,178)(j) $409,016,779
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 06-30-98 06-30-97
AAA 45% 44%
AA 23 22
A 12 13
BBB 5 9
BB and below 15 12
Non-rated -- --
Total 100% 100%
(c) The following abbreviations may be used in portfolio descriptions to
identify the insurer of the issue:
ACA -- ACA Financial Guaranty Corporation
AMBAC -- American Municipal Bond Association Corporation
BIG -- Bond Investors Guarantee
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guarantee Insurance Corporation
FHA -- Federal Housing Authority
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
MBIA -- Municipal Bond Investors Assurance
(d) The following abbreviations may
be used in the portfolio descriptions:
A.M.T. -- Alternative Minimum Tax-- As of June 30, 1998, the value of
securities subject to alternative minimum tax represented 14.5%
of net assets.
B.A.N. -- Bond Anticipation Note
C.P. -- Commercial Paper
R.A.N. -- Revenue Anticipation Note
T.A.N. -- Tax Anticipation Note
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
(e) The Fund is entitled to receive principal amount from issuer or corporate
guarantor, if indicated in parentheses, after a day or a week's notice. The
maturity date disclosed represents the final maturity. Interest rate varies to
reflect current market conditions; rate shown is the effective rate on
June 30, 1998.
(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, 1998. Inverse floaters in the aggregate represent 4.4% of
the Fund's net assets as of June 30, 1998.
(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 Sept. 1998 $4,000,000
(i) Non-income producing. Items identified are in default as to payment of
interest and/or principal.
(j) At June 30, 1998, the cost of securities for federal income tax purposes was
$377,222,580 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation ...................................$31,926,458
Unrealized depreciation ......................................(132,259)
Net unrealized appreciation............................... $31,794,199
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS New York Tax-Exempt Fund
June 30, 1998
(Percentages represent value of
investments compared to net assets)
Municipal bonds (98.2%)
Name of issuer Coupon Principal Value(a)
and title of issue (b,c,d) rate amount
Albany County Airport Authority Revenue Bonds
Series 1997 (FSA Insured) A.M.T.
<S> <C> <C> <C>
12-15-19 5.50% $250,000(g) $258,153
Broome County Certificates of Participation
Public Safety Facility Series 1994 (MBIA Insured)
04-01-22 5.25 2,650,000 2,653,127
Buffalo Municipal Water Finance Authority Water
System Refunding Revenue Bonds Series 1998B
(FGIC Insured)
07-01-19 5.00 1,000,000 979,630
Buffalo Municipal Water Agency Authority Water
System Revenue Bonds Series 1995 (FGIC Insured)
07-01-25 5.00 1,000,000 973,980
Buffalo School Serial Bonds Series 1997B
(AMBAC Insured)
02-01-16 5.375 500,000 512,765
Erie County Unlimited Tax General Obligation Bonds
Series 1995B (FGIC Insured)
06-15-25 5.50 700,000 721,945
Erie County Water Authority 4th Resolution Water
Refunding Revenue Bonds Zero Coupon Series 1992
(AMBAC Insured)
12-01-17 7.30 1,215,000(e) 302,705
Erie County Water Authority Water Works System
Revenue Bonds Series 1990A Escrowed to Maturity
(AMBAC Insured)
12-01-08 6.00 1,765,000 1,939,170
Fallsburg Sullivan County Unlimited Tax General
Obligation Improvement Pre-refunded Bonds
Series 1991 (AMBAC Insured)
04-01-11 7.05 325,000 357,026
04-01-12 7.05 325,000 357,026
04-01-13 7.05 325,000 357,026
04-01-14 7.05 325,000 357,026
Great Neck North Water Authority Water System
Pre-refunded Revenue Bonds Series 1989A
01-01-20 6.00 1,415,000 1,459,006
Metropolitan Transportation Authority Commuter
Facilities Revenue Bonds Series 1997B
(AMBAC Insured)
07-01-24 5.125 1,000,000 986,560
Metropolitan Transportation Authority Commuter
Facilities Service Contract Refunding Bonds
5th Series 1987
07-01-16 6.50 1,775,000 1,901,096
Metropolitan Transportation Authority Transportation
Facilities Revenue Bonds Series 1998A
(MBIA Insured)
07-01-24 4.75 1,500,000 1,418,653
Monroe County Utility General Obligation
Pre-refunded Bonds Water Improvement System
12-01-08 7.10 500,000 517,140
12-01-09 7.10 500,000 517,140
Municipal Assistance Troy General Revenue Bonds
Series 1996A (MBIA Insured)
01-15-22 5.00 1,250,000 1,219,562
New York & New Jersey Port Authority Special
Obligation Revenue Bonds KIAC Partners
4th Series 1996
10-01-19 6.75 1,500,000 1,653,105
New York City General Obligation Bonds
Series 1996J
02-15-19 5.875 1,000,000 1,055,970
New York City Industrial Development Agency
Civil Facility Lease Revenue Bonds Series 1997
08-01-16 5.80 1,000,000 1,048,750
New York City Industrial Development Agency
Civil Facility Lease Revenue Bonds Series 1997
(MBIA Insured)
06-01-17 5.25 1,000,000 1,011,560
06-15-27 5.25 1,000,000 1,002,450
New York City Industrial Development Agency
Civil Facility Revenue Bonds Series 1993
07-01-23 5.375 2,000,000 2,025,000
New York City Municipal Water Finance Authority
Water & Sewer System Revenue Bonds
Series 1994B Inverse Floater (MBIA Insured)
06-15-09 6.47 2,000,000(f) 2,140,000
New York City Municipal Water Finance Authority
Water & Sewer System Revenue Bonds
Series 1996B (MBIA Insured)
06-15-26 5.75 500,000 527,540
New York City Pre-refunded Unlimited General
Obligation Bonds Series 1994B-1
08-15-16 7.00 275,000 318,480
New York City Transitional Finance Authority
Future Tax Secured Revenue Bonds Sales Tax
Series 1998B
11-15-23 4.75 1,500,000 1,409,415
New York City Un-refunded Balance Unlimited
General Obligation Bonds Series 1994B-1
08-15-16 7.00 1,225,000 1,412,952
New York City Unlimited Tax General Obligation
Bonds Series 1996G
02-01-17 5.75 1,500,000 1,568,505
New York City Water Finance Authority Water &
Sewer System Pre-refunded Revenue Bonds
Series 1989A (FGIC Insured)
06-15-14 6.75 1,750,000 1,826,877
North Hempstead Nassau County Various Purpose
Bonds Series 1998A (FGIC Insured)
01-15-23 4.75 1,000,000 943,280
State Dormitory Authority City University System
Consolidated 3rd Resolution Revenue Bonds
2nd Series 1994 (MBIA Insured)
07-01-19 6.25 1,500,000 1,637,565
State Dormitory Authority City University System
Revenue Bonds Series 1993A
07-01-13 5.75 3,000,000 3,238,800
State Dormitory Authority College Revenue Bonds
Series 1996 (AMBAC Insured)
07-01-16 5.25 1,140,000 1,156,177
State Dormitory Authority Nursing Home Revenue
Bonds Frances Schervier Home Series 1997
Asset Guaranty
07-01-17 5.50 1,000,000 1,024,890
State Dormitory Authority Revenue Bonds Culinary
Institute of America Series 1997 (MBIA Insured)
07-01-17 5.00 500,000 492,170
State Dormitory Authority Revenue Bonds Nyack
Hospital Series 1996
07-01-13 6.25 1,000,000 1,073,020
State Dormitory Authority State University Education
Facility Cooper Union Insured College Revenue
Bonds Series 1996 (AMBAC Insured)
07-01-20 5.375 860,000 875,652
State Dormitory Authority State University Education
Facility Pre-refunded Revenue Bonds Series 1990A
05-15-12 7.70 1,750,000 1,903,387
State Dormitory Authority State University Education
Facility Refunding Revenue Bonds Series 1990B
05-15-11 7.50 1,900,000 2,316,328
State Dormitory Authority State University Education
Facility Revenue Bonds (Secondary AMBAC Insured)
05-15-15 5.25 1,000,000 1,042,150
05-15-19 5.50 2,000,000 2,136,620
State Energy Research & Development Authority
Electric Facilities Revenue Bonds Consolidated
Edison Series 1990A A.M.T.
07-01-25 7.50 5,000,000(g) 5,202,300
State Energy Research & Development Authority
Gas Facilities Industrial Development Revenue
Bonds Series 1996 (MBIA Insured)
01-01-21 5.50 2,000,000 2,065,740
State Energy Research & Development Authority
Pollution Control Refundi Revenue Bonds
Rochester Gas & Electric (MBIA Insured) A.M.T.
05-15-32 6.50 2,500,000 2,703,025
State Energy Research & Development Authority
Solid Waste Development Revenue Bonds
State Gas & Electric Company Series 1993A
(MBIA Insured) A.M.T.
12-01-28 5.70 3,000,000 3,111,780
State Environmental Facility State Water & Pollution
Control Revolving Fund Revenue Bonds New York
City Municipal Water Finance Authority
Series 1990A
06-15-12 7.50 3,000,000 3,246,000
State Local Government Assistance Bonds
Series 1992C
04-01-22 5.50 1,500,000 1,518,090
State Local Government Assistance Pre-refunded
Bonds Series 1991A
04-01-16 7.00 4,000,000 4,384,560
State Local Government Assistance Sales Tax
Refunding Revenue Bonds Series 1997B
(MBIA Insured)
04-01-20 4.875% $1,000,000 $965,460
State Medical Care Facility Finance Agency
Hospital & Nursing Home Mortgage Pre-refunded
Revenue Bonds Montefiore Hospital
02-15-24 7.25 1,400,000 1,458,646
State Medical Care Facility Finance Agency Mental
Health Services Facility Improving Refunding
Revenue Bonds Series 1993F
(Secondary FSA Insured)
02-15-14 5.375 1,000,000(g) 1,019,660
State Medical Care Facility Finance Agency Mental
Health Services Facility Improving Refunding
Revenue Bonds Series 1994A
(Secondary FSA Insured)
08-15-23 5.25 1,500,000 1,499,910
State Medical Care Facility Finance Agency
Pre-refunded Revenue Bonds Buffalo General
Hospital Series 1988C (FHA Insured)
02-15-22 7.70 1,950,000 1,998,555
State Mortgage Agency Homeowner Mortgage
Revenue Bonds 27th Series 1992
04-01-15 6.90 3,000,000 3,229,530
State Mortgage Agency Homeowner Mortgage
Revenue Bonds Series 1991TT
04-01-15 7.50 4,000,000 4,289,320
State Mortgage Agency Revenue Bonds
9th Series 1986
04-01-17 7.30 970,000 975,510
State Thruway Authority Local Highway & Bridge
Service Contract Pre-refunded Bonds Series 1991
01-01-11 6.00 2,500,000 2,621,000
State Urban Development Correctional Capital
Facilities Refunding Revenue Bonds Series 1993A
01-01-21 5.25 2,500,000 2,470,725
State Urban Development Correctional Capital
Facilities Revenue Bonds 5th Series 1995
(MBIA Insured)
01-01-25 5.50 750,000 772,575
State Urban Development Correctional Facilities
Pre-refunded Revenue Bonds 1st Series 1990
(FSA Insured)
01-01-20 7.50 4,500,000 4,826,025
State Urban Development Revenue Bonds Higher
Education Applied Technology Grants Series 1995
(MBIA Insured)
04-01-15 5.75 1,000,000 1,059,830
Triborough Bridge & Tunnel Authority General
Purpose Pre-refunded Revenue Bonds Series 1990S
01-01-21 7.00 3,000,000 3,255,330
Triborough Bridge & Tunnel Authority Special
Obligation Refunding Bonds Series 1991B
(FGIC Insured)
01-01-15 6.875 2,000,000 2,158,920
United Nations Development Senior Lien
Pre-refunded Revenue Bonds Series 1992A
07-01-26 6.00 4,500,000 4,958,820
Utica Industrial Development Agency Civic Facility
Revenue Bonds Series 1996A (MBIA Insured)
07-15-16 5.50 750,000 770,400
Total municipal bonds
(Cost: $103,106,602) $113,191,090
Total investments in securities
(Cost: $103,106,602)(h) $113,191,090
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 06-30-98 06-30-97
AAA 66% 58%
AA 12 13
A 10 12
BBB 11 16
BB and below 1 1
Non-rated -- --
Total 100% 100%
(c) The following abbreviations may be used in portfolio descriptions to
identify the insurer of the issue:
ACA -- ACA Financial Guaranty Corporation
AMBAC -- American Municipal Bond Association Corporation
BIG -- Bond Investors Guarantee
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guarantee Insurance Corporation
FHA -- Federal Housing Authority
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
MBIA -- Municipal Bond Investors Assurance
(d) The following abbreviations may be used in the portfolio descriptions:
A.M.T. -- Alternative Minimum Tax-- As of June 30, 1998, the value of
securities subject to alternative minimum tax represented 9.8%
of net assets.
B.A.N. -- Bond Anticipation Note
C.P. -- Commercial Paper
R.A.N. -- Revenue Anticipation Note
T.A.N. -- Tax Anticipation Note
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
(e) For zero coupon bonds, the interest rate disclosed represents the annualized
effective 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, 1998. Inverse floaters in the aggregate represent 1.9% of the
Fund's net assets as of June 30, 1998.
(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 Sept. 1998 $4,000,000
(h) At June 30, 1998, the cost of securities for federal income tax purposes was
$103,033,901 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation ..................................$10,212,701
Unrealized depreciation ......................................(55,512)
Net unrealized appreciation.............................. $10,157,189
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Ohio Tax-Exempt Fund
June 30, 1998
(Percentages represent value of
investments compared to net assets)
Municipal bonds (97.9%)
Name of issuer Coupon Principal Value(a)
and title of issue (b,c,d) rate amount
Barberton Limited Tax Various Purpose
General Obligation Bonds 1st Series 1989
<S> <C> <C> <C>
12-01-09 7.35% $700,000 $745,752
Bellefontaine Hospital Facility
Refunding Revenue Bonds
Mary Rutan Health Association of Logan County
Series 1993
12-01-13 6.00 1,000,000 1,045,550
Buckeye Valley Local School District Improvement
Unlimited Tax General Obligation Bonds
Series 1995A (MBIA Insured)
12-01-20 5.25 1,000,000 1,001,430
Butler County Hospital Facility Improvement
Refunding Revenue Bonds
Fort Hamilton-Hughes Memorial Center
Series 1991
01-01-10 7.50 1,750,000 1,898,698
Butler County Transportation District Highway
Improvement Transit Revenue Bonds
Series 1997A (FSA Insured)
04-01-17 5.125 1,000,000 998,250
Carroll Water & Sewer District
Water System Improvement Unlimited Tax
General Obligation Bonds
12-01-10 6.25 1,455,000 1,498,362
Celina Local School District
Unlimited General Obligation Bonds
Series 1996 (FGIC Insured)
12-01-20 5.25 1,000,000 1,001,430
Clermont County Hospital Facility Revenue Bonds
Mercy Health System Province of Cincinnati
Series 1989A (AMBAC Insured)
09-01-19 7.50 750,000 803,517
Cleveland Airport Systems Revenue Bonds
Series 1990A (MBIA Insured) A.M.T.
01-01-20 7.40 500,000 535,275
Cleveland Waterworks Improvement 1st Mortgage
Refunding Revenue Bonds
Series F 1992B (AMBAC Insured)
01-01-16 6.25 1,000,000(e) 1,077,980
Cleveland Waterworks Improvement 1st Mortgage
Revenue Bonds Series 1987E
01-01-17 6.00 200,000 200,124
Columbus Municipal Airport Authority
Airport Improvement Revenue Bonds
Port Columbus Series 1998B (AMBAC Insured)
01-01-18 5.00 1,000,000 979,270
Coshocton County Solid Waste Disposal
Refunding Revenue Bonds
Stone Container Series 1992
08-01-13 7.875 1,000,000 1,108,270
Cuyahoga County Health Care Facilities
Refunding Revenue Bonds
Judson Retirement Community Series A
11-15-18 7.25 1,000,000 1,094,830
Cuyahoga County Hospital Improvement Revenue Bonds
Mount Sinai Medical Center Series 1991
(AMBAC Insured)
11-15-21 6.625 600,000 659,124
Cuyahoga County Hospital Improvement Revenue Bonds
University Hospitals Health System
Series 1992 (AMBAC Insured)
01-15-11 6.50 500,000 539,050
Cuyahoga County Hospital Refunding Revenue Bonds
Cleveland Clinic Foundation Series 1992 (MBIA Insured)
11-15-11 5.50 1,500,000 1,562,835
Cuyahoga County Hospital Revenue Bonds
Meridia Health Series 1991
08-15-23 7.00 1,000,000 1,104,290
Cuyahoga County Limited Tax General Obligation Bonds
05-15-13 5.60 500,000 544,375
Delaware County Sewer Improvement Limited Tax
General Obligation Bonds
12-01-15 5.25 1,000,000 1,012,170
Dover Limited Tax Improvement
General Obligation Bonds Municipal Sewer System
12-01-09 7.10 1,000,000 1,061,170
Elyria Limited Tax Improvement General Obligation
Recreation Facility Bonds
12-01-09 7.10 715,000 760,274
Erie County Hospital Improvement Refunding
Revenue Bonds Firelands Community Hospital Series 1992
01-01-15 6.75 2,000,000(e) 2,175,840
Franklin County Convention Facilities Authority
Tax & Lease Revenue Anticipation
Pre-refunded Bonds (MBIA Insured)
12-01-19 7.00 1,500,000 1,633,005
Franklin County Multi-family Housing
Revenue Refunding Bonds
West Bay Apartments
12-01-25 6.375 1,000,000 1,000,000
Hamilton County Sales Tax Revenue Bonds
Hamilton County Football
Series 1998A (MBIA Insured)
12-01-17 4.75 1,000,000 954,770
Highland Heights Limited Tax Improvement
General Obligation Street Bonds
12-01-08 7.75 400,000 414,136
Hilliard County School District Unlimited Tax
General Obligation Bonds Series A (FGIC Insured)
12-01-20 5.00 1,000,000 980,150
Lakota Local School District Butler County School
Unlimited Tax Improvement Bonds
12-01-12 7.00 500,000 522,685
Lakota Local School District Butler County School
Unlimited Tax Improvement Pre-refunded Bonds
12-01-11 7.90 200,000 203,590
Lakota Local School District Unlimited Tax Improvement
General Obligation Bonds (AMBAC Insured)
12-01-14 6.25 2,000,000 2,248,120
Lorain County Hospital Facilities Refunding Revenue Bonds
EMH Regional Medical Center
Series 1995 (AMBAC Insured)
11-01-21 5.375 2,000,000 2,024,000
Lorain County Independent Living & Hospital Facilities
Refunding Revenue Bonds Elyria United Methodist
Series 1996C
06-01-22 6.875 1,000,000 1,102,650
Marietta Sewer System Improvement Bonds (BIG Insured)
11-01-07 7.50 200,000 204,594
Marion County Health Care Facilities
Improvement Refunding Revenue Bonds
United Church Homes Series 1993
11-15-10 6.375 1,000,000 1,060,460
Marysville Sewer System 1st Mortgage Revenue Bonds
Series 1988 (BIG Insured) A.M.T.
02-15-08 7.85 400,000 409,496
Marysville Water System Mortgage Revenue Bonds
Series 1991 (MBIA Insured)
12-01-21 7.05 1,000,000 1,104,590
Montgomery County Health Facilities Refunding
Revenue Bonds Friendship Village Dayton Series 1990A
02-01-16 9.25 1,000,000 1,098,940
Montgomery County Hospital Facility
Refunding Revenue & Improvement Bonds
Ketter Medical Center (MBIA Insured)
04-01-26 5.50 1,000,000 1,031,130
Montgomery County Water Revenue Bonds
Greater Moraine-Beavercreek District (FGIC Insured)
11-15-17 6.25 1,000,000 1,091,040
North Olmstead County General Obligation Bonds
(AMBAC Insured)
12-01-16 5.00 1,500,000 1,491,015
12-01-21 5.00 200,000 195,936
Oak Hills Local School District Unlimited Tax General
Obligation Bonds Series 1997 (MBIA Insured)
12-01-25 5.125 1,000,000 989,060
Orrville Electric System Refunding Revenue
& Improvement Mortgage Bonds
Series 1997 (AMBAC Insured)
12-01-17 5.10 1,000,000 995,690
Parma Hospital Improvement Revenue Bonds
Parma Community General Hospital
Series 1989B (MBIA Insured)
11-15-13 7.125 500,000 515,405
Pickerington Local School District Unlimited Tax
General Obligation Pre-refunded Bonds (AMBAC Insured)
12-01-13 7.00 1,000,000 1,088,670
Rural Loraine County Water Authority Water Resource
Improvement Pre-refunded Revenue Bonds
Series 1991 (AMBAC Insured)
10-01-11 7.00 1,000,000 1,097,750
Southwest Local School District Hamilton
& Butler Counties School Unlimited Tax
Improvement Bonds (AMBAC Insured)
12-01-10 7.65 500,000 541,505
Stark County Health Care Facilities
Refunding Revenue Bonds
Rose Land Incorporated (FHA & GNMA Insured)
07-20-33 5.45 215,000 215,191
State Air Quality Development Authority
Refunding Revenue Bonds
JMG Funding Limited Partnership
(AMBAC Insured) A.M.T.
04-01-29 6.375 500,000 545,800
State Air Quality Development Authority
Refunding Revenue Bonds
Series 1994 (AMBAC Insured) A.M.T.
01-01-29 6.375 2,000,000 2,183,200
State Air Quality Development Authority
Revenue Bonds Columbus & Southern
Series A (FGIC Insured)
12-01-20 6.375 1,000,000 1,086,150
State Building Authority Local Jail Grant Bonds
Series 1989A (MBIA Insured)
04-01-09 7.35 500,000 538,520
State Building Authority State Facility Pre-refunded Bonds
Columbus State Office Building Series 1985C
10-01-05 7.35 1,000,000 1,073,240
State Higher Educational Facility Pre-refunded Revenue Bonds
Oberlin College Series 1989
10-01-14 7.375 500,000 531,485
State Housing Finance Agency Mortgage Revenue Bonds Aristocrat South Board &
Care Series 1991A (FHA Insured) A.M.T.
08-01-31 7.30 1,500,000 1,585,470
State Housing Finance Agency Single Family Mortgage Revenue Bonds Series 1990A
(GNMA Insured) A.M.T.
03-01-30 7.80 385,000 401,967
State Housing Finance Agency Single Family Mortgage Revenue Bonds Series 1990C
(GNMA Insured) A.M.T.
09-01-21 7.85 665,000 702,965
State Municipal Electric Generation Agency
Revenue Bonds Joint Venture 5 (AMBAC Insured)
02-15-24 5.375 2,000,000 2,024,860
State Turnpike Revenue Bonds Series A
02-15-24 5.75 1,000,000 1,056,730
State Turnpike Revenue Bonds Series A (MBIA Insured)
02-15-26 5.50 1,000,000 1,035,450
State Valley School District School Improvement Unlimited Tax
General Obligation Bonds Adams & Highland Counties
Series 1995 (MBIA Insured)
12-01-21 5.25 2,000,000 2,002,860
State Water & Air Quality Development Authority
Pollution Control Refunding Revenue Bonds
Cleveland Electric Illuminating Series 1995
08-01-25 7.70 1,000,000 1,145,670
State Water Development Authority Pollution Control
Refunding Revenue Bonds Toledo Edison
Series 1994A A.M.T.
10-01-23 8.00 1,000,000 1,150,630
State Water Development Authority Water Development
Refunding Revenue Bonds Pure Water (AMBAC Insured)
12-01-18 5.50 750,000 770,760
State Water Development Solid Waste Disposal
Revenue Bonds Northstar BHP Steel LLC-Cargill
Series 1995 A.M.T.
09-01-20 6.30 500,000(e) 542,895
Summit County Industrial Development Revenue Bonds
Century Products
11-01-05 7.75 100,000 102,552
Sycamore Board of Education Community School District
Hamilton County School Improvement Bonds
12-01-09 6.50 500,000 519,455
University of Cincinnati Certificates of Participation
Student Recreation Center (MBIA Insured)
06-01-24 5.125 1,000,000 985,150
University of Cincinnati General Receipt
Pre-refunded Bonds Series I-1
06-01-10 7.10 750,000 787,950
University of Toledo General Receipt
Pre-refunded Bonds Series 1990 (MBIA Insured)
06-01-20 7.125 500,000 538,905
Warren County Various Purpose Limited Tax
General Obligation Bonds Series 1992
12-01-12 6.10 500,000 569,865
Whitehall City School District Franklin County Unlimited Tax
Improvement General Obligation
Pre-refunded Revenue Bonds
12-01-13 7.25 500,000 533,890
Youngstown State University General Receipts
College Revenue Bonds Series 1998 (AMBAC Insured)
12-15-16 4.75 1,000,000 959,590
Total municipal bonds
(Cost: $65,345,401) $70,997,453
Short-term securities (2.5%)
Issuer (d,f) Effective Amount Value(a)
yield payable at
maturity
Cuyahoga County Economic Development
Revenue Bonds The Cleveland Orchestra V.R.
04-01-28 3.70% $700,000 $700,000
State Air Quality Development Authority Revenue Bonds
Cincinnati Gas & Electric
Series A V.R.
09-01-30 3.70 800,000 800,000
State Air Quality Development Authority Revenue Bonds
Cincinati Gas & Electric
Series 1985B V.R.
12-01-15 3.80 300,000 300,000
Total short-term securities
(Cost: $1,800,000) $1,800,000
Total investments in securities
(Cost: $67,145,401)(g) $72,797,453
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 6-30-98 6-30-97
AAA 67% 64%
AA 9 9
A 7 9
BBB 10 10
BB and below 6 8
Non-rated 1 --
Total 100% 100%
(c) The following abbreviations may be used in portfolio descriptions to
identify the insurer of the issue:
ACA -- ACA Financial Guaranty Corporation
AMBAC -- American Municipal Bond Association Corporation
BIG -- Bond Investors Guarantee
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guarantee Insurance Corporation
FHA -- Federal Housing Authority
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
MBIA -- Municipal Bond Investors Assurance
(d) The following abbreviations may be used in the portfolio descriptions:
A.M.T. -- Alternative Minimum Tax-- As of June 30, 1998, the value of
securities subject to alternative minimum tax represented 11.1%
of net assets.
B.A.N. -- Bond Anticipation Note
C.P. -- Commercial Paper
R.A.N. -- Revenue Anticipation Note
T.A.N. -- Tax Anticipation Note
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
(e) Partially pledged as initial margin 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 Sept. 1998 $1,500,000
(f) The Fund is entitled to receive principal amount from issuer or corporate
guarantor, if indicated in parentheses, after a day or a week's notice. The
maturity date disclosed represents the final maturity. Interest rate varies to
reflect current market conditions; rate shown is the effective rate on June 30,
1998.
(g) At June 30, 1998, the cost of securities for federal income tax
purposes was $67,102,522 and the gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation ................................$5,742,197
Unrealized depreciation ...................................(47,266)
Net unrealized appreciation............................ $5,694,931
</TABLE>
<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, 1998, 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 nine-year period ended June 30, 1998, the six months
ended June 30, 1989, and the year 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, 1998, 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.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
August 7, 1998
<PAGE>
<TABLE>
<CAPTION>
FINANCIALS FOR INSURED TAX-EXEMPT
Financial statements
Statement of assets and liabilities
IDS Insured Tax-Exempt Fund
June 30, 1998
Assets
Investments in securities, at value (Note 1)
<S> <C>
(identified cost $447,613,636) $494,863,169
Cash in bank on demand deposit 18,677
Accrued interest receivable 8,164,235
Receivable for investment securities sold 14,063
------
Total assets 503,060,144
-----------
Liabilities
Dividends payable to shareholders 338,091
Payable for investment securities purchased 3,748,010
Accrued investment management services fee 6,151
Accrued distribution fee 912
Accrued service fee 2,392
Accrued transfer agency fee 563
Accrued administrative services fee 546
Other accrued expenses 40,227
------
Total liabilities 4,136,892
---------
Net assets applicable to outstanding shares $498,923,252
============
Represented by
Shares of beneficial interest-- $.01 par value (Note 1) $ 886,377
Additional paid-in capital 464,471,187
Undistributed net investment income 9,195
Accumulated net realized gain (loss) (13,731,009)
Unrealized appreciation (depreciation) on investments (Note 5) 47,287,502
----------
Total -- representing net assets applicable to outstanding shares $498,923,252
============
Net assets applicable to outstanding shares: Class A $454,727,870
Class B $ 44,194,141
Class Y 1,241
Net asset value per share of outstanding shares: Class A shares 80,785,440 $ 5.63
Class B shares 7,852,034 $ 5.63
Class Y shares 220 $ 5.64
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
IDS Insured Tax-Exempt Fund
Year ended June 30, 1998
Investment income
Income:
<S> <C>
Interest $28,937,362
-----------
Expenses (Note 2):
Investment management services fee 2,244,150
Distribution fee -- Class B 283,583
Transfer agency fee 211,845
Incremental transfer agency fee -- Class B 1,206
Service fee
Class A 797,021
Class B 65,567
Administrative services fees and expenses 205,702
Compensation of board members 8,789
Custodian fees 27,317
Postage 21,375
Registration fees 39,871
Reports to shareholders 4,249
Audit fees 18,000
Other 609
---
Total expenses 3,929,284
Earnings credits on cash balances (Note 2) (72,114)
-------
Total net expenses 3,857,170
---------
Investment income (loss)-- net 25,080,192
----------
Realized and unrealized gain (loss)-- net
Net realized gain (loss) on:
Security transactions (Note 3) 2,085,021
Financial futures contracts (1,726,452)
----------
Net realized gain (loss) on investments 358,569
Net change in unrealized appreciation (depreciation) on investments 10,861,233
----------
Net gain (loss) on investments 11,219,802
----------
Net increase (decrease) in net assets resulting from operations $36,299,994
===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statements of changes in net assets
IDS Insured Tax-Exempt Fund
Year ended June 30,
Operations and distributions
1998 1997
<S> <C> <C>
Investment income (loss) -- net $ 25,080,192 $ 27,183,042
Net realized gain (loss) on investments 358,569 (1,176,907)
Net change in unrealized appreciation (depreciation) on investments 10,861,233 8,442,998
---------- ---------
Net increase (decrease) in net assets resulting from operations 36,299,994 34,449,133
---------- ----------
Distributions to shareholders from:
Net investment income
Class A (23,865,771) (25,736,641)
Class B (1,669,839) (1,211,996)
Class Y (64) (63)
--- ---
Total distributions (25,535,674) (26,948,700)
----------- -----------
Share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 40,050,443 34,091,690
Class B shares 15,365,511 13,289,699
Reinvestment of distributions at net asset value
Class A shares 16,237,196 17,755,994
Class B shares 1,264,769 932,161
Class Y shares 63 63
Payments for redemptions
Class A shares (73,881,447) (87,518,045)
Class B shares (Note 2) (4,572,619) (3,979,528)
---------- ----------
Increase (decrease) in net assets from share transactions (5,536,084) (25,427,966)
---------- -----------
Total increase (decrease) in net assets 5,228,236 (17,927,533)
Net assets at beginning of year 493,695,016 511,622,549
----------- -----------
Net assets at end of year $498,923,252 $493,695,016
------------ ------------
Undistributed net investment income $ 9,195 $ 438,514
------------ ------------
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 has unlimited authorized shares of
beneficial interest.
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 shares during the ninth calendar
year of ownership. Class Y shares have no sales charge and are offered
only to qualifying institutional investors.
All classes of shares have identical voting, dividend, liquidation and
other rights, and the same terms and conditions, except that the level of
distribution fee, transfer agency fee and service fee (class specific
expenses) differs among classes. Income, expenses (other than class
specific expenses) and realized and unrealized gains or losses on
investments are allocated to each class of shares based upon its relative
net assets.
Significant accounting policies followed by the Fund are summarized below:
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increase and decrease in
net assets from operations during the period. Actual results could differ
from those estimates.
Valuation of securities
All securities are valued at the close of each business day. Securities
traded on national securities exchanges or included in national market
systems are valued at the last quoted sales price. Debt securities are
generally traded in the over-the-counter market and are valued at a price
deemed best to reflect fair value as quoted by dealers who make markets in
these securities or by an independent pricing service. Securities for
which market quotations are not readily available are valued at fair value
according to methods selected in good faith by the board. Short-term
securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current
interest rates; those maturing in 60 days or less are valued at amortized
cost.
Option transactions
In order to produce incremental earnings, protect gains, and facilitate
buying and selling of securities for investment purposes, the Fund may buy
and sell put and call options and write covered call options on portfolio
securities and may write cash-secured put options. The risk in writing a
call option is that the Fund gives up the opportunity of profit if the
market price of the security increases. The risk in writing a put option
is that the Fund may incur a loss if the market price of the security
decreases and the option is exercised. The risk in buying an option is
that the Fund pays a premium whether or not the option is exercised. The
Fund also has the additional risk of not being able to enter into a
closing transaction if a liquid secondary market does not exist. The Fund
also may write over-the-counter options where the completion of the
obligation is dependent upon the credit standing of the other party.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The
Fund will realize a gain or loss upon expiration or closing of the option
transaction. When options on debt securities or futures are exercised, the
Fund will realize a gain or loss. When other options are exercised, the
proceeds on sales for a written call option, the purchase cost for a
written put option or the cost of a security for a purchased put or call
option is adjusted by the amount of premium received or paid.
Futures transactions
In order to gain exposure to or protect itself from changes in the market,
the Fund may buy and sell financial futures contracts. Risks of entering
into futures contracts and related options include the possibility that
there may be an illiquid market and that a change in the value of the
contract or option may not correlate with changes in the value of the
underlying securities.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin)
are made or received by the Fund each day. The variation margin payments
are equal to the daily changes in the contract value and are recorded as
unrealized gains and losses. The Fund recognizes a realized gain or loss
when the contract is closed or expires.
Federal taxes
Since the Fund's policy is to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to shareholders, no provision for
income or excise taxes is required.
Net investment income (loss) and net realized gains (losses) may differ
for financial statement and tax purposes primarily because of the deferral
of losses on certain futures contracts and losses deferred due to "wash
sale" transactions. The character of distributions made during the year
from net investment income or net realized gains may differ from their
ultimate characterization for federal income tax purposes. Also, due to
the timing of dividend distributions, the fiscal year in which amounts are
distributed may differ from the year that the income or realized gains
(losses) were recorded by the Fund.
On the statement of assets and liabilities, as a result of permanent
book-to-tax differences, undistributed net investment income has been
increased by $26,163 and accumulated net realized loss has been decreased
by $26,163.
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, 1998, American Express Financial Corporation (AEFC) owned 220
Class Y shares.
2
Expenses and
sales charges
Effective March 20, 1995, the Fund entered into agreements with AEFC for
managing its portfolio and providing administrative services. Under its
Investment Management Services Agreement, AEFC determines which securities
will be purchased, held or sold. The management fee is a percentage of the
Fund's average daily net assets in reducing percentages from 0.45% to
0.35% annually.
Under its Administrative Services Agreement, the Fund pays AEFC a fee for
administration and accounting services at a percentage of the Fund's
average daily net assets in reducing percentages from 0.04% to 0.02%
annually. Additional administrative service expenses paid by the Fund are
office expenses, consultants' fees and compensation of officers and
employees. Under this agreement, the Fund also pays taxes, audit and
certain legal fees, registration fees for shares, compensation of board
members, corporate filing fees, and any other expenses properly payable by
the Fund and approved by the board.
Under a separate Transfer Agency Agreement, American Express Client
Service Corporation (AECSC) maintains shareholder accounts and records.
The Fund pays AECSC an annual fee per shareholder account for this service
as follows:
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 $976,599 for Class A and $52,041 for Class B
for the year ended June 30, 1998.
During the year ended June 30, 1998, the Fund's custodian and transfer
agency fees were reduced by $72,114 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 $83,279,527 and $94,951,368,
respectively, for the year ended June 30, 1998. 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, 1998
Class A Class B Class Y
Sold 7,152,603 2,743,185 --
Issued for reinvested 2,900,525 225,893 12
distributions
Redeemed (13,187,728) (816,165) --
Net increase (decrease) (3,134,600) 2,152,913 12
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
5
Interest rate
futures contracts
At June 30, 1998, investments in securities included securities valued at
$6,473,561 that were pledged as collateral to cover initial margin
deposits on 45 open purchase contracts. The market value of the open
purchase contracts at June 30, 1998, was $5,601,094 with a net unrealized
gain of $37,969. See "Summary of significant accounting policies."
6
Financial
highlights
"Financial highlights" showing per share data and selected information is
presented on pages 7 and 8 of the prospectus.
<PAGE>
Investments in securities
IDS Insured Tax-Exempt Fund
June 30, 1998
(Percentages represent
value of investments
compared to net assets)
Municipal bonds (98.7%)
Name of issuer and Coupon Principal Value(a)
title of issue (b,c,d) rate amount
Alabama (0.7%)
Mobile General Obligation Capital Improvement
Warrants Convention Center Pre-refunded Bonds
Series 1990 (AMBAC Insured)
08-15-20 7.125% $3,000,000 $3,250,230
Alaska (1.8%)
North Slope Borough Capital Appreciation Unlimited
General Obligation Bonds Zero Coupon
Series 1995A (MBIA Insured)
06-30-06 5.61 5,300,000(g) 3,689,330
North Slope Borough General Obligation Bonds
Zero Coupon Series 1996B (MBIA Insured)
06-30-07 5.72 8,000,000(g) 5,298,880
Total 8,988,210
Arizona (1.5%)
Chandler Water & Sewer Refunding Revenue Bonds
Series 1991 (FGIC Insured)
07-01-12 7.00 1,250,000 1,356,600
Health Facilities Authority Hospital System
Refunding Revenue Bonds Phoenix Baptist Hospital
Series 1992 Escrowed to Maturity (MBIA Insured)
09-01-11 6.25 1,650,000 1,835,113
Phoenix Civic Improvement Wastewater System
Lease Refunding Revenue Bonds
(Secondary MBIA Insured)
07-01-23 4.75 4,500,000 4,266,675
Total 7,458,388
Arkansas (0.3%)
Jonesboro Residential Housing & Health Care
Facilities Board St. Bernard's Regional Medical
Center Hospital Construction Refunding Revenue
Bonds (AMBAC Insured)
07-01-16 5.90 1,200,000 1,289,868
California (12.2%)
Contra Costa Water District Revenue Bonds
Series 1994G (MBIA Insured)
10-01-19 5.50 4,675,000 4,821,515
Delta Counties Home Mortgage Finance Authority
Single Family Mortgage Revenue Bonds
Series 1998A (MBIA Insured) A.M.T.
09-01-98 5.50 1,500,000(i) 1,635,000
Desert Sands Unified School District Convertible
Capital Appreciation Certificate Zero Coupon
Series 1995 (FSA Insured)
03-01-01 6.45 3,000,000(h) 2,843,340
Eastern Municipal Water District Riverside County
Water & Sewer Pre-refunded Revenue
Certificate of Participation Series 1991
(FGIC Insured)
07-01-20 6.50 5,460,000 5,952,601
Fontana Unified School District San Bernardino
County General Obligation Convertible Capital
Appreciation Bonds Series 1990C (FGIC Insured)
05-01-20 6.15 6,000,000 6,633,240
Fresno Health Facilities Revenue Bonds
Holy Cross-St. Agnes (Secondary MBIA Insured)
06-01-21 6.625 2,000,000 2,187,700
Los Angeles Department of Airports Revenue Bonds
Los Angeles International Airport Series 1995D
(FGIC Insured) A.M.T.
05-15-15 5.50 2,000,000 2,059,280
Los Angeles Department of Water & Power
Waterworks Refunding Revenue Bonds
Second Issue (Secondary FGIC Insured)
05-15-23 4.50 2,000,000 1,813,520
Northern California Transmission Select Auction
Variable Rate Security & Residual Interest Revenue
Bonds Inverse Floater (MBIA Insured)
04-29-24 5.50 2,500,000(j) 2,576,775
Oceanside Certificate of Participation Refunding
Bonds Oceanside Civic Center (MBIA Insured)
08-01-19 5.25 1,730,000 1,732,387
Rural Home Mortgage Financing Authority
Single Family Mortgage Revenue Bonds
Series 1997A-3 (GNMA Insured) A.M.T.
09-01-29 6.25 1,500,000 1,696,995
San Diego County Certificate of Participation
Regional Authority Bonds Mt. Tower Series 1991
Inverse Floater (MBIA Insured)
11-18-19 6.36 9,000,000(j) 9,662,220
San Jose Redevelopment Agency Merged Area
Redevelopment Tax Allocation Bonds Series 1993
(MBIA Insured)
08-01-24 4.75 2,400,000 2,256,408
San Jose Redevelopment Agency Tax
Allocation Bonds Series 1997 (MBIA Insured)
08-01-17 5.50 1,000,000 1,042,980
San Mateo County Joint Power Financing Authority
Lease Revenue Bonds San Mateo County Health
Center Series 1994A (FSA Insured)
07-15-22 5.75 1,500,000 1,577,760
State Public Works Board Lease Revenue Bonds
Department of Corrections Substance Abuse
Treatment Facility & State Prison at Corcoran
Series 1996A (AMBAC Insured)
01-01-21 5.25 2,000,000 2,002,460
State Public Works Board Lease Revenue Bonds
University of California Series 1992A
(AMBAC Insured)
12-01-16 6.40 2,000,000 2,225,320
State Unlimited Tax General Obligation Bonds
(Secondary FGIC Insured)
09-01-23 4.75 2,500,000 2,352,925
Statewide Community Development Authority
Certificate of Participation Sutter Health Obligated
Group (MBIA Insured)
08-15-22 5.50 5,750,000 5,928,480
Total 61,000,906
Colorado (1.8%)
Denver City & County Airport Revenue Bonds
Series 1995B (MBIA Insured) A.M.T.
11-15-17 5.75 4,290,000(f) 4,488,970
Douglas County School District General Obligation
Improvement Bonds Series 1994A (MBIA Insured)
12-15-16 6.50 1,500,000 1,678,635
Larimer County School District R-1 Certificate of
Participation Series 1997 (MBIA Insured)
12-01-16 5.65 1,000,000(f) 1,058,610
Larimer Weld & Boulder Counties School
District R-2J Thompson Unlimited General
Obligation Capital Appreciation Bonds
Zero Coupon Series 1997 (FGIC Insured)
12-15-11 5.45 2,000,000(g) 1,043,880
12-15-12 5.50 1,400,000(g) 686,504
Total 8,956,599
Delaware (0.2%)
Health Facilities Authority Refunding Revenue
Bonds Medical Center of Delaware Series 1989
(MBIA Insured)
10-01-15 7.00 1,000,000 1,139,400
District of Columbia (3.0%)
Association of American Medical Colleges College
Revenue Bonds Series 1997A (AMBAC Insured)
02-15-27 5.375 2,500,000 2,538,550
Metropolitan Washington Airports Authority Airport
System Revenue Bonds Series 1992A
(MBIA Insured) A.M.T.
10-01-19 6.625 9,420,000 10,307,458
Unlimited Tax General Obligation Refunding Bonds
Series 1993B-2 (FSA Insured)
06-01-10 5.50 2,000,000 2,124,000
Total 14,970,008
Florida (1.7%)
Alachua County Public Improvement Refunding
Revenue Bonds (FSA Insured)
08-01-21 5.125 2,000,000 1,979,880
Department of Transportation Turnpike Revenue
Bonds Series 1991A (AMBAC Insured)
07-01-20 6.25 1,250,000 1,329,200
Fort Myers Utility System Refunding Revenue Bonds
Series 1989A (BIG Insured)
10-01-19 6.00 2,000,000 2,044,680
Gulf Breeze Local Government Loan Program
Boca Raton Series 1985A (FGIC Insured)
12-01-15 7.75 2,000,000 2,138,420
State Correctional Privatization Commission
Certificate of Participation 350 Bed Youthful
Columbia Series 1995A (AMBAC Insured)
08-01-17 5.00 1,000,000 989,050
Total 8,481,230
Georgia (3.9%)
Atlanta Metropolitan Rapid Transit Authority Sales
Tax Pre-refunded Revenue Bonds Series 1990L
(AMBAC Insured)
07-01-20 7.20 3,000,000 3,162,720
Chatham County Hospital Authority Pre-refunded
Revenue Bonds Memorial Medical Center
Series 1990A (MBIA Insured)
01-01-21 7.00 4,500,000 4,895,505
Cherokee County Water & Sewer Authority
Water & Sewer Revenue Bonds Series 1995
(MBIA Insured)
08-01-25 5.20 5,000,000 5,147,300
Fulton County Water & Sewer Revenue Bonds
(FGIC Insured)
01-01-14 6.375 3,250,000 3,793,530
Richmond County Water & Sewer Refunding
Revenue Improvement Bonds Series 1996A
(FGIC Insured)
10-01-28 5.25 2,500,000 2,505,675
Total 19,504,730
Hawaii (0.2%)
Harbor System Revenue Bonds Series 1997
(MBIA Insured) A.M.T.
07-01-27 5.50 1,000,000 1,024,050
Illinois (3.8%)
Chicago O'Hare International Airport General
Revenue Bonds Series 1990A (AMBAC Insured)
A.M.T.
01-01-16 7.50 2,000,000 2,125,460
Chicago O'Hare International Airport Terminal
Revenue Bonds (MBIA Insured) A.M.T.
01-01-10 7.625 3,000,000 3,202,230
Chicago Public Building Commission Pre-refunded
Revenue Bonds Escrowed to Maturity Series 1990A
(MBIA Insured)
01-01-15 7.125 5,000,000 5,323,050
Chicago Public Building Commission Pre-refunded
Revenue Bonds Series 1989A (FGIC Insured)
01-01-06 7.75 1,000,000 1,040,440
Cook County Consolidated High School District 200
Limited Tax General Obligation Bonds Oak Park
Zero Coupon Series 1998 (FSA Insured)
12-01-15 5.60 7,190,000(g) 2,910,009
12-01-17 5.62 3,750,000(g) 1,340,775
McHenry County Community High School District
157 Unlimited Tax Capital Appreciation General
Obligation Bonds Zero Coupon Series 1998
(FSA Insured)
12-01-17 5.60 5,790,000(g) 2,071,604
St. Clair County Public Community Building Capital
Appreciation Revenue Bonds Zero Coupon
Series 1997B (FGIC Insured)
12-01-14 5.95 2,000,000(g) 870,620
Total 18,884,188
Indiana (2.2%)
Educational Facilities Authority Pre-refunded Bonds
Valparaiso University (BIG Insured)
10-01-08 7.80 500,000 515,185
Marion County Hospital Authority Refunding Revenue
Bonds Methodist Hospital Escrowed to Maturity
Series 1989 (MBIA Insured)
09-01-13 6.50 4,000,000 4,397,520
State Health Facilities Finance Authority Hospital
Refunding Revenue Bonds Columbus Regional
Hospital Series 1993 (CGIC Insured)
08-15-15 7.00 5,000,000 6,187,250
Total 11,099,955
Kansas (0.5%)
Labette County Single Family Housing Revenue
Bonds Series 1998A-2 (GNMA Insured)
12-01-11 7.65 450,000 486,333
Sedgwick & Shawnee Counties Single Family
Housing Revenue Mortgage-backed Securities
Series 1997A-1 (MBIA Insured) A.M.T.
10-01-98 5.50 2,000,000(i) 2,209,000
Total 2,695,333
Louisiana (1.5%)
Energy & Power Authority Refunding Revenue
Bonds Rodemacher Unit 2 Series 1991
(FGIC Insured)
01-01-08 6.75 7,000,000(f) 7,566,930
Maine (0.4%)
State Turnpike Authority Turnpike Revenue Bonds
(MBIA Insured)
07-01-18 6.00 1,790,000 1,948,379
Massachusetts (4.9%)
Boston Water & Sewer Commission General
Subordinate Revenue Bonds Series 1988A
(BIG Insured)
11-01-08 6.00 2,500,000 2,518,975
Health & Educational Facilities Authority
Pre-refunded Bonds Northeastern University
Series 1989C (AMBAC Insured)
10-01-06 7.10 1,000,000 1,058,620
Health & Educational Facilities Authority Revenue
Bonds Cape Cod Health System Series 1993A
(Connie Lee Insured)
11-15-21 5.25 4,000,000 4,002,160
Health & Educational Facilities Authority Revenue
Bonds Valley Regional Health System Series 1994C
(Connie Lee Insured)
07-01-18 5.75 1,500,000 1,571,445
Industrial Finance Agency Revenue Bonds
Brandeis University (MBIA Insured)
10-01-19 6.80 1,700,000 1,787,771
Municipal Wholesale Electric Power Supply System
Refunding Revenue Bonds Series 1994B
(MBIA Insured)
07-01-11 4.75 5,250,000 5,169,938
State Bay Transportation Authority Series 1995B
(AMBAC Insured)
03-01-25 5.375 4,000,000 4,067,600
State Health & Education Facilities Authority
Revenue Bonds Southcoast Health System
Series 1998A (MBIA Insured)
07-01-27 4.75 1,265,000 1,178,436
State Turnpike Authority Metro Highway System
Senior Lien Revenue Bonds Toll Road Series 1997A
(MBIA Insured)
01-01-37 5.00 1,000,000 960,450
State Water Resource Authority Revenue Bonds
Series 1992A (Secondary MBIA Insured)
07-15-22 5.50 2,000,000 2,104,040
Total 24,419,435
Michigan (4.0%)
Almont Community Schools Unlimited Tax General
Obligation Bonds Series 1996 (FGIC Insured)
05-01-22 5.375 1,900,000 1,929,583
Chippewa Valley Schools Unlimited Tax General
Obligation Refunding Bonds Series 1998
(AMBAC Insured)
05-01-23 4.75 1,000,000 942,900
Genesee County Sewer Disposal System 3 Limited
Tax General Obligation Bonds Series 1996A
(AMBAC Insured)
04-01-16 5.50 1,400,000 1,453,396
Grand Rapids Sanitary Sewer System Revenue
Bonds Series 1998A (FGIC Insured)
01-01-28 4.75 3,000,000 2,806,050
Iron Mountain School Unlimited Tax General
Obligation Refunding Bonds (AMBAC Insured)
05-01-21 5.125 1,500,000 1,481,010
Kalamazoo Hospital Finance Authority Refunding
Improvement Bonds Bronson Methodist Hospital
(Secondary MBIA Insured)
05-15-12 6.25 3,000,000 3,318,780
Lincoln Park School District Wayne County School
Building & Site Unlimited Tax General Obligation
Bonds (FGIC Insured)
05-01-26 5.90 1,500,000 1,666,770
Monroe County Pollution Control Refunding Bonds
Detroit Edison Series 1992I-B (MBIA Insured)
A.M.T.
09-01-24 6.55 5,000,000 5,486,300
State Trunk Line Bonds Series 1998A
(MBIA Insured)
11-01-20 4.75 1,000,000 945,940
Total 20,030,729
Minnesota (2.2%)
Southern Minnesota Municipal Power Agency
Power Supply System Refunding Revenue Bonds
Series 1993A (Secondary FGIC Insured)
01-01-16 4.75 4,250,000 4,055,435
Southern Minnesota Municipal Power Agency
Power Supply System Refunding Revenue Bonds
Zero Coupon Series 1994A (MBIA Insured)
01-01-21 6.12 6,000,000(g) 1,915,020
Western Minnesota Municipal Power Agency
Revenue Bonds Escrowed to Maturity
(AMBAC Insured)
01-01-16 6.75 4,500,000 4,833,180
Total 10,803,635
Mississippi (0.6%)
Alcorn County Hospital Refunding Revenue Bonds
Magnolia Regional Hospital Center
(AMBAC Insured)
10-01-13 5.75 1,000,000 1,065,610
State Home Single Family Mortgage Revenue Bonds Series 1997H
(GNMA & FNMA Insured) A.M.T.
12-01-98 5.50 2,000,000(i) 2,169,000
Total 3,234,610
Montana (1.9%)
Forsyth Rosebud County Pollution Refunding
Revenue Bonds Puget Sound Power & Light
(AMBAC Insured) A.M.T.
08-01-21 7.25 4,000,000 4,375,880
State Board of Investments Payroll Tax Bonds
Worker's Compensation Program Series 1991
(MBIA Insured)
06-01-20 6.875 4,750,000 5,185,290
Total 9,561,170
Nevada (1.0%)
Clark County Passenger Facilities Charge Revenue
Bonds Las Vegas McCarren Airport Series 1995B
(Secondary AMBAC Insured) A.M.T.
07-01-25 5.50 5,000,000 5,064,000
New Hampshire (1.1%)
Industrial Development Authority Pollution Control
Revenue Bonds Light & Power Series 1989
(AMBAC Insured) A.M.T.
12-01-19 7.375 5,000,000(f) 5,302,550
New Mexico (0.2%)
Santa Fe Water Pre-refunded Revenue Bonds
(AMBAC Insured)
06-01-24 6.30 1,000,000 1,107,360
New York (7.9%)
New York City Municipal Water Finance Authority
Water & Sewer System Revenue Bonds
Series 1995A (Secondary MBIA Insured)
06-15-23 5.50 5,000,000 5,127,550
State Dormitory Authority State University
Education Facilities Revenue Bonds
(Secondary AMBAC Insured)
05-15-15 5.25 2,700,000 2,813,805
State Dormitory Authority City University System
Consolidated 3rd Resolution Revenue Bonds
Series 1994-2 (MBIA Insured)
07-01-19 6.25 2,500,000 2,729,275
State Energy Resource & Development Authority
Gas Facilities Revenue Bonds Brooklyn Union Gas
(MBIA Insured) A.M.T.
06-01-25 5.60 4,500,000 4,644,765
State Energy Resource & Development Authority
Pollution Control Bonds Series 1987A
(MBIA Insured) A.M.T.
07-01-26 6.15 3,000,000 3,247,890
State Energy Research & Development Authority
Pollution Control Refunding Revenue Bonds
Rochester Gas & Electric (MBIA Insured) A.M.T.
05-15-32 6.50 4,000,000 4,324,840
State Energy Research & Development Authority
Solid Waste Development Revenue Bonds
State Gas & Electric Company (MBIA Insured)
A.M.T.
12-01-28 5.70 11,210,000 11,627,685
State Urban Development Corporation Correctional
Capital Facilities Lease Revenue Bonds
Series 1995-96 (AMBAC Insured)
01-01-25 5.375 3,000,000 3,052,470
State Urban Development Correctional Facilities
Pre-refunded Revenue Bonds Series 1990-1
(FSA Insured)
01-01-20 7.50 1,500,000 1,608,675
Total 39,176,955
North Carolina (1.7%)
Charlotte Pre-refunded Certificate of Participation
Convention Facilities Series 1991 (AMBAC Insured)
12-01-21 6.75 3,150,000 3,481,317
Concord Certificate of Participation Series 1996B
(MBIA Insured)
06-01-16 5.75 1,480,000 1,563,531
Cumberland County Financial Corporation
Installment Payment Miscellaneous Revenue Bonds
Public Building & Equipment Series 1998
(MBIA Insured)
12-01-17 4.75 3,490,000 3,323,876
Fayetteville Financial Corporation Installment
Payment Revenue Bonds Series 1996
(MBIA Insured)
02-01-14 5.625 300,000 316,230
Total 8,684,954
North Dakota (0.9%)
Fargo Health System Meritcare Obligated Group
Revenue Bonds Series 1996A (MBIA Insured)
06-01-27 5.375 4,350,000 4,408,986
Ohio (1.3%)
Lorain County Hospital Facilities Refunding Revenue
Bonds EMH Regional Medical Center Series 1995
(AMBAC Insured)
11-01-21 5.375 2,000,000 2,024,000
Lucas County Hospital Refunding Revenue Bonds
St. Vincent Medical Center Series 1993C
(MBIA Insured)
08-15-22 5.25 1,725,000 1,720,204
Montgomery County Hospital Facilities Refunding
Revenue Improvement Bonds Kettering Medical
Center (MBIA Insured)
04-01-26 5.50 2,500,000 2,577,825
Total 6,322,029
Oklahoma (1.1%)
McAlester Public Works Authority Oklahoma
Improvement Refunding Revenue Bonds
(FSA Insured)
12-01-17 5.25 1,470,000 1,486,890
12-01-18 5.25 1,000,000 1,002,820
Moore Public Works Authority Refunding Revenue
Bonds Series 1989 (AMBAC Insured)
07-01-06 7.60 2,700,000 2,852,847
Total 5,342,557
Pennsylvania (3.3%)
Harrisburg Authority Dauphin County Revenue Bonds
Series 1997-II (MBIA Insured)
09-15-22 5.625 2,000,000 2,085,180
Pittsburgh Water & Sewer Authority System
Pre-refunded Revenue Bonds Series 1991A
(FGIC Insured)
09-01-14 6.50 10,000,000 10,913,000
Robinson Township Municipal Authority
Water & Sewer Revenue Bonds (FGIC Insured)
11-15-19 6.00 2,200,000 2,450,976
Turnpike Commission Pre-refunded Revenue Bonds
Series 1989K (MBIA Insured)
12-01-12 7.50 1,000,000 1,070,960
Total 16,520,116
Rhode Island (0.6%)
Health & Education Building Corporation Higher
Education Facilities Revenue Bonds Series 1996
(MBIA Insured)
06-01-26 5.625 3,000,000 3,135,540
South Carolina (0.2%)
Piedmont Municipal Power Agency Electric
Refunding Revenue Bonds (FGIC Insured)
01-01-21 6.25 1,000,000 1,162,940
Tennessee (1.5%)
Knox County Health Education & Housing Facilities
Board Hospital Refunding Revenue Bonds
Fort Sanders Alliance Obligation Group Series 1993
(MBIA Insured)
01-01-14 5.75 3,750,000 4,110,525
Metropolitan Government Nashville & Davidson
Counties Health & Education Facilities Board
Hospital Revenue Bonds Baptist Hospital
Series 1998 (MBIA Insured)
11-01-18 4.75 1,000,000 945,060
Metropolitan Government Nashville & Davidson
Counties Sports Authority Public Improvement
Revenue Bonds Series 1996 (AMBAC Insured)
07-01-17 5.75 2,160,000 2,290,594
Total 7,346,179
Texas (20.0%)
Austin Airport System Prior Lien Revenue Bonds
Series 1995A (MBIA Insured) A.M.T.
11-15-25 6.125 3,000,000 3,245,580
Austin Combined Utilities System Capital
Appreciation Refunding Revenue Bonds
Zero Coupon Series 1994 (FGIC Insured)
05-15-17 5.83 5,900,000(g) 2,230,672
Austin Combined Utilities System Pre-refunded
Revenue Bonds Series 1987 (BIG Insured)
11-15-12 8.625 750,000 870,105
11-15-17 8.625 500,000 580,070
Austin Combined Utilities System Refunding
Revenue Bonds Series 1994 (FGIC Insured)
05-15-24 5.75 8,500,000 8,872,045
Bexar County Health Facilities Development Hospital
Revenue Bonds San Antonio Baptist Memorial
Hospital System Series 1994 (MBIA Insured)
08-15-19 6.75 5,000,000 5,739,000
Brazos River Authority Collateralized Pollution Control
Refunding Revenue Bonds Texas Utility Electric Series
1992C (FGIC Insured) A.M.T.
10-01-22 6.70 14,935,000 16,403,110
Colorado River Municipal Water District Water
System Pre-refunded Revenue Bonds Series 1991A
(AMBAC Insured)
01-01-21 6.625 8,900,000 9,453,313
Corsicana Waterworks & Sewer System Refunding
Revenue Bonds Series 1997A (FGIC Insured)
08-15-22 5.75 2,075,000 2,189,333
Georgetown Combination Tax & Utilities System
Limited Revenue Certificate of Obligation
Series 1997 (FGIC Insured)
08-15-17 5.375 1,000,000 1,019,800
Harris County Health Facilities Development Hospital
Pre-refunded Revenue Bonds State Children's
Hospital Series 1989A (MBIA Insured)
10-01-19 7.00 1,500,000 1,588,785
Harris County Public Facilities Corporation Detention
Facilities Mortgage Pre-refunded Revenue Bonds
(MBIA Insured)
12-15-11 7.80 1,000,000 1,038,860
Harris County Toll Road Senior Lien Pre-refunded
Revenue Bonds Series 1992A (AMBAC Insured)
08-15-17 6.50 8,170,000 9,048,193
Hillsboro Independent School District Unlimited Tax
School Building Refunding Revenue Bonds
Series 1997 Permanent School Fund Guarantee
08-15-26 5.25 1,000,000 1,003,530
Houston Water & Sewer System Junior Lien
Refunding Revenue Bonds Series 1997A
(FGIC Insured)
12-01-22 5.25 7,210,000 7,228,097
League City General Obligation Refunding
Improvement Bonds Series 1990 (FGIC Insured)
02-01-13 6.25 2,500,000 2,627,700
Matagorda County Navigation District 1
Collateralized Pollution Control Revenue Bonds
Central Power & Light Series 1984A
(AMBAC Insured)
12-15-14 7.50 2,500,000 2,683,600
Matagorda County Navigation District 1 Pollution
Control Refunding Revenue Bonds Houston
Light & Power Series 1989E (FGIC Insured)
12-01-18 7.20 2,150,000 2,282,655
Matagorda County Navigation District 1 Pollution Control Revenue
Bonds Central Power & Light Series 1990 (AMBAC Insured)
A.M.T.
03-01-20 7.50 2,000,000 2,135,760
Mineral Wells Independent School Districts Palo
Pinto & Parker Counties Unlimited Tax General
Obligation School Building Refunding Bonds
Series 1998 Permanent School Fund Guarantee
02-15-28 4.75 2,000,000 1,873,220
Municipal Power Agency Refunding Revenue Bonds
Series 1991A (AMBAC Insured)
09-01-12 6.75 5,250,000 5,725,230
Rosenberg Limited Tax General Obligation Bonds
Series 1998 (FSA Insured)
03-01-16 4.50 740,000 682,162
03-01-17 4.50 785,000 718,927
Turnpike Authority Dallas North Tollway
Pre-refunded Revenue Bonds Series 1990
(AMBAC Insured)
01-01-20 6.00 5,000,000 5,060,750
Turnpike Authority Dallas North Tollway Revenue
Bonds Addison Airport Toll Tunnel Series 1994
(FGIC Insured)
01-01-23 6.60 2,000,000 2,291,340
University of Houston System Consolidated
Pre-refunded Revenue Bonds Series 1990A
(MBIA Insured)
02-15-06 7.40 3,160,000 3,334,874
Total 99,926,711
Virginia (3.6%)
Hanover County Industrial Development Authority
Memorial Regional Medical Center (MBIA Insured)
08-15-25 5.50 3,800,000 3,909,554
Loudoun County Sanitation Authority Waste & Sewer
Refunding Revenue Bonds (MBIA Insured)
01-01-30 5.25 1,435,000 1,436,765
Portsmouth Redevelopment Housing Authority
Multi-family Housing Refunding Revenue Bonds
(FNMA Insured)
12-01-08 6.05 5,780,000 6,147,666
Upper Occoquan Sewer Authority Regional Sewer
Revenue Bonds Series 1995A (MBIA Insured)
07-01-29 4.75 4,000,000 3,747,680
William County Lease Certificate of Participation
Bonds (MBIA Insured)
12-01-20 5.50% $2,590,000 $2,672,465
Total 17,914,130
Washington (1.8%)
Public Power Supply System Pre-refunded Revenue
Bonds Nuclear Project 1 Series 1989A
(MBIA Insured)
07-01-15 7.50 3,000,000 3,169,950
Public Power Supply System Pre-refunded Revenue
Bonds Nuclear Project 3 Series 1989A
(BIG Insured)
07-01-16 7.25 1,000,000 1,054,220
07-01-18 6.00 3,000,000 3,068,790
Spokane Regional Solid Waste Management System
Revenue Bonds Series 1989 (AMBAC Insured)
A.M.T.
01-01-07 7.875 1,250,000 1,298,763
01-01-11 7.75 300,000 310,935
Total 8,902,658
West Virginia (2.7%)
Board of Regents Registration Fee Pre-refunded
Revenue Bonds Series 1989B (MBIA Insured)
04-01-09 7.40 2,000,000 2,094,880
School Building Authority Capital Improvement
Pre-refunded Revenue Bonds (MBIA Insured)
07-01-15 7.25 3,415,000 3,696,567
School Building Authority Capital Improvement
Pre-refunded Revenue Bonds Series 1990B
(MBIA Insured)
07-01-17 6.75 5,000,000 5,366,550
State Parkway Economic Development & Tourism
Authority Parkway Pre-refunded Revenue Bonds
Series 1989 (FGIC Insured)
07-01-19 7.125 2,000,000 2,107,020
Total 13,265,017
Wisconsin (0.5%)
Center District Sales Tax Appreciation Senior
Dedicated Bonds Zero Coupon Series 1996A
(MBIA Insured)
12-15-17 6.03 4,000,000(g) 1,467,560
12-15-21 5.45 3,045,000(g) 904,944
Total 2,372,504
Total municipal bonds
(Cost: $445,013,636) $492,263,169
Short-term securities (0.5%)
Issuer (d,e) Effective Amount Value(a)
yield payable at
maturity
Municipal notes
Burke County Georgia Development Authority
Pollution Control Revenue Bonds (Georgia Power)
Vogtle V.R.
04-01-25 3.90% $600,000 $600,000
Michigan Strategic Fund Down Chemical V.R.
02-01-09 3.80 200,000 200,000
Ohio State Air Quality Development Cincinnati
Gas & Electric Series 1995A V.R.
09-01-30 3.70 900,000 900,000
Pennsylvania Higher Education Facilities Authority
Revenue Bonds (Carnegie Mellon University)
Series 1995D V.R.
11-01-30 4.00 100,000 100,000
Tempe Arizona Excise Tax Revenue Obligation
Bonds Series 1998 V.R.D.B.
07-01-23 3.85 200,000 200,000
Uinta County Wyoming Pollution Control Revenue
Bonds (Chevron) Series 1993 V.R.
08-15-20 3.75 300,000 300,000
Washington Health Care Facilities Authority (Sisters
of Providence) Series 1985B V.R.D.B.
10-01-05 3.80 300,000 300,000
Total short-term securities
(Cost: $2,600,000) $2,600,000
Total investments in securities
(Cost: $447,613,636)(k) $494,863,169
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 06-30-98 06-30-97
AAA 100% 100%
AA -- --
A -- --
BBB -- --
BB and below -- --
Non-rated -- --
Total 100% 100%
(c) The following abbreviations may be used in portfolio descriptions to
identify the insurer of the issue:
ACA -- ACA Financial Guaranty Corporation
AMBAC -- American Municipal Bond Association Corporation
BIG -- Bond Investors Guarantee
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guarantee Insurance Corporation
FHA -- Federal Housing Authority
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
MBIA -- Municipal Bond Investors Assurance
(d) The following abbreviations may be used in the portfolio descriptions:
A.M.T. -- Alternative Minimum Tax -- As of June 30, 1998, the
value of securities subject to alternative minimum tax
represented 19.7% of net assets.
B.A.N. -- Bond Anticipation Note
C.P. -- Commercial Paper
R.A.N. -- Revenue Anticipation Note
T.A.N. -- Tax Anticipation Note
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
(e) The Fund is entitled to receive principal amount from issuer or corporate
guarantor, if indicated in parentheses, after a day or a week's notice. The
maturity date disclosed represents the final maturity. Interest rate varies to
reflect current market conditions; rate shown is the effective rate on
June 30, 1998.
(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 Sept. 1998 $4,500,000
(g) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(h) 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.
(i) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on June 30, 1998.
(j) 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, 1998. Inverse floaters in the aggregate represent 2.5% of
the Fund's net assets as of June 30, 1998.
(k) At June 30, 1998, the cost of securities for federal income tax
purposes was $447,116,041 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $47,871,270
Unrealized depreciation (124,142)
Net unrealized appreciation $47,747,128
<PAGE>
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. 7, 1998
o Statement of assets and liabilities, June 30, 1998
o Statement of operations, year ended June 30, 1998
o Statement of changes in net assets, for the two-year period
ended June 30, 1998 and June 30, 1997
o Notes to financial statements
o Investments in securities, June 30, 1998
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. 7, 1998
o Statement of assets and liabilities, June 30, 1998
o Statement of operations, year ended June 30, 1998
o Statement of changes in net assets, for the two-year period
ended June 30, 1998 and June 30, 1997
o Notes to financial statements
o Investments in securities, June 30, 1998
o Notes to investments in securities
(b) EXHIBITS:
1. Copy of Declaration of Trust, dated April 7, 1986, filed as Exhibit 1
to Registration Statement No. 33-5102, is incorporated herein by
reference.
2. Amended By-laws, dated June 8, 1989, filed electronically as Exhibit 2
to Registrant's Post-Effective Amendment No. 29 to Registration
Statement
No. 33-5102, is incorporated herein by reference.
3. Not Applicable.
4. Form of Certificate for shares of beneficial interest, filed as Exhibit
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, filed
electronically as Exhibit 5 to Registrant's Post-Effective Amendment No. 29
to Registration Statement No. 33-5102, is incorporated herein by reference.
<PAGE>
6. Copy of Distribution Agreement between Registrant and American Express
Financial Advisors Inc., dated March 20, 1995, filed electronically as
Exhibit 6 to Registrant's Post-Effective Amendment No. 29 to Registration
Statement No. 33-5102, is incorporated herein by reference.
7. All employees are eligible to participate in a profit sharing plan.
Entry into the plan is Jan. 1 or July 1. The Registrant contributes
each year an amount up to 15 percent of their annual salaries, the
maximum deductible amount permitted under Section 404(a) of the
Internal Revenue Code.
8. Copy of Custodian Agreement between Registrant and First National Bank
of Minneapolis, dated July 23, 1986, filed electronically as Exhibit 8
to Registrant's Post-Effective Amendment No. 29 to Registration
Statement No. 33-5102, is incorporated herein by reference.
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 Client Service Corporation, dated January 1, 1998, is filed
electronically herewith.
9(c). Copy of Shareholder Service Agreement between Registrant and American
Express Financial Advisors Inc., dated March 20, 1995, filed
electronically as Exhibit 9(c) to Registrant's Post-Effective Amendment
No. 29 to Registration Statement No. 33-5102, is incorporated herein by
reference.
9(d). Copy of Administrative Services Agreement between Registrant and
American Express Financial Corporation, dated March 20, 1995, filed
electronically as Exhibit 9(d) to Registrant's Post-Effective Amendment
No. 29 to Registration Statement No. 33-5102, is incorporated herein by
reference.
9(e). Copy of License Agreement, dated January 25, 1988, filed electronically
as Exhibit 9(e) to Registrant's Post-Effective Amendment No. 29 to
Registration Statement No. 33-5102, is incorporated herein by
reference.
9(f) Copy of Class Y Shareholder Service Agreement between IDS Precious
Metals Fund, Inc. and American Express Financial Advisors Inc., dated
May 9, 1997, filed electronically on or about May 27, 1997 as Exhibit
9(e) to IDS Precious Metals Fund, Inc.'s Post-Effective Amendment No.
30 to Registration Statement No. 2-93745, is incorporated herein by
reference. Registrant's Class Y Shareholder Service Agreement differs
from the one incorporated by reference only by the fact that Registrant
is one executing party.
10. Opinion and consent of counsel as to the legality of the securities
being registered is filed electronically herewith.
11. Independent Auditors' Consent is filed electronically herewith.
12. None.
<PAGE>
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, filed
electronically as Exhibit 15 to Registrant's Post-Effective Amendment
No. 29 to Registration Statement No. 33-5102, is incorporated herein by
reference.
16. Copy of 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.
18. Copy of 18f-3 Plan dated May 9, 1997, filed electronically on or about
January 27, 1998 as Exhibit 18 to IDS Equity Select Fund, Inc.'s
Post-Effective Amendment No. 86 to Registration Statement No. 2-13188,
is incorporated herein by reference.
19(a). Trustees' Power of Attorney to sign Amendments to this Registration
Statement, dated January 7, 1998, is filed electronically herewith.
19(b). Officers' Power of Attorney to sign Amendments to this Registration
Statement, dated November 1, 1995, filed electronically as Exhibit
19(b) to Registrant's Post-Effective Amendment No. 29 to Registration
Statement No. 33-5102, is incorporated herein by reference.
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. 20, 1998
IDS Insured Tax-Exempt Fund
Common Stock
Class A 11,703
Class B 1,341
Class Y 1
<PAGE>
IDS Massachusetts Tax-Exempt Fund
Common Stock
Class A 2,269
Class B 427
Class Y 1
IDS Michigan Tax-Exempt Fund
Common Stock
Class A 2,046
Class B 188
Class Y 1
IDS Minnesota Tax-Exempt Fund
Common Stock
Class A 11,535
Class B 1,185
Class Y 1
IDS New York Tax-Exempt Fund
Common Stock
Class A 3,164
Class B 384
Class Y 1
IDS Ohio Tax-Exempt Fund
Common Stock
Class A 1,974
Class B 188
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.
<PAGE>
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.
<TABLE>
<CAPTION>
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)
Directors and officers of American Express Financial Corporation who are directors and/or officers of one or more
other companies:
<S> <C> <C> <C>
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Name and Title Other company(s) Address Title within other
company(s)
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Ronald G. Abrahamson, American Express Client IDS Tower 10 Director and Vice President
Vice President Service Corporation Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
North Dakota Public Director and Vice President
Employee Payment Company
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Douglas A. Alger, American Express Financial IDS Tower 10 Senior Vice President
Senior Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Peter J. Anderson, Advisory Capital Strategies IDS Tower 10 Director
Director and Senior Vice Group Inc. Minneapolis, MN 55440
President
American Express Asset Director and Chairman of
Management Group Inc. the Board
American Express Asset Director, Chairman of the
Management International, Board and Executive Vice
Inc. President
American Express Financial Senior Vice President
Advisors Inc.
IDS Capital Holdings Inc. Director and President
IDS Futures Corporation Director
NCM Capital Management 2 Mutual Plaza Director
Group, Inc. 501 Willard Street
Durham, NC 27701
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Ward D. Armstrong, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Service Vice President
Corporation
American Express Trust Director and Chairman of
Company the Board
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
John M. Baker, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Trust Senior Vice President
Company
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Joseph M. Barsky III, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Timothy V. Bechtold, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Executive Vice President
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
John C. Boeder, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Box 5144 Director
of New York Albany, NY 12205
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Douglas W. Brewers, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Karl J. Breyer, American Express Financial IDS Tower 10 Senior Vice President
Director, Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Minnesota Director
Foundation
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Daniel J. Candura, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Cynthia M. Carlson, American Enterprise IDS Tower 10 Director, President and
Vice President Investment Services Inc. Minneapolis, MN 55440 Chief Executive Officer
American Express Financial Vice President
Advisors Inc.
American Express Service Vice President
Corporation
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Mark W. Carter, American Express Financial IDS Tower 10 Senior Vice President and
Senior Vice President and Advisors Inc. Minneapolis, MN 55440 Chief Marketing Officer
Chief Marketing Officer
IDS Life Insurance Company Executive Vice President
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
James E. Choat, American Enterprise Life IDS Tower 10 Director, President and
Senior Vice President Insurance Company Minneapolis, MN 55440 Chief Executive Officer
American Express Financial Senior Vice President
Advisors Inc.
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Alabama Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Massachusetts Inc.
IDS Insurance Agency of New Vice President
Mexico Inc.
IDS Insurance Agency of Vice President
North Carolina Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Insurance Agency of Vice President
Wyoming Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Kenneth J. Ciak, AMEX Assurance Company IDS Tower 10 Director and President
Vice President and General Minneapolis, MN 55440
Manager
American Express Financial Vice President and General
Advisors Inc. Manager
IDS Property Casualty 1 WEG Blvd. Director and President
Insurance Company DePere, WI 54115
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Paul A. Connolly, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Colleen Curran, American Express Financial IDS Tower 10 Vice President and
Vice President and Advisors Inc. Minneapolis, MN 55440 Assistant General Counsel
Assistant General Counsel
American Express Service Vice President and Chief
Corporation Legal Counsel
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Regenia David, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Luz Maria Davis American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Gordon L. Eid, American Express Financial IDS Tower 10 Senior Vice President,
Director, Senior Vice Advisors Inc. Minneapolis, MN 55440 General Counsel and Chief
President, Deputy General Compliance Officer
Counsel and Chief
Compliance Officer
American Express Insurance Director and Vice President
Agency of Arizona Inc.
American Express Insurance Director and Vice President
Agency of Idaho Inc.
American Express Insurance Director and Vice President
Agency of Nevada Inc.
American Express Insurance Director and Vice President
Agency of Oregon Inc.
American Express Property Director and Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Director and Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Director and Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Director and Vice President
Alabama Inc.
IDS Insurance Agency of Director and Vice President
Arkansas Inc.
IDS Insurance Agency of Director and Vice President
Massachusetts Inc.
IDS Insurance Agency of New Director and Vice President
Mexico Inc.
IDS Insurance Agency of Director and Vice President
North Carolina Inc.
IDS Insurance Agency of Director and Vice President
Ohio Inc.
IDS Insurance Agency of Director and Vice President
Wyoming Inc.
IDS Real Estate Services, Vice President
Inc.
Investors Syndicate Director
Development Corp.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Robert M. Elconin, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Vice President
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Gordon M. Fines, American Express Asset IDS Tower 10 Executive Vice President
Vice President Management Group Inc. Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Douglas L. Forsberg, American Centurion Life IDS Tower 10 Director
Vice President Assurance Company Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Jeffrey P. Fox, American Enterprise Life IDS Tower 10 Vice President and
Vice President and Insurance Company Minneapolis, MN 55440 Controller
Corporate Controller
American Express Financial Vice President and
Advisors Inc. Corporate Controller
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Harvey Golub, American Express Company American Express Tower Chairman and Chief
Director World Financial Center Executive Officer
New York, NY 10285
American Express Travel Chairman and Chief
Related Services Company, Executive Officer
Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
David A. Hammer, American Express Financial IDS Tower 10 Vice President and
Vice President and Advisors Inc. Minneapolis, MN 55440 Marketing Controller
Marketing Controller
IDS Plan Services of Director and Vice President
California, Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Lorraine R. Hart, AMEX Assurance Company IDS Tower 10 Vice President
Vice President Minneapolis, MN 55440
American Enterprise Life Vice President
Insurance Company
American Express Financial Vice President
Advisors Inc.
American Partners Life Director and Vice
Insurance Company President
IDS Certificate Company Vice President
IDS Life Insurance Company Vice President
IDS Life Series Fund, Inc. Vice President
IDS Life Variable Annuity Vice President
Funds A and B
Investors Syndicate Director and Vice
Development Corp. President
IDS Life Insurance Company P.O. Box 5144 Investment Officer
of New York Albany, NY 12205
IDS Property Casualty 1 WEG Blvd. Vice President
Insurance Company DePere, WI 54115
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Scott A. Hawkinson, American Centurion Life IDS Tower 10 Chief Actuary
Vice President Assurance Company Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Janis K. Heaney, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
James G. Hirsh, American Express Financial IDS Tower 10 Vice President and
Vice President and Advisors Inc. Minneapolis, MN 55440 Assistant General Counsel
Assistant General Counsel
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Darryl G. Horsman, American Express Trust IDS Tower 10 Director and President
Vice President Company Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Jeffrey S. Horton, AMEX Assurance Company IDS Tower 10 Vice President, Treasurer
Vice President and Minneapolis, MN 55440 and Assistant Secretary
Corporate Treasurer
American Centurion Life Vice President and
Assurance Company Treasurer
American Enterprise Vice President and
Investment Services Inc. Treasurer
American Enterprise Life Vice President and
Insurance Company Treasurer
American Express Asset Vice President and
Management Group Inc. Treasurer
American Express Asset Vice President and
Management International Treasurer
Inc.
American Express Client Vice President and
Service Corporation Treasurer
American Express Corporation Vice President and
Treasurer
American Express Financial Vice President and
Advisors Inc. Treasurer
American Express Insurance Vice President and
Agency of Arizona Inc. Treasurer
American Express Insurance Vice President and
Agency of Idaho Inc. Treasurer
American Express Insurance Vice President and
Agency of Nevada Inc. Treasurer
American Express Minnesota Vice President and
Foundation Treasurer
American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Kentucky Inc.
American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Maryland Inc.
American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Pennsylvania Inc.
American Express Partners Vice President and
Life Insurance Company Treasurer
IDS Cable Corporation Director, Vice President
and Treasurer
IDS Cable II Corporation Director, Vice President
and Treasurer
IDS Capital Holdings Inc. Vice President, Treasurer
and Assistant Secretary
IDS Certificate Company Vice President and
Treasurer
IDS Insurance Agency of Vice President and
Alabama Inc. Treasurer
IDS Insurance Agency of Vice President and
Arkansas Inc. Treasurer
IDS Insurance Agency of Vice President and
Massachusetts Inc. Treasurer
IDS Insurance Agency of New Vice President and
Mexico Inc. Treasurer
IDS Insurance Agency of Vice President and
North Carolina Inc. Treasurer
IDS Insurance Agency of Vice President and
Ohio Inc. Treasurer
IDS Insurance Agency of Vice President and
Wyoming Inc. Treasurer
IDS Life Insurance Company Vice President, Treasurer
and Assistant Secretary
IDS Life Series Fund Inc. Vice President and
Treasurer
IDS Life Variable Annuity Vice President and
Funds A & B Treasurer
IDS Management Corporation Director, Vice President
and Treasurer
IDS Partnership Services Vice President and
Corporation Treasurer
IDS Plan Services of Vice President and
California, Inc. Treasurer
IDS Real Estate Services, Vice President and
Inc. Treasurer
IDS Realty Corporation Vice President and
Treasurer
IDS Sales Support Inc. Vice President and
Treasurer
IDS Securities Corporation Vice President and
Treasurer
Investors Syndicate Vice President and
Development Corp. Treasurer
IDS Property Casualty 1 WEG Blvd. Vice President, Treasurer
Insurance Company DePere, WI 54115 and Assistant Secretary
North Dakota Public Vice President and
Employee Payment Company Treasurer
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
David R. Hubers, AMEX Assurance Company IDS Tower 10 Director
Director, President and Minneapolis, MN 55440
Chief Executive Officer
American Express Financial Chairman, President and
Advisors Inc. Chief Executive Officer
American Express Service Director and President
Corporation
IDS Certificate Company Director
IDS Life Insurance Company Director
IDS Plan Services of Director and President
California, Inc.
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Martin G. Hurwitz, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
James M. Jensen, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Vice President
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Marietta L. Johns, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Nancy E. Jones, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Service Vice President
Corporation
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
James E. Kaarre, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Matthew N. Karstetter, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Linda B. Keene, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
G. Michael Kennedy, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Susan D. Kinder, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
IDS Securities Corporation Director
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Brian C. Kleinberg, American Enterprise IDS Tower 10 Senior Vice President
Executive Vice President Investment Services Inc. Minneapolis, MN 55440
American Express Financial Executive Vice President
Advisors Inc.
American Express Service Director
Corporation
AMEX Assurance Company Director and Chairman of
the Board
American Partners Life Executive Vice President
Insurance Company
IDS Property Casualty 1 WEG Blvd. Director and Chairman of
Insurance Company DePere, WI 54115 the Board
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Richard W. Kling, AMEX Assurance Company IDS Tower 10 Director
Director and Senior Vice Minneapolis, MN 55440
President
American Centurion Life Director
Assurance Company
American Enterprise Life Director and Chairman of
Insurance Company the Board
American Express Corporation Director and President
American Express Financial Senior Vice President
Advisors Inc.
American Express Insurance Director and President
Agency of Arizona Inc.
American Express Insurance Director and President
Agency of Idaho Inc.
American Express Insurance Director and President
Agency of Nevada Inc.
American Express Insurance Director and President
Agency of Oregon Inc.
American Express Property Director and President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Director and President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Director and President
Casualty Insurance Agency
of Pennsylvania Inc.
American Express Service Vice President
Corporation
American Partners Life Director and Chairman of
Insurance Company the Board
IDS Certificate Company Director and Chairman of
the Board
IDS Insurance Agency of Director and President
Alabama Inc.
IDS Insurance Agency of Director and President
Arkansas Inc.
IDS Insurance Agency of Director and President
Massachusetts Inc.
IDS Insurance Agency of New Director and President
Mexico Inc.
IDS Insurance Agency of Director and President
North Carolina Inc.
IDS Insurance Agency of Director and President
Ohio Inc.
IDS Insurance Agency of Director and President
Wyoming Inc.
IDS Life Insurance Company Director and President
IDS Life Series Fund, Inc. Director and President
IDS Life Variable Annuity Manager, Chairman of the
Funds A and B Board and President
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
IDS Life Insurance Company P.O. Box 5144 Director, Chairman of the
of New York Albany, NY 12205 Board and President
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Paul F. Kolkman, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Director and Executive
Vice President
IDS Life Series Fund, Inc. Vice President and Chief
Actuary
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Claire Kolmodin, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Steve C. Kumagai, American Express Financial IDS Tower 10 Director and Senior Vice
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440 President
President
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Edward Labenski, Jr., American Express Asset IDS Tower 10 Senior Vice President
Vice President Management Group Inc. Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Kurt A Larson, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Lori J. Larson, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Futures Corporation Director
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Daniel E. Laufenberg, American Express Financial IDS Tower 10 Vice President and Chief
Vice President and Chief Advisors Inc. Minneapolis, MN 55440 U.S. Economist
U.S. Economist
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Peter A. Lefferts, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Trust Director
Company
IDS Plan Services of Director
California, Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Douglas A. Lennick, American Express Financial IDS Tower 10 Director and Executive
Director and Executive Vice Advisors Inc. Minneapolis, MN 55440 Vice President
President
IDS Securities Corporation Director, President and
Chief Executive Officer
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Mary J. Malevich, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Fred A. Mandell, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Thomas W. Medcalf, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Paula R. Meyer, American Enterprise Life IDS Tower 10 Vice President
Vice President Insurance Company Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
American Partners Life Director and President
Insurance Company
IDS Certificate Company Director and President
IDS Life Insurance Company Director and Executive
Vice President
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
James A. Mitchell, AMEX Assurance Company IDS Tower 10 Director
Director and Executive Vice Minneapolis, MN 55440
President
American Enterprise Director
Investment Services Inc.
American Express Financial Executive Vice President
Advisors Inc.
American Express Service Director and Senior Vice
Corporation President
American Express Tax and Director
Business Services Inc.
IDS Certificate Company Director
IDS Life Insurance Company Director, Chairman of the
Board and Chief Executive
Officer
IDS Plan Services of Director
California, Inc.
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
William P. Miller, Advisory Capital Strategies IDS Tower 10 Vice President
Vice President and Senior Group Inc. Minneapolis, MN 55440
Portfolio Manager
American Express Asset Senior Vice President
Management Group Inc.
American Express Financial Vice President and Senior
Advisors Inc. Portfolio Manager
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Pamela J. Moret, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Trust Vice President
Company
IDS Life Insurance Company Executive Vice President
IDS Life Insurance Company P.O. Box 5144 Vice President
of New York Albany, NY 12205
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Barry J. Murphy, American Express Client IDS Tower 10 Director and President
Director and Senior Vice Service Corporation Minneapolis, MN 55440
President
American Express Financial Senior Vice President
Advisors Inc.
IDS Life Insurance Company Director and Executive
Vice President
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Mary Owens Neal, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Michael J. O'Keefe, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
James R. Palmer, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Vice President
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Carla P. Pavone, American Express Client IDS Tower 10 Director and Vice President
Vice President Service Corporation Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
North Dakota Public Director and President
Employee Payment Company
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Thomas P. Perrine, American Express Financial IDS Tower 10 Senior Vice President
Senior Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Susan B. Plimpton, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Ronald W. Powell, American Express Financial IDS Tower 10 Vice President and
Vice President and Advisors Inc. Minneapolis, MN 55440 Assistant General Counsel
Assistant General Counsel
IDS Cable Corporation Vice President and
Assistant Secretary
IDS Cable II Corporation Vice President and
Assistant Secretary
IDS Management Corporation Vice President and
Assistant Secretary
IDS Partnership Services Vice President and
Corporation Assistant Secretary
IDS Plan Services of Vice President and
California, Inc. Assistant Secretary
IDS Realty Corporation Vice President and
Assistant Secretary
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
James M. Punch, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Frederick C. Quirsfeld, American Express Asset IDS Tower 10 Vice President
Senior Vice President Management Group Inc. Minneapolis, MN 55440
American Express Financial Senior Vice President
Advisors Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
ReBecca K. Roloff, American Express Financial IDS Tower 10 Senior Vice President
Senior Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Stephen W. Roszell, Advisory Capital Strategies IDS Tower 10 Director
Senior Vice President Group Inc. Minneapolis, MN 55440
American Express Asset Director, President and
Management Group Inc. Chief Executive Officer
American Express Asset Director
Management International,
Inc.
American Express Asset Director
Management Ltd.
American Express Financial Senior Vice President
Advisors Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
John P. Ryan, American Express Financial IDS Tower 10 Vice President and General
Vice President and General Advisors Inc. Minneapolis, MN 55440 Auditor
Auditor
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Erven A. Samsel, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Alabama Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Massachusetts Inc.
IDS Insurance Agency of New Vice President
Mexico Inc.
IDS Insurance Agency of Vice President
North Carolina Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Insurance Agency of Vice President
Wyoming Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Stuart A. Sedlacek, American Centurion Life IDS Tower 10 Director, Chairman and
Senior Vice President and Assurance Company Minneapolis, MN 55440 President
Chief Financial Officer
American Enterprise Life Executive Vice President
Insurance Company
American Express Financial Senior Vice President and
Advisors Inc. Chief Financial Officer
American Express Trust Director
Company
American Partners Life Director and Vice President
Insurance Agency
IDS Certificate Company Director and President
IDS Life Insurance Company Executive Vice President
and Controller
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Donald K. Shanks, AMEX Assurance Company IDS Tower 10 Senior Vice President
Vice President Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
IDS Property Casualty 1 WEG Blvd. Senior Vice President
Insurance Company DePere, WI 54115
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
F. Dale Simmons, AMEX Assurance Company IDS Tower 10 Vice President
Vice President Minneapolis, MN 55440
American Enterprise Life Vice President
Insurance
American Express Financial Vice President
Advisors Inc.
American Partners Life Vice President
Insurance Company
IDS Certificate Company Vice President
IDS Life Insurance Company Vice President
IDS Partnership Services Director and Vice President
Corporation
IDS Real Estate Services Director and Vice President
Inc.
IDS Realty Corporation Director and Vice President
IDS Life Insurance Company Box 5144 Vice President and
of New York Albany, NY 12205 Assistant Treasurer
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Judy P. Skoglund, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
William A. Smith, American Express Financial IDS Tower 10 Vice President and
Vice President and Advisors Inc. Minneapolis, MN 55440 Controller
Controller
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Bridget Sperl, American Express Client IDS Tower 10 Vice President
Vice President Service Corporation Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Lisa A. Steffes, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
William A. Stoltzmann, American Enterprise Life IDS Tower 10 Director, Vice President,
Vice President and Insurance Company Minneapolis, MN 55440 General Counsel and
Assistant General Counsel Secretary
American Express Corporation Director, Vice President
and Secretary
American Express Financial Vice President and
Advisors Inc. Assistant General Counsel
American Partners Life Director, Vice President,
Insurance Company General Counsel and
Secretary
IDS Life Insurance Company Vice President, General
Counsel and Secretary
IDS Life Series Fund Inc. General Counsel and
Assistant Secretary
IDS Life Variable Annuity General Counsel and
Funds A & B Assistant Secretary
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
James J. Strauss, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Jeffrey J. Stremcha, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Barbara Stroup Stewart, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Wesley W. Wadman, American Express Asset IDS Tower 10 Executive Vice President
Vice President Management Group Inc. Minneapolis, MN 55440
American Express Asset Director and Senior Vice
Management International, President
Inc.
American Express Asset Director and Vice Chairman
Management Ltd.
American Express Financial Vice President
Advisors Inc.
IDS Fund Management Limited Director and Vice Chairman
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Norman Weaver Jr., American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Insurance Vice President
Agency of Arizona Inc.
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Alabama Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Massachusetts Inc.
IDS Insurance Agency of New Vice President
Mexico Inc.
IDS Insurance Agency of Vice President
North Carolina Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Insurance Agency of Vice President
Wyoming Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Michael L. Weiner, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Capital Holdings Inc. Vice President
IDS Futures Brokerage Group Vice President
IDS Futures Corporation Vice President, Treasurer
and Secretary
IDS Sales Support Inc. Director, Vice President
and Assistant Treasurer
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Lawrence J. Welte, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Jeffrey F. Welter, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Edwin M. Wistrand, American Express Financial IDS Tower 10 Vice President and
Vice President and Advisors Inc. Minneapolis, MN 55440 Assistant General Counsel
Assistant General Counsel
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Michael D. Wolf, American Express Asset IDS Tower 10 Executive Vice President
Vice President Management Group Inc. Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Michael R. Woodward, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Alabama Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Massachusetts Inc.
IDS Insurance Agency of New Vice President
Mexico Inc.
IDS Insurance Agency of Vice President
North Carolina Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Insurance Agency of Vice President
Wyoming Inc.
IDS Life Insurance Company Box 5144 Director
of New York Albany, NY 12205
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
</TABLE>
<TABLE>
<CAPTION>
Item 29. Principal Underwriters.
(a) American Express Financial Advisors acts as principal underwriter for the following investment
companies:
IDS Bond Fund, Inc.; IDS California Tax-Exempt Trust; IDS Discovery Fund, Inc.; IDS Equity
Select Fund, Inc.; IDS Extra Income Fund, Inc.; IDS Federal Income Fund, Inc.; IDS Global
Series, Inc.; IDS Growth Fund, Inc.; IDS High Yield Tax-Exempt Fund, Inc.; IDS International
Fund, Inc.; IDS Investment Series, Inc.; IDS Managed Retirement Fund, Inc.; IDS Market
Advantage Series, Inc.; IDS Money Market Series, Inc.; IDS New Dimensions Fund, Inc.; IDS
Precious Metals Fund, Inc.; IDS Progressive Fund, Inc.; IDS Selective Fund, Inc.; IDS Special
Tax-Exempt Series Trust; IDS Stock Fund, Inc.; IDS Strategy Fund, Inc.; IDS Tax-Exempt Bond
Fund, Inc.; IDS Tax-Free Money Fund, Inc.; IDS Utilities Income Fund, Inc., Growth Trust;
Growth and Income Trust; Income Trust, Tax-Free Income Trust, World Trust and IDS Certificate
Company.
(b) As to each director, officer or partner of the principal underwriter:
<S> <C> <C>
Name and Principal Business Address Position and Offices with Offices with Registrant
Underwriter
- --------------------------------------------- --------------------------------- --------------------------
Ronald G. Abrahamson Vice President-Service Quality None
IDS Tower 10 and Reengineering
Minneapolis, MN 55440
Douglas A. Alger Senior Vice President-Human None
IDS Tower 10 Resources
Minneapolis, MN 55440
Peter J. Anderson Senior Vice Vice President
IDS Tower 10 President-Investment Operations
Minneapolis, MN 55440
Ward D. Armstrong Vice President-American None
IDS Tower 10 Express, Institutional Services
Minneapolis, MN 55440
John M. Baker Vice President-Plan Sponsor None
IDS Tower 10 Services
Minneapolis, MN 55440
Joseph M. Barsky III Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Timothy V. Bechtold Vice President-Risk Management None
IDS Tower 10 Products
Minneapolis, MN 55440
John D. Begley Group Vice None
Suite 100 President-Ohio/Indiana
7760 Olentangy River Rd.
Columbus, OH 43235
Brent L. Bisson Group Vice President-Los None
Suite 900, E. Westside Twr Angeles Metro
11835 West Olympic Blvd.
Los Angeles, CA 90064
John C. Boeder Vice President-Mature Market None
IDS Tower 10 Group
Minneapolis, MN 55440
Walter K. Booker Group Vice President-New Jersey None
Suite 200, 3500 Market Street
Camp Hill, NJ 17011
Bruce J. Bordelon Group Vice President-Gulf States None
Galleria One Suite 1900
Galleria Blvd.
Metairie, LA 70001
Charles R. Branch Group Vice President-Northwest None
Suite 200
West 111 North River Dr.
Spokane, WA 99201
Douglas W. Brewers Vice President-Sales Support None
IDS Tower 10
Minneapolis, MN 55440
Karl J. Breyer Senior Vice President-Law and None
IDS Tower 10 Corporate
Minneapolis, MN 55440 Affairs
Daniel J. Candura Vice President-Marketing Support None
IDS Tower 10
Minneapolis, MN 55440
Cynthia M. Carlson Vice President-American Express None
IDS Tower 10 Securities Services
Minneapolis, MN 55440
Mark W. Carter Senior Vice President and Chief None
IDS Tower 10 Marketing Officer
Minneapolis, MN 55440
James E. Choat Senior Vice None
IDS Tower 10 President-Institutional
Minneapolis, MN 55440 Products Group
Kenneth J. Ciak Vice President and General None
IDS Property Casualty Manager-IDS Property Casualty
1400 Lombardi Avenue
Green Bay, WI 54304
Paul A. Connolly Vice President - Advisor None
IDS Tower 10 Staffing, Training and Support
Minneapolis, MN 55440
Roger C. Corea Group Vice President-Upstate None
290 Woodcliff Drive New York
Fairport, NY 14450
Henry J. Cormier Group Vice President-Connecticut None
Commerce Center One
333 East River Drive
East Hartford, CT 06108
John M. Crawford Group Vice President-Arkansas / None
Suite 200 Springfield / Memphis
10800 Financial Ctr Pkwy
Little Rock, AR 72211
Kevin F. Crowe Group Vice None
Suite 312 President-Carolinas/Eastern
7300 Carmel Executive Pk Georgia
Charlotte, NC 28226
Colleen Curran Vice President and assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
Reginia David Vice President-Systems Services None
IDS Tower 10
Minneapolis, MN 55440
Luz Maria Davis Vice President-Communications None
IDS Tower 10
Minneapolis, MN 55440
Scott M. DiGiammarino Group Vice None
Suite 500, 8045 Leesburg Pike President-Washington/Baltimore
Vienna, VA 22182
Bradford L. Drew Group Vice President-Eastern None
Two Datran Center Florida
Penthouse One B
9130 S. Dadeland Blvd.
Miami, FL 33156
James P. Egge Group Vice President - Western None
4305 South Louise, Suite 202 Iowa, Nebraska, Dakotas
Sioux Falls, SD 57103
Gordon L. Eid Senior Vice President, General None
IDS Tower 10 Counsel and Chief Compliance
Minneapolis, MN 55440 Officer
Robert M. Elconin Vice President-Government None
IDS Tower 10 Relations
Minneapolis, MN 55440
Louise P. Evenson Group Vice President-San None
Suite 200 Francisco Bay Area
1333 N. California Blvd.
Walnut Creek, CA 94596
Phillip W. Evans, Group Vice President - Rocky None
Suite 600 Mountain
6985 Union Park Center
Midvale, UT 84047-4177
Gordon M. Fines Vice President-Mutual Fund None
IDS Tower 10 Equity Investments
Minneapolis, MN 55440
Douglas L. Forsberg Vice President-Institutional None
IDS Tower 10 Products Group
Minneapolis, MN 55440
Jeffrey P. Fox Vice President and Corporate None
IDS Tower 10 Controller
Minneapolis, MN 55440
William P. Fritz Group Vice President-Gateway None
Suite 160
12855 Flushing Meadows Dr
St. Louis, MO 63131
Carl W. Gans Group Vice President-Twin City None
8500 Tower Suite 1770 Metro
8500 Normandale Lake Blvd.
Bloomington, MN 55437
David A. Hammer Vice President and Marketing None
IDS Tower 10 Controller
Minneapolis, MN 55440
Teresa A. Hanratty Group Vice President-Northern None
Suites 6&7 New England
169 South River Road
Bedford, NH 03110
Robert L. Harden Group Vice President-Boston None
Two Constitution Plaza Metro
Boston, MA 02129
Lorraine R. Hart Vice President-Insurance None
IDS Tower 10 Investments
Minneapolis, MN 55440
Scott A. Hawkinson Vice President-Assured Assets None
IDS Tower 10 Product Development and
Minneapolis, MN 55440 Management
Brian M. Heath Group Vice President-North Texas None
Suite 150
801 E. Campbell Road
Richardson, TX 75081
Janis K. Heaney Vice President - Incentive None
IDS Tower 10 Management
Minneapolis, MN 55440
James G. Hirsh Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
Jon E. Hjelm Group Vice President-Rhode None
319 Southbridge Street Island/Central-Western
Auburn, MA 01501 Massachusetts
David J. Hockenberry Group Vice President-Eastern None
30 Burton Hills Blvd. Tennessee
Suite 175
Nashville, TN 37215
Jeffrey S. Horton Vice President and Treasurer None
IDS Tower 10
Minneapolis, MN 55440
David R. Hubers Chairman, President and Chief Board member
IDS Tower 10 Executive Officer
Minneapolis, MN 55440
Martin G. Hurwitz Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
James M. Jensen Vice President-Insurance None
IDS Tower 10 Product Development and
Minneapolis, MN 55440 Management
Marietta L. Johns Senior Vice President-Field None
IDS Tower 10 Management
Minneapolis, MN 55440
Nancy E. Jones Vice President - Business None
IDS Tower 10 Development
Minneapolis, MN 55440
James E. Kaarre Vice President-Marketing None
IDS Tower 10 Promotions
Minneapolis, MN 55440
Matthew N. Karstetter Vice President-Investment None
IDS Tower 10 Accounting
Minneapolis, MN 55440
Linda B. Keene Vice President-Market None
IDS Tower 10 Development
Minneapolis, MN 55440
G. Michael Kennedy Vice President-Investment None
IDS Tower 10 Services and Investment Research
Minneapolis, MN 55440
Susan D. Kinder Senior Vice None
IDS Tower 10 President-Distribution Services
Minneapolis, MN 55440
Brian Kleinberg Executive Vice None
IDS Tower 10 President-Financial Direct
Minneapolis, MN 55440
Richard W. Kling Senior Vice President-Products None
IDS Tower 10
Minneapolis, MN 55440
Paul F. Kolkman Vice President-Actuarial Finance None
IDS Tower 10
Minneapolis, MN 55440
Claire Kolmodin Vice President-Service Quality None
IDS Tower 10
Minneapolis, MN 55440
David S. Kreager Group Vice President-Greater None
Suite 108 Michigan
Trestle Bridge V
5136 Lovers Lane
Kalamazoo, MI 49002
Steven C. Kumagai Director and Senior Vice None
IDS Tower 10 President-Field Management and
Minneapolis, MN 55440 Business Systems
Mitre Kutanovski Group Vice President-Chicago None
Suite 680 Metro
8585 Broadway
Merrillville, IN 48410
Edward Labenski Jr. Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Kurt A. Larson Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Lori J. Larson Vice President - Brokerage and None
IDS Tower 10 Direct Services
Minneapolis, MN 55440
Daniel E. Laufenberg Vice President and Chief U.S. None
IDS Tower 10 Economist
Minneapolis, MN 55440
Peter A. Lefferts Senior Vice President-Corporate None
IDS Tower 10 Strategy and Development
Minneapolis, MN 55440
Douglas A. Lennick Director and Executive Vice None
IDS Tower 10 President-Private Client Group
Minneapolis, MN 55440
Mary J. Malevich Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Fred A. Mandell Vice President-Field Marketing None
IDS Tower 10 Readiness
Minneapolis, MN 55440
Daniel E. Martin Group Vice President-Pittsburgh None
Suite 650 Metro
5700 Corporate Drive
Pittsburgh, PA 15237
Thomas W. Medcalf Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Paula R. Meyer Vice President - Assured Assets None
IDS Tower 10
Minneapolis, MN 55440
William P. Miller Vice President and Senior None
IDS Tower 10 Portfolio Manager
Minneapolis, MN 55440
James A. Mitchell Executive Vice None
IDS Tower 10 President-Marketing and Products
Minneapolis, MN 55440
Pamela J. Moret Vice President-Variable Assets None
IDS Tower 10
Minneapolis, MN 55440
Alan D. Morgenstern Group Vice President-Central None
Suite 200 California/Western Nevada
3500 Market Street
Camp Hill, NJ 17011
Barry J. Murphy Senior Vice President-Client None
IDS Tower 10 Service
Minneapolis, MN 55440
Mary Owens Neal Vice President-Mature Market None
IDS Tower 10 Segment
Minneapolis, MN 55440
Thomas V. Nicolosi Group Vice President-New York None
Suite 220 Metro Area
500 Mamaroneck Avenue
Harrison, NY 10528
Michael J. O'Keefe Vice President - Advisory None
IDS Tower 10 Business Systems
Minneapolis, MN 55440
James R. Palmer Vice President-Taxes None
IDS Tower 10
Minneapolis, MN 55440
Marc A. Parker Group Vice President - None
10200 SW Greenburg Road Portland/Eugene
Suite 110
Portland OR 97223
Carla P. Pavone Vice President-Compensation and None
IDS Tower 10 Field Administration
Minneapolis, MN 55440
Thomas P. Perrine Senior Vice President - Group
IDS Tower 10 Relationship Leader/AXP
Minneapolis, MN 55440 Technologies Financial Services
Susan B. Plimpton Vice President-Marketing None
IDS Tower 10 Services
Minneapolis, MN 55440
Larry M. Post Group Vice None
One Tower Bridge President-Philadelphia Metro
100 Front Street 8th Fl
West Conshohocken, PA 19428
Ronald W. Powell Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
Diana R. Prost Group Vice President - None
3030 N.W. Expressway Kansas/Oklahoma
Suite 900
Oklahoma City, OK 73112
James M. Punch Vice President-Special Projects None
IDS Tower 10
Minneapolis, MN 55440
Frederick C. Quirsfeld Senior Vice President - Fixed None
IDS Tower 10 Income
Minneapolis, MN 55440
R. Daniel Richardson Group Vice President-Southern None
Suite 800 Texas
Arboretum Plaza One
9442 Capital of Texas Hwy N.
Austin, TX 78759
ReBecca K. Roloff Senior Vice President-Field None
IDS Tower 10 Management and Financial
Minneapolis, MN 55440 Advisory Service
Stephen W. Roszell Senior Vice None
IDS Tower 10 President-Institutional
Minneapolis, MN 55440
Max G. Roth Group Vice None
Suite 201 S IDS Ctr President-Wisconsin/Upper
1400 Lombardi Avenue Michigan
Green Bay, WI 54304
John P. Ryan Vice President and General None
IDS Tower 10 Auditor
Minneapolis, MN 55440
Erven A. Samsel Senior Vice President-Field None
45 Braintree Hill Park Management
Suite 402
Braintree, MA 02184
Russell L. Scalfano Group Vice None
Suite 201 President-Illinois/Indiana/Kentucky
101 Plaza East Blvd.
Evansville, IN 47715
William G. Scholz Group Vice None
Suite 205 President-Arizona/Las Vegas
7333 E Doubletree Ranch Rd
Scottsdale, AZ 85258
Stuart A. Sedlacek Senior Vice President and Chief None
IDS Tower 10 Financial Officer
Minneapolis, MN 55440
Donald K. Shanks Vice President-Property Casualty None
IDS Tower 10
Minneapolis, MN 55440
F. Dale Simmons Vice President-Senior Portfolio None
IDS Tower 10 Manager, Insurance Investments
Minneapolis, MN 55440
Judy P. Skoglund Vice President -Quality and None
IDS Tower 10 Service Support
Minneapolis, MN 55440
William A. Smith Vice President and None
IDS Tower 10 Controller-Private Client Group
Minneapolis, MN 55440
James B. Solberg Group Vice President-Eastern None
466 Westdale Mall Iowa Area
Cedar Rapids, IA 52404
Bridget Sperl Vice President-Geographic None
IDS Tower 10 Service Teams
Minneapolis, MN 55440
Paul J. Stanislaw Group Vice President-Southern None
Suite 1100 California
Two Park Plaza
Irvine, CA 92714
Lisa A. Steffes Vice President - Cardmember None
IDS Tower 10 Initiatives
Minneapolis, MN 55440
Lois A. Stilwell Group Vice President-Outstate None
Suite 433 Minnesota Area/ North
9900 East Bren Road Dakota/Western Wisconsin
Minnetonka, MN 55343
William A. Stoltzmann Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
James J. Strauss Vice President and General None
IDS Tower 10 Auditor
Minneapolis, MN 55440
Jeffrey J. Stremcha Vice President-Information None
IDS Tower 10 Resource Management/ISD
Minneapolis, MN 55440
Barbara Stroup Stewart Vice President - Channel None
IDS Tower 10 Development
Minneapolis, MN 55440
Craig P. Taucher Group Vice None
Suite 150 President-Orlando/Jacksonville
4190 Belfort Road
Jacksonville, FL 32216
Neil G. Taylor Group Vice None
Suite 425 President-Seattle/Tacoma
101 Elliott Avenue West
Seattle, WA 98119
Peter S. Velardi Group Vice None
Suite 180 President-Atlanta/Birmingham
1200 Ashwood Parkway
Atlanta, GA 30338
Charles F. Wachendorfer Group Vice President - Detroit None
8115 East Jefferson Avenue Metro
Detroit, MI 48214
Wesley W. Wadman Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Donald F. Weaver Group Vice President - Greater None
3500 Market Street, Suite 200 Pennsylvania
Camp Hill, PA 17011
Norman Weaver Jr. Senior Vice President-Field None
1010 Main St. Suite 2B Management
Huntington Beach, CA 92648
Michael L. Weiner Vice President-Tax Research and None
IDS Tower 10 Audit
Minneapolis, MN 55440
Lawrence J. Welte Vice President-Investment None
IDS Tower 10 Administration
Minneapolis, MN 55440
Jeffry M. Welter Vice President-Equity and Fixed None
IDS Tower 10 Income Trading
Minneapolis, MN 55440
Thomas L. White Group Vice President-Cleveland None
Suite 200 Metro
28601 Chagrin Blvd.
Woodmere, OH 44122
Eric S. Williams Group Vice President-Virginia None
Suite 250
3951 Westerre Parkway
Richmond, VA 23233
William J. Williams Group Vice President-Western None
Two North Tamiami Trail Florida
Suite 702
Sarasota, FL 34236
Edwin M. Wistrand Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
Michael D. Wolf Vice President- Senior None
IDS Tower 10 Portfolio Manager
Minneapolis, MN 55440
Michael R. Woodward Senior Vice President-Field None
32 Ellicott St Management
Suite 100
Batavia, NY 14020
</TABLE>
Item 29(c). Not applicable.
Item 30. Location of Accounts and Records
American Express Financial Corporation
IDS Tower 10
Minneapolis, MN 55440
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) Not Applicable.
(b) Not Applicable.
(c) The Registrant undertakes to furnish each person to
whom a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders, upon
request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, IDS Special Tax-Exempt Series Trust,
certifies that it meets all of the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Minneapolis and State of Minnesota on the 28th day of
August, 1998.
IDS SPECIAL TAX-EXEMPT SERIES TRUST
By /s/ William R. Pearce**
William R. Pearce, Chief Executive Officer**
By /s/ Matthew N. Karstetter
Matthew N. Karstetter, 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, 1998.
Signature Capacity
/s/ William R. Pearce* Chairman of the Board
William R. Pearce
/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/ David R. Hubers* Trustee
David R. Hubers
/s/ Heinz F. Hutter* Trustee
Heinz F. Hutter
/s/ Anne P. Jones* Trustee
Anne P. Jones
/s/ Alan K. Simpson* Trustee
Alan K. Simpson
<PAGE>
Signature Capacity
/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 7, 1998, filed
electronically as Exhibit 19(a), by:
/s/ Leslie L. Ogg
Leslie L. Ogg
**Signed pursuant to Officers' Power of Attorney, dated November 1, 1995, filed
electronically as Exhibit 19(b) to Registrant's Post-Effective Amendment No. 29
to Registration Statement No. 33-5102, by:
/s/ Leslie L. Ogg
Leslie L. Ogg
<PAGE>
CONTENTS OF THIS
POST-EFFECTIVE AMENDMENT NO. 30
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.
IDS Special Tax-Exempt Series Trust
File No.33-5102/811-4647
EXHIBIT INDEX
Exhibit 9(b): Copy of Transfer Agency Agreement
Exhibit 10: Opinion of Counsel
Exhibit 11: Independent Auditors' Consent
Exhibit 17: Financial Data Schedules
Exhibit 19(a) Trustees' Power of Attorney
TRANSFER AGENCY AGREEMENT
AGREEMENT dated as of January 1, 1998, between IDS Special Tax-Exempt Series
Trust (the "Company"), a Massachusetts business trust, on behalf of its
underlying series funds (individually a "Fund" and collectively the "Funds"),
and American Express Client Service Corporation (the "Transfer Agent"), a
Minnesota corporation.
In consideration of the mutual promises set forth below, the Company and the
Transfer Agent agree as follows:
1. Appointment of the Transfer Agent. The Company hereby appoints the
Transfer Agent, as transfer agent for its shares and as shareholder
servicing agent for the Company, and the Transfer Agent accepts such
appointment and agrees to perform the duties set forth below.
2. Compensation. The Company will compensate the Transfer Agent for the
performance of its obligations as set forth in Schedule A. Schedule A
does not include out-of-pocket disbursements of the Transfer Agent for
which the Transfer Agent shall be entitled to bill the Company
separately.
The Transfer Agent will bill the Company monthly. The fee provided for
hereunder shall be paid in cash by the Company to the Transfer Agent
within five (5) business days after the last day of each month.
Out-of-pocket disbursements shall include, but shall not be limited to,
the items specified in Schedule B. Reimbursement by the Company for
expenses incurred by the Transfer Agent in any month shall be made as
soon as practicable after the receipt of an itemized bill from the
Transfer Agent.
Any compensation jointly agreed to hereunder may be adjusted from time
to time by attaching to this Agreement a revised Schedule A, dated and
signed by an officer of each party.
3. Documents. The Company will furnish from time to time such
certificates, documents or opinions as the Transfer Agent deems to be
appropriate or necessary for the proper performance of its duties.
4. Representations of the Company and the Transfer Agent.
(a) The Company represents to the Transfer Agent that all
outstanding shares are validly issued, fully paid and
non-assessable by the Company. When shares are hereafter
issued in accordance with the terms of the Company's
Declaration of Trust and its By-laws, such shares shall be
validly issued, fully paid and non-assessable by the Company.
(b) The Transfer Agent represents that it is registered under
Section 17A(c) of the Securities Exchange Act of 1934. The
Transfer Agent agrees to maintain the necessary facilities,
equipment and personnel to perform its duties and obligations
under this agreement and to comply with all applicable laws.
<PAGE>
5. Duties of the Transfer Agent. The Transfer Agent shall be responsible,
separately and through its subsidiaries or affiliates, for the
following functions:
(a) Sale of Fund Shares.
(1) On receipt of an application and payment, wired
instructions and payment, or payment identified as
being for the account of a shareholder, the Transfer
Agent will deposit the payment, prepare and present
the necessary report to the Custodian and record the
purchase of shares in a timely fashion in accordance
with the terms of the respective Fund's prospectus.
All shares shall be held in book entry form and no
certificate shall be issued unless the Fund is
permitted to do so by its prospectus and the
purchaser so requests.
(2) On receipt of notice that payment was dishonored, the
Transfer Agent shall stop redemptions of all shares
owned by the purchaser related to that payment, place
a stop payment on any checks that have been issued to
redeem shares of the purchaser and take such other
action as it deems appropriate.
(b) Redemption of Fund Shares. On receipt of instructions to
redeem shares in accordance with the terms of the Fund's
prospectus, the Transfer Agent will record the redemption of
shares of the Fund, prepare and present the necessary report
to the Custodian and pay the proceeds of the redemption to the
shareholder, an authorized agent or legal representative upon
the receipt of the monies from the Custodian.
(c) Transfer or Other Change Pertaining to Fund Shares. On receipt
of instructions or forms acceptable to the Transfer Agent to
transfer the shares to the name of a new owner, change the
name or address of the present owner or take other legal
action, the Transfer Agent will take such action as is
requested.
(d) Exchange of Fund Shares. On receipt of instructions to
exchange the shares of the Fund for the shares of another fund
in the IDS MUTUAL FUND GROUP or other American Express
Financial Corporation product in accordance with the terms of
the prospectus, the Transfer Agent will process the exchange
in the same manner as a redemption and sale of shares.
(e) Right to Seek Assurance. The Transfer Agent may refuse to transfer,
exchange or redeem shares of a Fund or take any action requested by a
shareholder until it is satisfied that the requested transaction or action
is legally authorized or until it is satisfied there is no basis for any
claims adverse to the transaction or action. It may rely on the provisions
of the Uniform Act for the Simplification of Fiduciary Security Transfers
or the Uniform Commercial Code. The Company shall indemnify the Transfer
Agent for any act done or omitted to be done in reliance on such laws or
for refusing to transfer, exchange or redeem shares or taking any requested
action if it acts on a good faith belief that the transaction or action is
illegal or unauthorized.
<PAGE>
(f) Shareholder Records, Reports and Services.
(1) The Transfer Agent shall maintain all shareholder
accounts, which shall contain all required tax,
legally imposed and regulatory information; shall
provide shareholders, and file with federal and state
agencies, all required tax and other reports
pertaining to shareholder accounts; shall prepare
shareholder mailing lists; shall cause to be printed
and mailed all required prospectuses, annual reports,
semiannual reports, statements of additional
information (upon request), proxies and other
mailings to shareholders; and shall cause proxies to
be tabulated.
(2) The Transfer Agent shall respond to all valid
inquiries related to its duties under this Agreement.
(3) The Transfer Agent shall create and maintain all
records in accordance with all applicable laws, rules
and regulations, including, but not limited to, the
records required by Section 31(a) of the Investment
Company Act of 1940.
(g) Dividends and Distributions. The Transfer Agent shall prepare
and present the necessary report to the Custodian and shall
cause to be prepared and transmitted the payment of income
dividends and capital gains distributions or cause to be
recorded the investment of such dividends and distributions in
additional shares of the Funds or as directed by instructions
or forms acceptable to the Transfer Agent.
(h) Confirmations and Statements. The Transfer Agent shall confirm
each transaction either at the time of the transaction or
through periodic reports as may be legally permitted.
(i) Lost or Stolen Checks. The Transfer Agent will replace lost or
stolen checks issued to shareholders upon receipt of proper
notification and will maintain any stop payment orders against
the lost or stolen checks as it is economically desirable to
do.
(j) Reports to Company. The Transfer Agent will provide reports
pertaining to the services provided under this Agreement as
the Company may request to ascertain the quality and level of
services being provided or as required by law.
(k) Other Duties. The Transfer Agent may perform other duties for
additional compensation if agreed to in writing by the parties
to this Agreement.
6. Ownership and Confidentiality of Records. The Transfer Agent agrees
that all records prepared or maintained by it relating to the services
to be performed by it under the terms of this Agreement are the
property of the Company and may be inspected by the Company or any
person retained by the Company at reasonable times. The Company and
Transfer Agent agree to protect the confidentiality of those records.
<PAGE>
7. Action by Board and Opinion of Counsel. The Transfer Agent may rely on
resolutions of the Board of Trustees (the "Board") or the Executive
Committee of the Board and on opinion of counsel for the Company.
8. Duty of Care. It is understood and agreed that, in furnishing the Company
with the services as herein provided, neither the Transfer Agent, nor any
officer, 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 Company, it shall be accompanied by a
vote of the Board, certified by the Secretary, electing to terminate this
Agreement and designating a successor transfer agent or transfer agents.
Upon such termination and at the expense of the Company, the Transfer Agent
will deliver to such successor a certified list of shareholders of the
Funds (with name, address and taxpayer identification or Social Security
number), a historical record of the account of each shareholder and the
status thereof, and all other relevant books, records, correspondence, and
other data established or maintained by the Transfer Agent under this
Agreement in the form reasonably acceptable to the Company, and will
cooperate in the transfer of such duties and responsibilities, including
provisions for assistance from the Transfer Agent's personnel in the
establishment of books, records and other data by such successor or
successors.
10. Amendment. This Agreement may not be amended or modified in any manner
except by a written agreement executed by both parties.
11. Subcontracting. The Company agrees that the Transfer Agent may
subcontract for certain of the services described under this Agreement
with the understanding that there shall be no diminution in the quality
or level of the services and that the Transfer Agent remains fully
responsible for the services. Except for out-of-pocket expenses
identified in Schedule B, the Transfer Agent shall bear the cost of
subcontracting such services, unless otherwise agreed by the parties.
<PAGE>
12. Limitations of Liability of the Trustees and Unitholders of Trust
A copy of the Declaration of Trust, dated April 7, 1986, together with
all amendments, is on file in the office of the Secretary of State of
the Commonwealth of Massachusetts. The execution and delivery of this
Agreement have been authorized by the Trustees and the Agreement has
been signed by an authorized officer of the Trust. It is expressly
agreed that the obligations of the Trust under this Agreement shall not
be binding upon any of the Trustees, unitholders, nominees, officers,
agents or employees of the Trust, personally, but bind only the assets
and property of the Trust, as provided in the Declaration of Trust.
13. Miscellaneous.
(a) This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable
without the written consent of the other party.
(b) This Agreement shall be governed by the laws of the State of
Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers as of the day and year written above.
IDS 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 CLIENT SERVICE CORPORATION
By: /s/ Barry J. Murphy
Barry J. Murphy
President
<PAGE>
Schedule A
IDS SPECIAL TAX-EXEMPT SERIES TRUST
FEE
The annual per account fee for services under this agreement, accrued daily and
payable monthly, is as follows:
Class A Class B Class Y
IDS Insured Tax-Exempt Fund $15.50 $16.50 $15.50
IDS Massachusetts Tax-Exempt Fund $15.50 $16.50 $15.50
IDS Michigan Tax-Exempt Fund $15.50 $16.50 $15.50
IDS Minnesota Tax-Exempt Fund $15.50 $16.50 $15.50
IDS New York Tax-Exempt Fund $15.50 $16.50 $15.50
IDS Ohio Tax-Exempt Fund $15.50 $16.50 $15.50
<PAGE>
Schedule B
OUT-OF-POCKET EXPENSES
The Company shall reimburse the Transfer Agent monthly for the following
out-of-pocket expenses:
o typesetting, printing, paper, envelopes, postage and return postage for
proxy soliciting material, and proxy tabulation costs
o printing, paper, envelopes and postage for dividend notices, dividend
checks, records of account, purchase confirmations, exchange
confirmations and exchange prospectuses, redemption confirmations,
redemption checks, confirmations on changes of address and any other
communication required to be sent to shareholders
o typesetting, printing, paper, envelopes and postage for prospectuses,
annual and semiannual reports, statements of additional information,
supplements for prospectuses and statements of additional information
and other required mailings to shareholders
o stop orders
o outgoing wire charges
o other expenses incurred at the request or with the consent of the
Company
August 28, 1998
IDS Special Tax-Exempt Series Trust
IDS Tower 10
Minneapolis, MN 55440-0010
Gentlemen:
I have examined the Declaration of Trust and the By-Laws of IDS Special
Tax-Exempt Series Trust (the Trust) and all necessary certificates, permits,
minute books, documents and records of the Trust, and the applicable statutes
of the Commonwealth of Massachusetts, and it is my opinion that the shares sold
in accordance with applicable federal and state securities laws will be legally
issued, fully paid, and nonassessable.
This opinion may be used in connection with the Post-Effective Amendment.
Sincerely,
/s/ Leslie L. Ogg
Leslie L. Ogg
Attorney at Law
901 S. Marquette Ave., Suite 2810
Minneapolis, Minnesota 55401-3268
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.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
August 28, 1998
Independent auditors' consent
- -------------------------------------------------------------------------
The board of trustees and shareholders
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
IDS Insured Tax-Exempt Fund
We consent to the use of our reports incorporated herein by reference and to the
references to our Firm under the headings "Financial highlights" in Part A and
"INDEPENDENT AUDITORS" in Part B of the Registration Statement.
KPMG Peat Marwick LLP
/s/KPMG Peat Marwick LLP
Minneapolis, Minnesota
August 28, 1998
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> IDS MASSACHUSETTS TAX EXEMPT FUND CLASS A
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 72795512
<INVESTMENTS-AT-VALUE> 79153985
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<OVERDISTRIBUTION-GAINS> 945507
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> IDS MASSACHUSETTS TAX EXEMPT FUND CLASS B
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 72795512
<INVESTMENTS-AT-VALUE> 79153985
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<NET-INVESTMENT-INCOME> 3873971
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<NUMBER-OF-SHARES-SOLD> 1040229
<NUMBER-OF-SHARES-REDEEMED> 271030
<SHARES-REINVESTED> 71032
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> IDS MASSACHUSETTS TAX EXEMPT FUND CLASS Y
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 72795512
<INVESTMENTS-AT-VALUE> 79153985
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<TOTAL-ASSETS> 80783610
<PAYABLE-FOR-SECURITIES> 974789
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<OTHER-ITEMS-LIABILITIES> 99691
<TOTAL-LIABILITIES> 1074480
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 74283559
<SHARES-COMMON-STOCK> 226
<SHARES-COMMON-PRIOR> 214
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 51
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 945507
<ACCUM-APPREC-OR-DEPREC> 6371129
<NET-ASSETS> 1260
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4563906
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<EXPENSES-NET> 689935
<NET-INVESTMENT-INCOME> 3873971
<REALIZED-GAINS-CURRENT> 277400
<APPREC-INCREASE-CURRENT> 1722338
<NET-CHANGE-FROM-OPS> 5873709
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<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 12
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<AVERAGE-NET-ASSETS> 1215
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> IDS MICHIGAN TAX-EXEMPT FUND CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 75127548
<INVESTMENTS-AT-VALUE> 82645285
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<PAYABLE-FOR-SECURITIES> 1879032
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<TOTAL-LIABILITIES> 1968829
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<PAID-IN-CAPITAL-COMMON> 75897338
<SHARES-COMMON-STOCK> 13819961
<SHARES-COMMON-PRIOR> 14080100
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<OVERDISTRIBUTION-NII> 0
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<OVERDISTRIBUTION-GAINS> 1373367
<ACCUM-APPREC-OR-DEPREC> 7530393
<NET-ASSETS> 76924076
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4835951
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<EXPENSES-NET> 682529
<NET-INVESTMENT-INCOME> 4153422
<REALIZED-GAINS-CURRENT> 39801
<APPREC-INCREASE-CURRENT> 1755887
<NET-CHANGE-FROM-OPS> 5949110
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<DISTRIBUTIONS-OF-INCOME> 3959864
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<NUMBER-OF-SHARES-SOLD> 1170022
<NUMBER-OF-SHARES-REDEEMED> 1941314
<SHARES-REINVESTED> 511152
<NET-CHANGE-IN-ASSETS> 1773360
<ACCUMULATED-NII-PRIOR> 479
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<OVERDIST-NET-GAINS-PRIOR> 1413071
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> IDS MICHIGAN TAX-EXEMPT FUND CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 75127548
<INVESTMENTS-AT-VALUE> 82645285
<RECEIVABLES> 1281935
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<PAID-IN-CAPITAL-COMMON> 75897338
<SHARES-COMMON-STOCK> 921475
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1373367
<ACCUM-APPREC-OR-DEPREC> 7530393
<NET-ASSETS> 5129043
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<NET-INVESTMENT-INCOME> 4153422
<REALIZED-GAINS-CURRENT> 39801
<APPREC-INCREASE-CURRENT> 1755887
<NET-CHANGE-FROM-OPS> 5949110
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<DISTRIBUTIONS-OF-INCOME> 194070
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<NUMBER-OF-SHARES-SOLD> 380067
<NUMBER-OF-SHARES-REDEEMED> 153133
<SHARES-REINVESTED> 27650
<NET-CHANGE-IN-ASSETS> 1773360
<ACCUMULATED-NII-PRIOR> 479
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<AVERAGE-NET-ASSETS> 4364408
<PER-SHARE-NAV-BEGIN> 5.44
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> IDS MICHIGAN TAX-EXEMPT FUND CLASS Y
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 75127548
<INVESTMENTS-AT-VALUE> 82645285
<RECEIVABLES> 1281935
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<TOTAL-LIABILITIES> 1968829
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<PAID-IN-CAPITAL-COMMON> 75897338
<SHARES-COMMON-STOCK> 223
<SHARES-COMMON-PRIOR> 212
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<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1373367
<ACCUM-APPREC-OR-DEPREC> 7530393
<NET-ASSETS> 1245
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<INTEREST-INCOME> 4835951
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<EXPENSES-NET> 682529
<NET-INVESTMENT-INCOME> 4153422
<REALIZED-GAINS-CURRENT> 39801
<APPREC-INCREASE-CURRENT> 1755887
<NET-CHANGE-FROM-OPS> 5949110
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 64
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<SHARES-REINVESTED> 12
<NET-CHANGE-IN-ASSETS> 1773360
<ACCUMULATED-NII-PRIOR> 479
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<AVERAGE-NET-ASSETS> 1205
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> IDS MINNESOTA TAX EXEMPT FUND CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 377775178
<INVESTMENTS-AT-VALUE> 409016779
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<TOTAL-ASSETS> 417506455
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<TOTAL-LIABILITIES> 1435118
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<PAID-IN-CAPITAL-COMMON> 393433176
<SHARES-COMMON-STOCK> 71161950
<SHARES-COMMON-PRIOR> 71077574
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 9944
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 8627246
<ACCUM-APPREC-OR-DEPREC> 31275351
<NET-ASSETS> 384849891
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 25781427
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<NET-INVESTMENT-INCOME> 22597273
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<APPREC-INCREASE-CURRENT> 7572218
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<DISTRIBUTIONS-OF-INCOME> 21338625
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<NUMBER-OF-SHARES-SOLD> 10219416
<NUMBER-OF-SHARES-REDEEMED> 13225380
<SHARES-REINVESTED> 3090340
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<ACCUMULATED-NII-PRIOR> 9570
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<PER-SHARE-NAV-BEGIN> 5.30
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> IDS MINNESOTA TAX EXEMPT FUND CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 377775178
<INVESTMENTS-AT-VALUE> 409016779
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<TOTAL-ASSETS> 417506455
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<PAID-IN-CAPITAL-COMMON> 393433176
<SHARES-COMMON-STOCK> 5773171
<SHARES-COMMON-PRIOR> 4191393
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<OVERDISTRIBUTION-GAINS> 8627246
<ACCUM-APPREC-OR-DEPREC> 31275351
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
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<NUMBER> 12
<NAME> IDS MINNESOTA TAX EXEMPT FUND CLASS Y
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 377775178
<INVESTMENTS-AT-VALUE> 409016779
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<OVERDISTRIBUTION-GAINS> 8627246
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<GROSS-EXPENSE> 3256409
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<EXPENSE-RATIO> .57
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> IDS NEW YORK TAX-EXEMPT FUND CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 103106602
<INVESTMENTS-AT-VALUE> 113191090
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<OTHER-ITEMS-LIABILITIES> 191463
<TOTAL-LIABILITIES> 191463
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<PAID-IN-CAPITAL-COMMON> 107577972
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<OVERDISTRIBUTION-NII> 193
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<OVERDISTRIBUTION-GAINS> 2429441
<ACCUM-APPREC-OR-DEPREC> 10118238
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<REALIZED-GAINS-CURRENT> 748448
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<NUMBER-OF-SHARES-REDEEMED> 4193469
<SHARES-REINVESTED> 768084
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<ACCUMULATED-NII-PRIOR> 711
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<GROSS-EXPENSE> 986643
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<PER-SHARE-NAV-BEGIN> 5.15
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 14
<NAME> IDS NEW YORK TAX-EXEMPT FUND CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 103106602
<INVESTMENTS-AT-VALUE> 113191090
<RECEIVABLES> 2266949
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 115458039
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<OTHER-ITEMS-LIABILITIES> 191463
<TOTAL-LIABILITIES> 191463
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<PAID-IN-CAPITAL-COMMON> 107577972
<SHARES-COMMON-STOCK> 1850285
<SHARES-COMMON-PRIOR> 1465084
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 193
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 2429441
<ACCUM-APPREC-OR-DEPREC> 10118238
<NET-ASSETS> 9792471
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6956316
<OTHER-INCOME> 0
<EXPENSES-NET> 967716
<NET-INVESTMENT-INCOME> 5988600
<REALIZED-GAINS-CURRENT> 748448
<APPREC-INCREASE-CURRENT> 2313952
<NET-CHANGE-FROM-OPS> 9051000
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<DISTRIBUTIONS-OF-INCOME> 5597877
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<NUMBER-OF-SHARES-SOLD> 580183
<NUMBER-OF-SHARES-REDEEMED> 257849
<SHARES-REINVESTED> 62867
<NET-CHANGE-IN-ASSETS> 110806
<ACCUMULATED-NII-PRIOR> 711
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 3177889
<GROSS-ADVISORY-FEES> 545320
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 986643
<AVERAGE-NET-ASSETS> 8758988
<PER-SHARE-NAV-BEGIN> 5.15
<PER-SHARE-NII> .23
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<PER-SHARE-NAV-END> 5.29
<EXPENSE-RATIO> 1.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 15
<NAME> IDS NEW YORK TAX-EXEMPT FUND CLASS Y
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 103106602
<INVESTMENTS-AT-VALUE> 113191090
<RECEIVABLES> 2266949
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 115458039
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 191463
<TOTAL-LIABILITIES> 191463
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 107577972
<SHARES-COMMON-STOCK> 233
<SHARES-COMMON-PRIOR> 221
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 193
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 2429441
<ACCUM-APPREC-OR-DEPREC> 10118238
<NET-ASSETS> 1239
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6956316
<OTHER-INCOME> 0
<EXPENSES-NET> 967716
<NET-INVESTMENT-INCOME> 5988600
<REALIZED-GAINS-CURRENT> 748448
<APPREC-INCREASE-CURRENT> 2313952
<NET-CHANGE-FROM-OPS> 9051000
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 64
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 12
<NET-CHANGE-IN-ASSETS> 110806
<ACCUMULATED-NII-PRIOR> 711
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 3177889
<GROSS-ADVISORY-FEES> 545320
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 986643
<AVERAGE-NET-ASSETS> 1200
<PER-SHARE-NAV-BEGIN> 5.15
<PER-SHARE-NII> .28
<PER-SHARE-GAIN-APPREC> .15
<PER-SHARE-DIVIDEND> .28
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<PER-SHARE-NAV-END> 5.30
<EXPENSE-RATIO> .60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 16
<NAME> IDS OHIO TAX EXEMPT FUND CLASS A
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 67145401
<INVESTMENTS-AT-VALUE> 72797453
<RECEIVABLES> 971946
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 37027
<TOTAL-ASSETS> 73806426
<PAYABLE-FOR-SECURITIES> 1223779
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 71472
<TOTAL-LIABILITIES> 1295251
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 68100714
<SHARES-COMMON-STOCK> 12226353
<SHARES-COMMON-PRIOR> 12391232
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 1809
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1252438
<ACCUM-APPREC-OR-DEPREC> 5664708
<NET-ASSETS> 67215675
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4322643
<OTHER-INCOME> 0
<EXPENSES-NET> 612191
<NET-INVESTMENT-INCOME> 3710452
<REALIZED-GAINS-CURRENT> 441486
<APPREC-INCREASE-CURRENT> 1193891
<NET-CHANGE-FROM-OPS> 5345829
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3541260
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 1224084
<NUMBER-OF-SHARES-REDEEMED> 1882922
<SHARES-REINVESTED> 493958
<NET-CHANGE-IN-ASSETS> 2368384
<ACCUMULATED-NII-PRIOR> 22242
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 1693924
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<GROSS-EXPENSE> 627612
<AVERAGE-NET-ASSETS> 67361670
<PER-SHARE-NAV-BEGIN> 5.38
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> .12
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<PER-SHARE-NAV-END> 5.50
<EXPENSE-RATIO> .83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 17
<NAME> IDS OHIO TAX EXEMPT FUND CLASS B
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 67145401
<INVESTMENTS-AT-VALUE> 72797453
<RECEIVABLES> 971946
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 37027
<TOTAL-ASSETS> 73806426
<PAYABLE-FOR-SECURITIES> 1223779
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 71472
<TOTAL-LIABILITIES> 1295251
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 68100714
<SHARES-COMMON-STOCK> 962990
<SHARES-COMMON-PRIOR> 658475
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 1809
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1252438
<ACCUM-APPREC-OR-DEPREC> 5664708
<NET-ASSETS> 5294257
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4322643
<OTHER-INCOME> 0
<EXPENSES-NET> 612191
<NET-INVESTMENT-INCOME> 3710452
<REALIZED-GAINS-CURRENT> 441486
<APPREC-INCREASE-CURRENT> 1193891
<NET-CHANGE-FROM-OPS> 5345829
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 193178
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<NUMBER-OF-SHARES-SOLD> 354262
<NUMBER-OF-SHARES-REDEEMED> 75894
<SHARES-REINVESTED> 26147
<NET-CHANGE-IN-ASSETS> 2368384
<ACCUMULATED-NII-PRIOR> 22242
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<OVERDIST-NET-GAINS-PRIOR> 1693924
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<GROSS-EXPENSE> 627612
<AVERAGE-NET-ASSETS> 4287256
<PER-SHARE-NAV-BEGIN> 5.38
<PER-SHARE-NII> 0.24
<PER-SHARE-GAIN-APPREC> .13
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<EXPENSE-RATIO> 1.59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 18
<NAME> IDS OHIO TAX EXEMPT FUND CLASS Y
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 67145401
<INVESTMENTS-AT-VALUE> 72797453
<RECEIVABLES> 971946
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 37027
<TOTAL-ASSETS> 73806426
<PAYABLE-FOR-SECURITIES> 1223779
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<OTHER-ITEMS-LIABILITIES> 71472
<TOTAL-LIABILITIES> 1295251
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 68100714
<SHARES-COMMON-STOCK> 226
<SHARES-COMMON-PRIOR> 214
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 1809
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1252438
<ACCUM-APPREC-OR-DEPREC> 5664708
<NET-ASSETS> 1243
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4322643
<OTHER-INCOME> 0
<EXPENSES-NET> 612191
<NET-INVESTMENT-INCOME> 3710452
<REALIZED-GAINS-CURRENT> 441486
<APPREC-INCREASE-CURRENT> 1193891
<NET-CHANGE-FROM-OPS> 5345829
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 65
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<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 12
<NET-CHANGE-IN-ASSETS> 2368384
<ACCUMULATED-NII-PRIOR> 22242
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<OVERDIST-NET-GAINS-PRIOR> 1693924
<GROSS-ADVISORY-FEES> 336754
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 627612
<AVERAGE-NET-ASSETS> 1204
<PER-SHARE-NAV-BEGIN> 5.38
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> .12
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<PER-SHARE-NAV-END> 5.50
<EXPENSE-RATIO> .61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 19
<NAME> IDS INSURED TAX EXEMPT FUND CLASS A
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 447613636
<INVESTMENTS-AT-VALUE> 494863170
<RECEIVABLES> 8178298
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 18677
<TOTAL-ASSETS> 503060145
<PAYABLE-FOR-SECURITIES> 3748010
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 388883
<TOTAL-LIABILITIES> 4136893
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 465357564
<SHARES-COMMON-STOCK> 80785440
<SHARES-COMMON-PRIOR> 83920040
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 16968
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 13704846
<ACCUM-APPREC-OR-DEPREC> 47287502
<NET-ASSETS> 454727870
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 28937362
<OTHER-INCOME> 0
<EXPENSES-NET> 3857170
<NET-INVESTMENT-INCOME> 25080192
<REALIZED-GAINS-CURRENT> 358569
<APPREC-INCREASE-CURRENT> 10861233
<NET-CHANGE-FROM-OPS> 36299994
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 23865771
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 7152603
<NUMBER-OF-SHARES-REDEEMED> 13187728
<SHARES-REINVESTED> 2900525
<NET-CHANGE-IN-ASSETS> 5228236
<ACCUMULATED-NII-PRIOR> 438514
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<GROSS-EXPENSE> 3929284
<AVERAGE-NET-ASSETS> 460887266
<PER-SHARE-NAV-BEGIN> 5.51
<PER-SHARE-NII> 0.28
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<PER-SHARE-NAV-END> 5.63
<EXPENSE-RATIO> .73
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 20
<NAME> IDS INSURED TAX EXEMPT FUND CLASS B
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 447613636
<INVESTMENTS-AT-VALUE> 494863170
<RECEIVABLES> 8178298
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<OTHER-ITEMS-ASSETS> 18677
<TOTAL-ASSETS> 503060145
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<OTHER-ITEMS-LIABILITIES> 388883
<TOTAL-LIABILITIES> 4136893
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<PAID-IN-CAPITAL-COMMON> 465357564
<SHARES-COMMON-STOCK> 7852034
<SHARES-COMMON-PRIOR> 5699121
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 16968
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<OVERDISTRIBUTION-GAINS> 13704846
<ACCUM-APPREC-OR-DEPREC> 47287502
<NET-ASSETS> 44191141
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 28937362
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<EXPENSES-NET> 3857170
<NET-INVESTMENT-INCOME> 25080192
<REALIZED-GAINS-CURRENT> 358569
<APPREC-INCREASE-CURRENT> 10861233
<NET-CHANGE-FROM-OPS> 36299994
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<DISTRIBUTIONS-OF-INCOME> 1669839
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<NUMBER-OF-SHARES-SOLD> 2743185
<NUMBER-OF-SHARES-REDEEMED> 816165
<SHARES-REINVESTED> 225893
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<ACCUMULATED-NII-PRIOR> 438514
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<GROSS-EXPENSE> 3929284
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<PER-SHARE-NAV-BEGIN> 5.51
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 21
<NAME> IDS INSURED TAX EXEMPT FUND CLASS Y
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 447613636
<INVESTMENTS-AT-VALUE> 494863170
<RECEIVABLES> 8178298
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<OTHER-ITEMS-ASSETS> 18677
<TOTAL-ASSETS> 503060145
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<PAID-IN-CAPITAL-COMMON> 465357564
<SHARES-COMMON-STOCK> 220
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<OVERDISTRIBUTION-GAINS> 13704846
<ACCUM-APPREC-OR-DEPREC> 47287502
<NET-ASSETS> 1241
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<NET-INVESTMENT-INCOME> 25080192
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<APPREC-INCREASE-CURRENT> 10861233
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<SHARES-REINVESTED> 12
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<EXPENSE-RATIO> .48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
DIRECTORS/TRUSTEES POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as directors and trustees of the below listed
open-end, diversified investment companies that previously have filed
registration statements and amendments thereto pursuant to the requirements of
the Securities Act of 1933 and the Investment Company Act of 1940 with the
Securities and Exchange Commission:
1933 Act 1940 Act
Reg. Number Reg. Number
IDS Bond Fund, Inc. 2-51586 811-2503
IDS California Tax-Exempt Trust 33-5103 811-4646
IDS Discovery Fund, Inc. 2-72174 811-3178
IDS Equity Select Fund, Inc. 2-13188 811-772
IDS Extra Income Fund, Inc. 2-86637 811-3848
IDS Federal Income Fund, Inc. 2-96512 811-4260
IDS Global Series, Inc. 33-25824 811-5696
IDS Growth Fund, Inc. 2-38355 811-2111
IDS High Yield Tax-Exempt Fund, Inc. 2-63552 811-2901
IDS International Fund, Inc. 2-92309 811-4075
IDS Investment Series, Inc. 2-11328 811-54
IDS Managed Retirement Fund, Inc. 2-93801 811-4133
IDS Market Advantage Series, Inc. 33-30770 811-5897
IDS Money Market Series, Inc. 2-54516 811-2591
IDS New Dimensions Fund, Inc. 2-28529 811-1629
IDS Precious Metals Fund, Inc. 2-93745 811-4132
IDS Progressive Fund, Inc. 2-30059 811-1714
IDS Selective Fund, Inc. 2-10700 811-499
IDS Special Tax-Exempt Series Trust 33-5102 811-4647
IDS Stock Fund, Inc. 2-11358 811-498
IDS Strategy Fund, Inc. 2-89288 811-3956
IDS Tax-Exempt Bond Fund, Inc. 2-57328 811-2686
IDS Tax-Free Money Fund, Inc. 2-66868 811-3003
IDS Utilities Income Fund, Inc. 33-20872 811-5522
hereby constitutes and appoints William R. Pearce and Leslie L. Ogg or either
one of them, as her or his attorney-in-fact and agent, to sign for her or him in
her or his name, place and stead any and all further amendments to said
registration statements filed pursuant to said Acts and any rules and
regulations thereunder, and to file such amendments with all exhibits thereto
and other documents in connection therewith with the Securities and Exchange
Commission, granting to either of them the full power and authority to do and
perform each and every act required and necessary to be done in connection
therewith.
<PAGE>
Dated the 7th day of January, 1998.
/s/ H. Brewster Atwater, Jr. /s/ William R. Pearce
H. Brewster Atwater, Jr. William R. Pearce
/s/ Lynne V. Cheney /s/ Alan K. Simpson
Lynne V. Cheney Alan K. Simpson
/s/ William H. Dudley /s/ Edson W. Spencer
William H. Dudley Edson W. Spencer
/s/ David R. Hubers /s/ John R. Thomas
David R. Hubers John R. Thomas
/s/ Heinz F. Hutter /s/ Wheelock Whitney
Heinz F. Hutter Wheelock Whitney
/s/ Anne P. Jones /s/ C. Angus Wurtele
Anne P. Jones C. Angus Wurtele
