Riversource Special Tax-Exempt Series Trust – ‘N-30D’ for 6/30/97

As of:  Friday, 9/5/97   ·   For:  6/30/97   ·   Accession #:  820027-97-646   ·   File #:  811-04647

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Annual or Semi-Annual Report Mailed to Shareholders   —   Rule 30d-1
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: N-30D       Ids Insured Tax-Exempt Fund                           41    167K 

Document Table of Contents

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1997 Annual Report                                                              
IDS Insured Tax-Exempt Fund                                                     

(prospectus enclosed)                                                           
(Icon of) star enclosed in shield                                               

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

(This annual report includes a prospectus that describes in detail the Fund's   
objective, investment policies, risks, sales charges, fees and other matters of 
interest. Please read the prospectus carefully before you invest or send money.)

AMERICAN                                                                        
EXPRESS                                                                         
Financial                                                                       
Advisors                                                                        

Distributed by American Express Financial Advisors Inc.                         

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(Icon of) star enclosed in shield                                               

No-default insurance                                                            

Any investment involves risks. For a municipal bond investor, there's the risk  
that the bond issuer could default on its payments. But there are bonds that are
insured against default, and these are the ones that Insured Tax-Exempt Fund    
invests in. While this doesn't mean that shareholders are insulated from        
fluctuations in bond market values, it does ensure that the Fund receives       
principal and interest payments when they are due. Along the way, shareholders  
enjoy regular income that is generally free from federal income tax.            

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Contents                                                                        

(Icon of) One open book inside of another.                                      

The purpose of this annual report is to tell investors how the Fund performed.  

The prospectus, which is bound into the middle of this annual report, describes 
the Fund in detail.                                                             

1997 annual report                                                              

From the president                                                        4     
From the portfolio manager                                                4     
The Fund's ten largest holdings                                           6     
Making the most of the Fund                                               7     
The Fund's long-term performance                                          8     
Independent auditor's report                                              9     
Financial statements                                                      10    
Notes to financial statements                                             13    
Investments in securities                                                 22    
IDS mutual funds                                                          32    
Federal income tax information                                            36    

1997 prospectus                                                                 

The Fund in brief                                                         3p    
Goals                                                                     3p    
Investment policies and risks                                             3p    
Manager and distributor                                                   3p    
Portfolio manager                                                         3p    
Alternative purchase arrangements                                         4p    

Sales charge and Fund expenses                                            5p    

Performance                                                               7p    
Financial highlights                                                      7p    
Total returns                                                             9p    
Yield                                                                     11p   

Investment policies and risks                                             12p   
Facts about investments and their risks                                   12p   
Alternative investment option                                             16p   
Valuing Fund shares                                                       17p   

How to purchase, exchange or redeem shares                                18p   
Alternative purchase arrangements                                         18p   
How to purchase shares                                                    21p   
How to exchange shares                                                    23p   
How to redeem shares                                                      23p   
Reductions and waivers of the sales charge                                28p   

Special shareholder services                                              32p   
Services                                                                  32p   
Quick telephone reference                                                 32p   

Distributions and taxes                                                   33p   
Dividend and capital gain distributions                                   33p   
Reinvestments                                                             34p   
Taxes                                                                     35p   
How to determine the correct TIN                                          37p   

How the Fund is organized                                                 38p   
Shares                                                                    38p   
Voting rights                                                             38p   
Shareholder meetings                                                      38p   
Board members and officers                                                38p   
Investment manager                                                        40p   
Administrator and transfer agent                                          40p   
Distributor                                                               41p   

About American Express Financial Corporation                              42p   
General Information                                                       42p   

Appendices                                                                43p   
1997 Federal tax information                                              43p   
Descriptions of derivative instruments                                    45p   

(This annual report is not part of the prospectus.)                             

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To our shareholders                                                             

(Photo of)  William R. Pearce                                                   
President of the Fund                                                           

(Photo of)  Paul Hylle                                                          
Portfolio manager                                                               

From the president                                                              

If you're an experienced investor, you know that the past few years have been   
unusually strong ones in many financial markets. Perhaps just as important, you 
also know that history shows that bull markets don't last forever. Though       
they're often unpredictable, declines -- whether they're brief or long-lasting, 
moderate or substantial -- are always a possibility.                            

That fact reinforces the need for investors to periodically review their        
long-term goals and examine whether their investment program remains on track to
achieving them. Your quarterly investment statements are one part of that       
monitoring process. The other is a meeting with your American Express financial 
advisor. That becomes more important if there's a major change in your financial
situation or in the financial markets.                                          

(signature of) W. R. Pearce                                                     
William R. Pearce                                                               

From the portfolio manager                                                      

Despite considerable volatility in the fixed-income market, municipal bonds     
fared relatively well during the past fiscal year. Reflecting the generally     
positive environment, IDS Insured Tax-Exempt Fund generated a total return      
(including net asset value change and dividends) of 7.1% for Class A shares for 
the July 1996 through June 1997 period.                                         

After a sluggish summer, bonds were energized last fall by ongoing reports of   
stable, low inflation and moderate economic growth. Against that backdrop,      
long-term interest began falling, driving up bond prices in the process. The    
rally stalled out over the winter, however, then turned into a retreat in the   
spring as reports of stronger-than-expected economic growth reignited inflation 
fears and let to a rise in long-term interest rates. But the period ended on an 
up note, as benign economic and inflation data again enticed investors back into
the market, allowing rates to come back down.                                   

Favorable supply/demand situation                                               

The Fund's performance roughly tracked that of                                  

(This annual report is not part of the prospectus.)                             

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the broad bond market -- gaining ground last fall, slipping back in the spring  
and rebounding in May and June. To the Fund's benefit, municipal bonds          
outperformed Treasury bonds for the year as a whole, thanks chiefly to a        
favorable supply/demand situation. A substantial number of municipal bonds were 
"called" by issuers (taken out of the market because issuers paid off the       
principal ahead of the bond's maturity dates), while the number of new bonds    
coming to market was comparatively modest. The result was consistent demand and 
less supply - a positive for security prices.                                   

The flip side of the call situation was that it slightly eroded the Fund's      
dividend, which resulted from the fact that newly issued bonds didn't pay as    
much interest as the older bonds that were called away. Still, measured against 
comparable municipal bond funds, this Fund's dividend held up better than most. 
Also tempering performance a bit was the modest amount of investment capital    
flowing into the municipal bond market, especially compared to the enormous     
inflows into the stock market. This condition has persisted for more than three 
years, limiting the net-asset-value appreciation the Fund might otherwise have  
enjoyed.                                                                        

A conservative tack                                                             

Given that the economy continues to expand, I think it's increasingly likely    
that we'll see somewhat higher inflation in the new fiscal year. Ultimately, I  
expect that will lead to moderately higher long-term interest rates, which may  
mean a more difficult environment for bonds, including municipals. In light of  
that possibility, I have structured the Fund more defensively, which includes a 
shorter duration -- a strategy that helps cushion the Fund's net asset value    
when interest rates rise and, in general, lessens its volatility. In addition, I
am concentrating on maintaining the Fund's dividend, which I expect to provide  
most of the Fund's return in the months ahead.                                  

(signature of ) Paul B. Hylle                                                   
Paul Hylle                                                                      

Class A                                                                         
12-month performance                                                            
(All figures per share)                                                         
Net asset value (NAV)                                                           
---------------------------- ---------------                                    
June 30, 1997                $5.51                                              
---------------------------- ---------------                                    
June 30, 1996                $5.43                                              
---------------------------- ---------------                                    
Increase                     $0.08                                              
---------------------------- ---------------                                    

Distributions                                                                   
July 1, 1996 - June 30, 1997                                                    
---------------------------- ---------------                                    
From income                  $0.29                                              
---------------------------- ---------------                                    
From capital gains           $ --                                               
---------------------------- ---------------                                    
Total distributions          $0.29                                              
---------------------------- ---------------                                    
Total return*                +7.1%**                                            
---------------------------- ---------------                                    

Class B                                                                         
12-month performance                                                            
(All figures per share)                                                         
Net asset value (NAV)                                                           
---------------------------- ---------------                                    
June 30, 1997                $5.51                                              
---------------------------- ---------------                                    
June 30, 1996                $5.43                                              
---------------------------- ---------------                                    
Increase                     $0.08                                              
---------------------------- ---------------                                    

Distributions                                                                   
July 1, 1996 - June 30, 1997                                                    
---------------------------- ---------------                                    
From income                  $0.25                                              
---------------------------- ---------------                                    
From capital gains           $ --                                               
---------------------------- ---------------                                    
Total distributions          $0.25                                              
---------------------------- ---------------                                    
Total return*                +6.3%**                                            
---------------------------- ---------------                                    

Class Y                                                                         
12-month performance                                                            
(All figures per share)                                                         
Net asset value (NAV)                                                           
---------------------------- ---------------                                    
June 30, 1997                $5.52                                              
---------------------------- ---------------                                    
June 30, 1996                $5.44                                              
---------------------------- ---------------                                    
Increase                     $0.08                                              
---------------------------- ---------------                                    

Distributions                                                                   
July 1, 1996 - June 30, 1997                                                    
---------------------------- ---------------                                    
From income                  $0.30                                              
---------------------------- ---------------                                    
From capital gains           $ --                                               
---------------------------- ---------------                                    
Total distributions          $0.30                                              
---------------------------- ---------------                                    
Total return*                +7.3%**                                            
---------------------------- ---------------                                    

*The prospectus discusses the effect of sales charges, if any, on the various   
classes.                                                                        
**The total return is a hypothetical investment in the Fund with all            
distributions reinvested.                                                       

(This annual report is not part of the prospectus.)                             

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The Fund's ten largest holdings                                                 

(pie chart) The ten holdings listed here make up 20.12% of the Fund's net assets

                                                        [Enlarge/Download Table]


                                            Percent                    Value                         
                                            (of Fund's net assets)              (as of June 30, 1997)
                                                                                                     

Brazos River Texas Authority Collateralized Pollution Control                                        
Refunding Revenue bonds Texas Utility Electric                                                       
Series 1992C A.M.T                                                                                   
6.70% 2022                                  3.27%                               $16,129,651          

New York State Energy Resource & Development Authority                                               
Solid Waste Disposal Revenue Bonds New York State                                                    
Electric & Gas Series A A.M.T.                                                                       
5.70% 2028                                  2.23                                 11,016,403          

Pittsburgh Pennsylvania Water & Sewer Authority System                                               
Pre-Refunded Revenue Bonds                                                                           
Series 1991A                                                                                         
6.50% 2014                                  2.22                                 10,966,100          

District of Columbia Metropolitan Washington Airports Authority Airport System                       
Revenue Bonds Series 1992A A.M.T.                                                                    
6.625% 2019                                 2.06                                 10,168,513          

Colorado River Texas Municipal Water District                                                        
Water System Pre-Refunded Revenue Bonds Series A                                                     
6.625% 2021                                 1.94                                   9,554,239         

San Diego County California Certificate of Participation                                             
Regional Authority Bonds Mt. Tower                                                                   
Inverse Floater Series 1991                                                                          
6.36% 2019                                  1.91                                   9,443,700         

Harris County Texas Toll Road Senior Lien                                                            
Pre-Refunded Revenue Bonds Series A                                                                  
6.50% 2017                                  1.83                                   9,055,873         

Austin Texas Combined Utilities System                                                               
Refunding Revenue Bonds Series 1994                                                                  
5.75% 2024                                  1.73                                   8,544,965         

Louisiana Energy & Power Authority Power                                                             
Refunding Revenue Bonds Rodemacher Unit #2                                                           
Series 1991                                                                                          
6.75% 2008                                  1.54                                   7,586,950         

Houston Texas Water & Sewer System Junior Lien                                                       
Refunding Revenue Bonds Series 1997A                                                                 
5.25% 2022                                  1.39                                   6,879,133         

Note:  The Fund's investment income from certain securities may be subject to   
the Alternative Minimum Tax (A.M.T.).                                           

(This annual report is not part of the prospectus.)                             

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Making the most of the Fund                                                     

Build your assets systematically                                                

One of the best ways to invest in the Fund is by dollar-cost averaging -- a     
time-tested strategy that can make market fluctuations work for you. To         
dollar-cost average, simply invest a fixed amount of money regularly. You'll    
automatically buy more shares when the Fund's share price is low, fewer shares  
when it is high.                                                                

Using this strategy does not ensure a profit or avoid a loss if the market      
declines, and requires that you be able to keep on investing on a regular basis,
even when the price of your shares falls or the market declines. Investing in   
this manner can be an effective way to accumulate shares to meet your long-term 
goals.                                                                          

How dollar-cost averaging works                                                 

Month    Amount   Per-share         Number of shares purchased                  
invested market price                                         

Jan      $100     $20      5.00     XXXXX                                       
Feb        100      18     5.56     XXXXXx                                      
March      100      17     5.88     XXXXXx                                      
April      100      15     6.67     XXXXXXx                                     
May        100      16     6.25     XXXXXXx                                     
June       100      18     5.56     XXXXXx                                      
July       100      17     5.88     XXXXXx                                      
Aug        100      19     5.26     XXXXXx                                      
Sept       100      21     4.76     XXXXx                                       
Oct        100      20     5.00     XXXXX                                       

(footnotes to table)       By investing an equal number of dollars each month...

(arrow in table pointing to April)  you automatically buy more shares when the  
per share market price is low...                                                

(arrow in table pointing to Sept) and fewer shares when the per share market    
price is high.                                                                  

You have paid an average price of only $17.91 per share over the 10 months,     
while the average market price actually was $18.10.                             

(This annual report is not part of the prospectus.)                             

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The Fund's long-term performance                                                

Three ways to benefit from a mutual fund:                                       

your shares increase in value when the Fund's investments do well   
    you receive capital gains when the gains on investments sold by the Fund
      exceed losses you receive income when the Fund's stock dividends, interest
and short-term gains exceed its                                     
expenses.                                                             

All three make up your total return. And you potentially can increase your      
investment if, like most investors, you reinvest your dividends and capital gain
distributions to buy additional shares of the Fund or another Fund.             

How your $10,000 has grown in IDS Insured Tax-Exempt Fund                       

                                                       $20,015
                                       Insured Tax-Exempt Fund
                                                       Class A
$20,000                                                                         
Lehman Brothers Total Return Municipal Bond Index         
$10,000                                                                         
$9,500                                                                          

'87    '88    '89    '90    '91   '92    '93    '94    '95    '96   '97         

                                                        [Enlarge/Download Table]

                                                                                                            

------------------------------------------------- -------------- ------------- -------------- --------------
Average annual total return                                                                                 
(as of June 30, 1997)                                                                                       
                                                  1 year         Since         5 years        10 years      
                                                                 inception                                  

Class A                                           +1.72%         --%           5.25%          +7.18%        
Class B                                           +2.26%         +3.65%*       --%            --%           
Class Y                                           +7.25%         +6.19%*       --%            --%           

*Inception date was March 20, 1995.                                                                         
------------------------------------------------- -------------- ------------- -------------- --------------

(footnotes to table) Assumes: o Holding period from 7/1/87 to 6/30/97.          
o Returns do not reflect taxes payable on distributions.                        
o Reinvestment of all income and capital gain distributions for the Fund, with  
a value of $8,953. Also see "Performance" in the Fund's current prospectus.     

(footnotes to table) The Lehman Brothers Total Return Municipal Bond Index is an
unmanaged list of municipal bonds used as a general measure of market           
performance.                                                                    

On the graph above you can see how the Fund's total return compared to a widely 
cited performance index, the Lehman Brothers Total Return Municipal Bond Index. 
In comparing Insured Tax-Exempt Fund (Class A) to this index, you should take   
into account the fact that the Fund's performance reflects the maximum sales    
charge of 5%, while such charges are not reflected in the performance of the    
index.                                                                          

Your investment and return values fluctuate so that your shares, when redeemed, 
may be worth more or less than the original cost. Average annual total return   
figures reflect the impact of the applicable sales charge up to a maximum of 5%.
This was a period of widely fluctuating security prices. Past performance is no 
guarantee of future results.                                                    

(This annual report is not part of the prospectus.)                             

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Independent auditor's report                                                    

The board and shareholders                                                      
IDS Special Tax-Exempt Series Trust:                                            

We have audited the accompanying statement of assets and liabilities, including 
the schedule of investments in securities, of IDS Insured Tax-Exempt Fund (a    
fund within IDS Special Tax-Exempt Series Trust) as of June 30, 1997, and the   
related statement of operations for the year then ended and the statement of    
changes in net assets for each of the years in the two-year period then ended,  
and the financial highlights for each of the years in the eight-year period     
ended June 30, 1997, the six months ended June 30, 1989 and each of the years in
the two-year period ended December 31, 1988. These financial statements and the 
financial highlights are the responsibility of fund management. Our             
responsibility is to express an opinion on these financial statements and the   
financial highlights based on our audits.                                       

We conducted our audits in accordance with generally accepted auditing          
standards. Those standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements and the financial   
highlights are free of material misstatement. An audit includes examining, on a 
test basis, evidence supporting the amounts and disclosures in the financial    
statements. Investment securities held in custody are confirmed to us by the    
custodian. As to securities purchased and sold but not received or delivered, we
request confirmations from brokers, and where replies are not received, we carry
out other appropriate auditing procedures. An audit also includes assessing the 
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our 
audits provide a reasonable basis for our opinion.                              

In our opinion, the financial statements referred to above present fairly, in   
all material respects, the financial position of IDS Insured Tax-Exempt Fund at 
June 30, 1997, and the results of its operations, changes in its net assets and 
the financial highlights for the periods stated in the first paragraph above, in
conformity with generally accepted accounting principles.                       

KPMG Peat Marwick LLP                                                           
Minneapolis, Minnesota                                                          
August 1, 1997                                                                  

(This annual report is not part of the prospectus.)                             

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                                                        [Enlarge/Download Table]


 Financial statements                                                                                  

      Statement of assets and liabilities                                                              
      IDS Insured Tax-Exempt Fund                                                                      
      June 30, 1997                                                                                    

                                  Assets                                                               
                                                                                                       
 Investments in securities, at value (Note 1)                                                          
      (identified cost $454,600,456)                                                      $490,904,655 
 Accrued interest receivable                                                                 8,662,530 
 Receivable for investment securities sold                                                      62,500 
                                                                                                ------ 
 Total assets                                                                              499,629,685 
                                                                                           ----------- 

                                  Liabilities                                                          

 Disbursements in excess of cash on demand deposit                                             175,587 
 Dividends payable to shareholders                                                             347,694 
 Payable for investment securities purchased                                                 5,332,884 
 Accrued investment management services fee                                                     18,269 
 Accrued distribution fee                                                                        1,931 
 Accrued service fee                                                                             7,221 
 Accrued transfer agency fee                                                                     1,819 
 Accrued administrative services fee                                                             1,624 
 Other accrued expenses                                                                         47,640 
                                                                                                ------ 
 Total liabilities                                                                           5,934,669 
                                                                                             --------- 
 Net assets applicable to outstanding shares                                              $493,695,016 
                                                                                          ============ 

                                  Represented by                                                       

 Shares of beneficial interest-- $.01 par value, unlimited number of shares  authorized    $    896,194
 Additional paid-in capital                                                                469,997,454 
 Undistributed net investment income                                                           438,514 
 Accumulated net realized gain (loss) (Notes 1 and 6)                                      (14,063,415)
 Unrealized appreciation (depreciation) of investments (Note 5)                             36,426,269 
                                                             -                              ---------- 
 Total-- representing net assets applicable to outstanding shares                         $493,695,016 
                                                                                          ============ 
 Net assets applicable to outstanding shares:             Class A                         $462,300,946 
                                                          Class B                         $ 31,392,921 
                                                          Class Y                         $      1,149 
 Net asset value per share of outstanding shares:         Class A shares      83,920,040  $       5.51 
                                                          Class B shares       5,699,121  $       5.51 
                                                          Class Y shares             208  $       5.52 

See accompanying notes to financial statements.                                                        

(This annual report is not part of the prospectus.)                                                    

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      Statement of operations                                                                          
      IDS Insured Tax-Exempt Fund                                                                      
      Year ended June 30, 1997                                                                         

                                  Investment income                                                    

 Income:                                                                                               
 Interest                                                                                  $31,085,631 
                                                                                           ----------- 
 Expenses (Note 2):                                                                                    
 Investment management services fee                                                          2,269,770 
 Distribution fee-- Class B                                                                    195,038 
 Transfer agency fee                                                                           234,793 
 Incremental transfer agency fee--- Class B                                                        997 
 Service fee                                                                                           
      Class A                                                                                  824,693 
      Class B                                                                                   45,223 
 Administrative services fees and expenses                                                     201,757 
 Compensation of board members                                                                   9,932 
 Compensation of officers                                                                        2,083 
 Custodian fees                                                                                 39,370 
 Postage                                                                                        39,915 
 Registration fees                                                                              32,120 
 Reports to shareholders                                                                        39,286 
 Audit fees                                                                                     18,000 
 Other                                                                                           4,887 
                                                                                                 ----- 
 Total expenses                                                                              3,957,864 
      Earnings credits on cash balances (Note 2)                                               (55,275)
                                              -                                                ------- 
 Total net expenses                                                                          3,902,589 
                                                                                             --------- 
 Investment income -- net                                                                    27,183,042
                                                                                             ----------

                   Realized and unrealized gain (loss) -- net                                          

 Net realized gain (loss) on:                                                                          
      Security transactions (Note 3)                                                         1,809,931 
      Financial futures contracts                                                           (2,986,838)
                                                                                            ---------- 
 Net realized gain (loss) on investments                                                    (1,176,907)
 Net change in unrealized appreciation (depreciation) of investments                         8,442,998 
                                                                                             --------- 
 Net gain (loss) on investments                                                              7,266,091 
                                                                                             --------- 
 Net increase (decrease) in net assets resulting from operations                           $34,449,133 
                                                                                           =========== 

See accompanying notes to financial statements.                                                        

               (This annual report is not part of the prospectus.)

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Financial statements                                                            

                                                        [Enlarge/Download Table]

      Statements of changes in net assets                                                           
      IDS Insured Tax-Exempt Fund                                                                   
      Year ended June 30,                                                                           
                                                                                                    

 Investment income-- net                                              $  27,183,042   $  26,786,000 
 Net realized gain (loss) on investments                                 (1,176,907)      1,470,391 
 Net change in unrealized appreciation (depreciation) of investments      8,442,998       2,965,393 
                                                                          ---------       --------- 
 Net increase (decrease) in net assets resulting from operations         34,449,133      31,221,784 
                                                                         ----------      ---------- 
 Distributions to shareholders from:                                                                
      Net investment income                                                                         
           Class A                                                      (25,736,641)    (26,156,789)
           Class B                                                       (1,211,996)       (632,447)
           Class Y                                                              (63)            (56)
      Net realized gain                                                                             
           Class A                                                               --      (1,659,685)
           Class B                                                               --         (48,604)
           Class Y                                                               --              (3)
                                                                         ----------      ---------- 
 Total distributions                                                    (26,948,700)    (28,497,584)
                                                                         ----------      ---------- 

                                  Share transactions (Note 4)                                       

 Proceeds from sales                                                                                
      Class A shares (Note 2)                                            34,091,690      42,283,689 
      Class B shares                                                     13,289,699      16,779,713 
 Reinvestment of distributions at net asset value                                                   
      Class A shares                                                     17,755,994      19,769,773 
      Class B shares                                                        932,161         541,841 
      Class Y shares                                                             63              59 
 Payments for redemptions                                                                           
      Class A shares                                                    (87,518,045)    (78,673,946)
      Class B shares (Note 2)                                            (3,979,528)     (2,641,423)
                                                                         ----------      ---------- 
 Increase (decrease) in net assets from share transactions              (25,427,966)     (1,940,294)
                                                                        -----------      ---------- 
 Total increase (decrease) in net assets                                (17,927,533)        783,906 
 Net assets at beginning of year                                        511,622,549     510,838,643 
                                                                        -----------     ----------- 
 Net assets at end of year                                             $493,695,016    $511,622,549 
                                                                       ============    ============ 
 Undistributed net investment income                                   $    438,514    $    160,320 
                                                                       ------------    ------------ 

See accompanying notes to financial statements.                                                     

(This annual report is not part of the prospectus.)                                                 

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Notes to financial statements                                                 
IDS Insured Tax-Exempt Fund                                         

1                                                                           
Summary of                                                                      
significant                                                                     
accounting policies                                                             

IDS Special Tax-Exempt Series Trust was organized as a Massachusetts
  business trust April 7, 1986. IDS Special Tax-Exempt Series Trust is a
"series fund" that is currently composed of six individual funds,   
   including IDS Insured Tax-Exempt Fund. The Fund is registered under the
  Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company.                                      

 The Fund invests primarily in securities that are insured as to their
   scheduled payment of principal and interest for at least as long as the
   securities are held in the Fund. Insured securities fluctuate in market
      value as interest rates change. The Fund offers Class A, Class B and Class
    Y shares. Class A shares are sold with a front-end sales charge. Class B
shares may be subject to a contingent deferred sales charge and such
     shares automatically convert to Class A after eight years. Class Y shares
 have no sales charge and are offered only to qualifying institutional
investors.                                                          

  All classes of shares have identical voting, dividend, liquidation and
     other rights, and the same terms and conditions, except that the level of
 distribution fee, transfer agency fee and service fee (class specific
expenses) differs among classes. Income, expenses (other than class 
specific expenses) and realized and unrealized gains or losses on   
     investments are allocated to each class of shares based upon its relative
net assets.                                                         

      Significant accounting policies followed by the Fund are summarized below:

(This annual report is not part of the prospectus.)                             

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Notes to financial statements                                                   
IDS Insured Tax-Exempt Fund                                                     

Use of estimates                                                    

The preparation of financial statements in conformity with generally
    accepted accounting principles requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the  
     financial statements and the reported amounts of increase and decrease in
     net assets from operations during the period. Actual results could differ
from those estimates.                                               

Valuation of securities                                             

   All securities are valued at the close of each business day. Securities
    for which market quotations are not readily available are valued at fair
value according to methods selected in good faith by the board.     
  Determination of fair value involves, among other things, reference to
  market indexes, matrixes and data from independent brokers. Short-term
securities maturing in more than 60 days from the valuation date are
   valued at the market price or approximate market value based on current
     interest rates; those maturing in 60 days or less are valued at amortized
cost.                                                               

(This annual report is not part of the prospectus.)                             

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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.       

(This annual report is not part of the prospectus.)                             

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Notes to financial statements                                                   
IDS Insured Tax-Exempt Fund                                                     

Futures transactions                                                

      In order to gain exposure to or protect itself from changes in the market,
    the Fund may buy and sell financial futures contracts. Risks of entering
   into futures contracts and related options include the possibility that
 there may be an illiquid market and that a change in the value of the
 contract or option may not correlate with changes in the value of the
underlying securities.                                              

  Upon entering into a futures contract, the Fund is required to deposit
      either cash or securities in an amount (initial margin) equal to a certain
    percentage of the contract value. Subsequent payments (variation margin)
    are made or received by the Fund each day. The variation margin payments
    are equal to the daily changes in the contract value and are recorded as
    unrealized gains and losses. The Fund recognizes a realized gain or loss
when the contract is closed or expires.                             

Securities purchased on a when-issued basis                         

    Delivery and payment for securities that have been purchased by the Fund
    on a forward-commitment or when-issued basis can take place one month or
    more after the transaction date. During this period, such securities are
subject to market fluctuations, and they may affect the Fund's gross
   assets the same as owned securities. The Fund designates cash or liquid
     high-grade short-term debt securities at least equal to the amount of its
  commitment. As of June 30, 1997, the Fund had entered into outstanding
when-issued or forward commitments of $5,332,884.                   

(This annual report is not part of the prospectus.)                             

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Federal taxes                                                       

  Since the Fund's policy is to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies and to    
   distribute all of its taxable income to share-holders, no provision for
income or excise taxes is required.                                 

   Net investment income (loss) and net realized gains (losses) may differ
      for financial statement and tax purposes primarily because of the deferral
   of losses on certain futures contracts and losses deferred due to "wash
   sale" transactions. The character of distributions made during the year
  from net investment income or net realized gains may differ from their
   ultimate characterization for federal income tax purposes. Also, due to
      the timing of dividend distributions, the fiscal year in which amounts are
  distributed may differ from the year that the income or realized gains
(losses) were recorded by the Fund.                                 

On the statement of assets and liabilities, as a result of permanent
 book-to-tax differences, undistributed net investment income has been
      increased by $43,852, and accumulated net realized loss has been increased
by $43,852.                                                         

Dividends to shareholders                                           

     Dividends from net investment income, declared daily and payable monthly,
 are reinvested in additional shares of the Fund at net asset value or
      payable in cash. Capital gains, when available, are distributed along with
the last income dividend of the calendar year.                      

Other                                                               

Security transactions are accounted for on the date securities are  
     purchased or sold. Interest income, including level-yield amortization of
premium and discount, is accrued daily.                             

     At June 30, 1997, American Express Financial Corporation (AEFC) owned 208
Class Y shares.                                                     

(This annual report is not part of the prospectus.)                             

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Notes to financial statements                                                   
IDS Insured Tax-Exempt Fund                                                     

2                                                                       
Expenses and                                                                    
sales charges                                                                   

    Effective March 20, 1995, the Fund entered into agreements with AEFC for
    managing its portfolio, providing administrative services and serving as
    transfer agent. Under its Investment Management Services Agreement, AEFC
determines which securities will be purchased, held or sold. The    
    management fee is a percentage of the Fund's average daily net assets in
reducing percentages from 0.45% to 0.35% annually.                  

    Under an Administrative Services Agreement, the Fund pays AEFC a fee for
administration and accounting services at a percentage of the Fund's
average daily net assets in reducing percentages from 0.04% to 0.02%
     annually. Additional administrative service expenses paid by the Fund are
office expenses, consultants' fees and compensation of officers and 
employees. Under this agreement, the Fund also pays taxes, audit and
   certain legal fees, registration fees for shares, compensation of board
      members, corporate filing fees, and any other expenses properly payable by
the Fund and approved by the board.                                 

  Under a separate Transfer Agency Agreement, AEFC maintains shareholder
  accounts and records. The Fund pays AEFC an annual fee per shareholder
account for this service as follows:                                
o Class A $15.50                                                        
o Class B $16.50                                                        
o Class Y $15.50                                                        

(This annual report is not part of the prospectus.)                             

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Also effective March 20, 1995, the Fund entered into agreements with
     American Express Financial Advisors Inc. for distribution and shareholder
   servicing-related services. Under a Plan and Agreement of Distribution,
     the Fund pays a distribution fee at an annual rate of 0.75% of the Fund's
average daily net assets attributable to Class B shares for         
distribution-related services.                                      

  Under a Shareholder Service Agreement, the Fund pays a fee for service
      provided to shareholders by financial advisors and other servicing agents.
     The fee is calculated at a rate of 0.175% of the Fund's average daily net
     assets attributable to Class A and Class B shares and 0.10% of the Fund's
average daily net assets attributable to Class Y shares.            

  Sales charges received by American Express Financial Advisors Inc. for
      distributing Fund shares were $968,182 for Class A and $34,205 for Class B
for the year ended June 30, 1997.                                   

  During the year ended June 30, 1997, the Fund's custodian and transfer
    agency fees were reduced by $55,275 as a result of earnings credits from
overnight cash balances.                                            

(This annual report is not part of the prospectus.)                             

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Notes to financial statements                                                   
IDS Insured Tax-Exempt Fund                                                     

3                                                                           

Securities                                                                      
transactions                                                                    

Cost of purchases and proceeds from sales of securities (other than 
short-term obligations) aggregated $161,096,624 and $183,012,598,   
     respectively, for the year ended June 30, 1997. Realized gains and losses
are determined on an identified cost basis.                         

4                                                                           

Share                                                                           
transactions                                                                    

      Transactions in shares of the Fund for the years indicated are as follows:

Year ended June 30, 1997
 Class A Class B Class Y
--------------------------------------------------------------------------------

Sold                      6,218,449           2,423,964                   --

Issued for reinvested     3,241,482             170,206                   11
distributions                                                           

Redeemed                (15,964,818)           (726,159)                  --

--------------------------------------------------------------------------------
Net increase (decrease)  (6,504,887)          1,868,011                   11
--------------------------------------------------------------------------------

Year ended June 30, 1996
 Class A Class B Class Y
--------------------------------------------------------------------------------

Sold                      7,677,356           3,048,552                   --

Issued for reinvested     3,585,244              98,195                   11
distributions                                                           

Redeemed                (14,339,111)           (476,102)                  --

--------------------------------------------------------------------------------
Net increase (decrease)  (3,076,511)          2,670,645                   11
--------------------------------------------------------------------------------

(This annual report is not part of the prospectus.)                             

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5                                                                           

Interest rate                                                                   
futures contracts                                                               

     At June 30, 1997, investments in securities included securities valued at
$6,436,747 that were pledged as collateral to cover initial margin  
deposits on 200 open sales contracts. The market value of the open  
      contracts at June 30, 1997 was $23,300,000 with a net unrealized gain (see
Summary of significant accounting policies) of $122,070.            

6                                                                           

Capital loss                                                                    
carryover                                                                       

     For federal income tax purposes, the Fund had a capital loss carryover of
$824,794 at June 30, 1997, that will expire in 2005 if not offset by
subsequent capital gains. It is unlikely the board will authorize a 
   distribution of any net realized gains until the available capital loss
carryover has been offset or expires.                               

7                                                                           

Financial                                                                       
highlights                                                                      

     "Financial highlights" showing per share data and selected information is
presented on pages 7 and 8 of the prospectus.                       

(This annual report is not part of the prospectus.)                             

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 Investments in securities                                                                                       
      IDS Insured Tax-Exempt Fund                                                                                
      June 30, 1997                                                                                              
                                                                                 (Percentages represent          
                                                                                   value of investments          
                                                                                 compared to net assets)         
                                                                                                                 

Municipal bonds (99.4%)                                                                                          
Name of issuer and                                            Coupon   Maturity        Principal        Value(a) 
title of issue (b,c,d)                                          rate       year           amount                 

 Alabama (0.7%)                                                                                                  
 Mobile General Obligation Capital Improvement Warrants                                                          
    Convention Center Pre-Refunded Bonds Series 1990                                                             
    (AMBAC Insured)                                            7.125%      2020       $3,000,000      $3,298,620 

 Alaska (1.6%)                                                                                                   
 North Slope Borough Capital Appreciation                                                                        
    Unlimited General Obligation Bonds                                                                           
    Series 1995A Zero Coupon (MBIA Insured)                     5.61        2006        5,300,000(e)    3,350,766
 North Slope Borough General Obligation Bonds                                                                    
    Series 1996B Zero Coupon (MBIA Insured)                     5.72        2007        8,000,000(e)    4,760,000
 Total                                                                                                  8,110,766

 Arizona (1.8%)                                                                                                  
 Chandler Water & Sewer Refunding Revenue Bonds                                                                  
    Series 1991 (FGIC Insured)                                  7.00        2012        1,250,000       1,356,562
 Health Facilities Authority Hospital System                                                                     
    Refunding Revenue Bonds Phoenix Baptist Hospital                                                             
    Series 1992 (MBIA Insured)                                  6.25        2011        1,650,000       1,764,312
 Phoenix Civic Improvement Wastewater System Lease                                                               
    Refunding Revenue Bonds (Secondary MBIA Insured)            4.75        2023        4,500,000       3,996,270
 State University Research Park Development                                                                      
    Refunding Bonds Series 1995 (MBIA Insured)                  5.00        2021        1,975,000       1,849,252
 Total                                                                                              8,966,396    

 Arkansas (0.3%)                                                                                                 
 Jonesboro Residential Housing & Health Care Facility Board                                                      
    St. Bernards Regional Medical Center                                                                         
    Hospital Refunding Revenue & Construction Bonds                                                              
    Series 1996B (AMBAC Insured)                                5.90        2016        1,200,000       1,237,224

 California (12.4%)                                                                                              
 Contra Costa Water District Revenue Bonds                                                                       
    Series 1994G (MBIA Insured)                                 5.50        2019        4,675,000       4,580,565
 Desert Sands Unified School District Convertible Capital                                                        
    Appreciation Certificates Series 1995 Zero Coupon                                                            
    (FSA Insured)                                               6.45        2020        3,000,000(f)    2,519,010
 Eastern Municipal Water District Riverside County                                                               
    Water & Sewer Pre-Refunded Revenue                                                                           
    Certificates of Participation Series 1991 (FGIC Insured)    6.50        2020        5,460,000       6,000,103
 Fontana Unified School District San Bernardino County                                                           
    General Obligation Convertible Capital Appreciation Bonds                                                    
    Series 1990C Zero Coupon (FGIC Insured)                     6.15        2020        6,000,000(f)    6,314,100
 Fresno Health Facility Revenue Bonds Holy Cross-St. Agnes                                                       
    (Secondary MBIA Insured)                                    6.625       2021        2,000,000       2,161,440
 Long Beach Harbor Revenue Bonds                                                                                 
    (MBIA Insured) A.M.T.                                       5.25        2025        3,000,000       2,796,570
 Los Angeles Department of Airports Revenue Bonds                                                                
    Los Angeles International Airport Series D                                                                   
    (FGIC Insured) A.M.T.                                       5.50        2015        2,000,000       1,990,860
 Los Angeles Department of Water & Power Waterworks                                                              
    Refunding Revenue Bonds Second Issue                                                                         
    (Secondary FGIC Insured)                                    4.50        2023        2,000,000       1,672,440
 Northern California Transmission Select Auction                                                                 
    Variable Rate Security & Residual Interest Revenue Bonds                                                     
    Inverse Floater (MBIA Insured)                              5.50        2024        2,500,000(g)    2,411,525
 Oceanside Certificate of Participation Refunding Bonds                                                          
    Oceanside Civic Center (MBIA Insured)                       5.25        2019        1,730,000       1,634,885

See accompanying notes to investments in securities.                            

(This annual report is not part of the prospectus.)                             

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Municipal bonds (continued)                                                                                
Name of issuer and                                            Coupon   Maturity   Principal       Value(a) 
title of issue (b,c,d)                                          rate       year      amount                
                                                                                                           
 Placer County Certificate of Participation                                                                
    Series 1997 (MBIA Insured)                                  5.25        2017   1,670,000      1,604,152
 Rural Home Mortgage Financing Authority                                                                   
    Single Family Mortage Revenue Bonds                                                                    
    Series 1997A-3 (GNMA Insured) A.M.T.                        6.25        2029   1,500,000      1,632,855
 San Diego County Certificate of Participation                                                             
    Regional Authority Bonds Mt. Tower                                                                     
    Inverse Floater Series 1991 (MBIA Insured)                  6.36        2019   9,000,000(g)   9,443,700
 San Jose Redevelopment Agency Merged Area                                                                 
    Redevelopment Tax Allocation Bonds Series 1993                                                         
    (MBIA Insured)                                              4.75        2024   2,400,000      2,090,136
 San Jose Redevelopment Agency Tax Allocation Bonds                                                        
    Series 1997 (MBIA Insured)                                  5.50        2017   1,000,000        993,940
 San Mateo County Joint Power Financing Authority                                                          
    Lease Revenue Bonds San Mateo County Health Center                                                     
    Series 1994A (FSA Insured)                                  5.75        2022   1,500,000      1,509,405
 State Public Works Board Lease Revenue Bonds                                                              
    Department of Correction Substance Abuse Treatment                                                     
    Facility & State Prison at Corcoran Series 1996A                                                       
    (AMBAC Insured)                                             5.25        2021   2,000,000      1,914,160
 State Public Works Board Lease Revenue Bonds                                                              
    University of California Series A (AMBAC Insured)           6.40        2016   2,000,000      2,232,800
 State Unlimited Tax General Obligation Bonds                                                              
    (Secondary FGIC Insured)                                    4.75        2023   2,500,000      2,181,925
 Statewide Community Development Authority                                                                 
    Certificate of Participation                                                                           
    Sutter Health Obligated Group (MBIA Insured)                5.50        2022   5,750,000      5,604,467
 Total                                                                                           61,289,038

 Colorado (1.7%)                                                                                           
 Denver City & County Airport Revenue Bonds Series B                                                       
    (MBIA Insured) A.M.T.                                       5.75        2017   4,290,000(h)   4,299,653
 Douglas County School District General Obligation                                                         
    Improvement Bonds Series 1994A (MBIA Insured)               6.50        2016   1,500,000      1,642,125
 Larimer County School District R-1 Certificate of Participation                                           
    Series 1997 (MBIA Insured)                                  5.65        2016   1,000,000(h)   1,010,990
 Larimer Weld & Boulder Counties School District R-2J                                                      
    Thompson Unlimited General Obligation Capital                                                          
    Appreciation Bonds Series 1997 Zero Coupon (FGIC Insured)   5.45        2011   2,000,000(e)     911,440
 Larimer Weld & Boulder Counties School District R-2J                                                      
    Thompson Unlimited General Obligation Capital                                                          
    Appreciation Bonds Series 1997 Zero Coupon (FGIC Insured)   5.50        2012   1,400,000(e)     599,732
 Total                                                                                            8,463,940

 Delaware (0.2%)                                                                                           
 Health Facilities Authority Refunding Revenue Bonds                                                       
    Medical Center of Delaware Series 1989 (MBIA Insured)       7.00        2015   1,000,000      1,067,650

 District of Columbia (2.8%)                                                                               
 Howard University Revenue Bonds Series A (MBIA Insured)        8.00        2017   1,500,000      1,545,765
 Metropolitan Washington Airports Authority Airport System                                                 
    Revenue Bonds Series 1992A (MBIA Insured) A.M.T.            6.625       2019   9,420,000     10,168,513
 Unlimited Tax General Obligation Refunding Bonds                                                          
    Series B-2 (FSA Insured)                                    5.50        2010   2,000,000      2,010,940
 Total                                                                                           13,725,218

See accompanying notes to investments in securities.                            

(This annual report is not part of the prospectus.)                             

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 Investments in securities                                                                                     
      IDS Insured Tax-Exempt Fund                                                                              
                                                                               (Percentages represent          
                                                                                 value of investments          
                                                                               compared to net assets)         

Municipal bonds (continued)                                                                                    
Name of issuer and                                          Coupon   Maturity        Principal        Value(a) 
title of issue (b,c,d)                                        rate       year           amount                 
                                                                                                               
 Florida (2.2%)                                                                                                
 Alachua County Public Improvement Refunding Revenue Bonds                                                     
    (FSA Insured)                                             5.125       2021        2,000,000       1,897,900
 Department of Transportation Turnpike Revenue Bonds                                                           
    Series 1991A (AMBAC Insured)                              6.25        2020        1,250,000       1,313,900
 Fort Myers Utility System Refunding Revenue Bonds                                                             
    Series 1989A (BIG Insured)                                6.00        2019        2,000,000       2,042,780
 Gulf Breeze Local Government Loan Program Boca Raton                                                          
    Series 1985E (FGIC Insured)                               7.75        2015        2,000,000       2,186,140
 Osceola County Transportation Pre-Refunded Revenue Bonds                                                      
    Series 1988A (FGIC Insured)                               7.70        2013        1,215,000       1,273,527
 Palm Beach County Solid Waste Authority Revenue Bonds                                                         
    Series 1984 (BIG Insured)                                 8.375       2010          500,000         515,420
 State Correctional Privatization Commission                                                                   
    Certificate of Participation 350 Bed Youthful Columbia                                                     
    Series A (AMBAC Insured)                                  5.00        2017        1,900,000       1,787,463
 Total                                                                                               11,017,130

 Georgia (3.0%)                                                                                                
 Atlanta Metropolitan Rapid Transit Authority Sales Tax                                                        
    Pre-Refunded Revenue Bonds Series L (AMBAC Insured)       7.20        2020        3,000,000       3,229,980
 Chatham County Hospital Authority Revenue Bonds                                                               
    Memorial Medical Center Series 1990A (MBIA Insured)       7.00        2021        4,500,000       4,956,345
 Fulton County Water & Sewer Revenue Bonds                                                                     
    (FGIC Insured)                                            6.375       2014        3,250,000       3,642,633
 Municipal Electrical Authority Special Obligation                                                             
    Refunding Bonds 2nd Crossover Series (AMBAC Insured)      7.80        2020          500,000         518,705
 Richmond County Water & Sewer Refunding Revenue                                                               
    Improvement Bonds Series 1996A (FGIC Insured)             5.25        2028        2,500,000       2,385,500
 Total                                                                                               14,733,163

 Hawaii (0.2%)                                                                                                 
 Harbor System Revenue Bonds                                                                                   
    Series 1997 (MBIA Insured) A.M.T.                         5.50        2027        1,000,000         960,320

 Illinois (2.8%)                                                                                               
 Chicago O'Hare International Airport General                                                                  
    Revenue Bonds Series 1990A (AMBAC Insured) A.M.T.         7.50        2016        2,000,000       2,154,560
 Chicago O'Hare International Airport Terminal                                                                 
    Revenue Bonds (MBIA Insured) A.M.T.                       7.625       2010        3,000,000       3,240,570
 Chicago Public Building Commission                                                                            
    Pre-Refunded Revenue Bonds (MBIA Insured) A.M.T.          7.70        2008        1,000,000       1,039,060
 Chicago Public Building Commission                                                                            
    Pre-Refunded Revenue Bonds Series 1989A (FGIC Insured)    7.75        2006        1,000,000       1,071,490
 Chicago Public Building Commission                                                                            
    Pre-Refunded Revenue Bonds Series 1990A (MBIA Insured)    7.125       2015        5,000,000       5,445,900
 St. Clair County Public Community Building                                                                    
    Capital Appreciation Revenue Bonds                                                                         
    Series 1997B Zero Coupon (FGIC Insured)                   5.95        2014        2,000,000(e)      751,360
 Total                                                                                               13,702,940

 Indiana (2.2%)                                                                                                
 Educational Facilities Authority Pre-Refunded Bonds                                                           
    Valpraiso University (BIG Insured)                        7.80        2008          500,000         532,960
 Marion County Hospital Authority Refunding Revenue Bonds                                                      
    Methodist Hospital Series 1989 (MBIA Insured)             6.50        2013        4,000,000       4,308,320

See accompanying notes to investments in securities.                            

(This annual report is not part of the prospectus.)                             

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Municipal bonds (continued)                                                                                
Name of issuer and                                            Coupon   Maturity   Principal       Value(a) 
title of issue (b,c,d)                                          rate       year      amount                
                                                                                                           
 State Health Facility Finance Authority Hospital                                                          
    Refunding Revenue Bonds Columbus Regional Hospital                                                     
    Series 1993 (CGIC Insured)                                  7.00        2015   5,000,000      5,872,200
 Total                                                                                           10,713,480

 Kentucky (0.1%)                                                                                           
 Louisville & Jefferson County Airport Authority System                                                    
    Revenue Bonds (MBIA Insured) A.M.T.                         8.50        2017     300,000        306,036

 Louisiana (3.1%)                                                                                          
 Energy & Power Authority Power Refunding Revenue Bonds                                                    
    Rodemacher Unit #2 Series 1991 (FGIC Insured)               6.75        2008   7,000,000(h)   7,586,950
 Jefferson Parish School Board Sales & Use Tax                                                             
    Revenue Bonds (AMBAC Insured)                               5.00        2014   3,035,000      2,893,357
 New Orleans Audubon Park Commission Aquarium                                                              
    Pre-Refunded Bonds Series 1988 (MBIA Insured)               7.90        2008     500,000        514,990
 New Orleans International Airport Pre-Refunded                                                            
    Revenue Bonds Series A (FGIC Insured) A.M.T.                8.875       2017     565,000        578,639
 Orleans Parish Parishwide School District                                                                 
    Unlimited Tax General Obligation Bonds                                                                 
    Series 1997 (AMBAC Insured)                                 5.375       2021   2,500,000      2,409,750
 Orleans Parish School Board                                                                               
    Unlimited Tax General Obligation Bonds                                                                 
    Series 1995 (FGIC Insured)                                  5.375       2018   1,250,000      1,227,425
 Total                                                                                           15,211,111

 Maine (0.4%)                                                                                              
 State Turnpike Authority Turnpike Revenue Bonds (MBIA Insured) 6.00        2018   1,790,000      1,845,186

 Massachusetts (4.8%)                                                                                      
 Boston Water & Sewer Commission Revenue Bonds                                                             
    General Subordinate Series A (BIG Insured)                  6.00        2008   2,500,000      2,531,400
 Health & Educational Authority Revenue Bonds                                                              
    Valley Regional Health System Series C                                                                 
    (Connie Lee Insured)                                        5.75        2018   1,500,000      1,496,370
 Health & Educational Facilities Authority                                                                 
    Pre-Refunded Revenue Bonds                                                                             
    Lahey Clinic Medical Center (MBIA Insured)                  7.625       2018   2,200,000      2,322,936
 Health & Educational Facilities Authority                                                                 
    Pre-Refunded Revenue Bonds Northeastern University                                                     
    Series 1989C (AMBAC Insured)                                7.10        2006   1,000,000      1,075,120
 Health & Educational Facilities Authority                                                                 
    Revenue Bonds Cape Cod Health System                                                                   
    Series A (Connie Lee Insured)                               5.25        2021   4,000,000      3,759,160
 Industrial Finance Agency Revenue Bonds                                                                   
    Brandeis University (MBIA Insured)                          6.80        2019   1,700,000      1,817,266
 Municipal Wholesale Electric Power Supply System                                                          
    Refunding Revenue Bonds Series B (MBIA Insured)             4.75        2011   5,250,000      4,898,145
 State Bay Transportation Authority Series B                                                               
    (AMBAC Insured)                                             5.375       2025   4,000,000      3,847,720
 State Water Resource Authority Revenue Bonds                                                              
    Series A (MBIA Insured)                                     5.50        2022   2,000,000      1,939,160
 Total                                                                                           23,687,277

 Michigan (3.5%)                                                                                           
 Almont Community Schools                                                                                  
    Unlimited Tax General Obligation Bonds                                                                 
    Series 1996 (FGIC Insured)                                  5.375       2022   1,900,000      1,842,867

See accompanying notes to investments in securities.                            

(This annual report is not part of the prospectus.)                             

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 Investments in securities                                                                                       
      IDS Insured Tax-Exempt Fund                                                                                
                                                                                 (Percentages represent          
                                                                                   value of investments          
                                                                                 compared to net assets)         
Municipal bonds (continued)                                                                                      
Name of issuer and                                            Coupon   Maturity        Principal        Value(a) 
title of issue (b,c,d)                                          rate       year           amount                 
                                                                                                                 

 Genesee County Sewer Disposal System No 3                                                                       
    Limited Tax General Obligation Bonds                                                                         
    Series A (AMBAC Insured)                                    5.50        2016        1,400,000       1,397,760
 Hillman Community Schools General Obligation Bonds                                                              
    Series 1997 (FGIC Insured)                                  5.25     2019-23        2,820,000       2,689,464
 Iron Mountain School Unlimited Tax                                                                              
    General Obligation Refunding Bonds (AMBAC Insured)          5.125       2021        1,500,000       1,410,510
 Kalamazoo Hospital Finance Authority                                                                            
    Refunding & Improvement Bonds                                                                                
    Bronson Methodist Hospital (Secondary MBIA Insured)         6.25        2012        3,000,000       3,183,300
 Lincoln Park School District County of Wayne                                                                    
    School Building & Site General Obligation Bonds                                                              
    Series 1996 (FGIC Insured)                                  5.90        2026        1,500,000       1,532,385
 Monroe County Pollution Control Refunding Bonds                                                                 
    Detroit Edison Series I-B (MBIA Insured) A.M.T.             6.55        2024        5,000,000       5,383,500
 Total                                                                                                 17,439,786

 Minnesota (2.1%)                                                                                                
 Southern Minnesota Municipal Power Agency                                                                       
    Power Supply System Refunding Revenue Bonds                                                                  
    Zero Coupon (MBIA Insured)                                  6.12        2021        6,000,000(e)    1,572,300
 Southern Minnesota Municipal Power Agency                                                                       
    Power Supply System Refunding Revenue Bonds                                                                  
    Series A (Secondary FGIC Insured)                           4.75        2016        4,250,000       3,832,523
 Western Municipal Power Agency Transmission                                                                     
    Pre-Refunded Revenue Bonds Series 1991 (AMBAC Insured)      6.75        2016        4,500,000       4,846,995
 Total                                                                                                 10,251,818

 Mississippi (0.2%)                                                                                              
 Alcorn County Hospital Refunding Revenue Bonds                                                                  
    Magnolia Regional Hospital Center (AMBAC Insured)           5.75        2013        1,000,000       1,024,810

 Montana (1.9%)                                                                                                  
 Forsyth Rosebud County Pollution Refunding Revenue Bonds                                                        
    Puget Sound Power & Light (AMBAC Insured) A.M.T.            7.25        2021        4,000,000       4,372,280
 State Board of Investments Payroll Tax Bonds                                                                    
    Worker's Compensation Program Series 1991 (MBIA Insured)    6.875       2020        4,750,000       5,252,930
 Total                                                                                                  9,625,210

 Nevada (1.0%)                                                                                                   
 Clark County Passenger Facility Charge Revenue Bonds                                                            
    Las Vegas McCarren Airport Series B                                                                          
    (Secondary AMBAC Insured) A.M.T.                            5.50        2025        5,000,000       4,760,350

 New Hampshire (1.1%)                                                                                            
 Industrial Development Authority Pollution Control                                                              
    Revenue Bonds Light & Power                                                                                  
    Series 1989 (AMBAC Insured) A.M.T.                          7.375       2019        5,000,000(h)    5,386,850

 New Mexico (0.2%)                                                                                               
 Santa Fe Water Revenue Bonds (AMBAC Insured)                   6.30        2024        1,000,000       1,096,630

See accompanying notes to investments in securities.                            

(This annual report is not part of the prospectus.)                             

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Municipal bonds (continued)                                                                             
Name of issuer and                                            Coupon   Maturity   Principal    Value(a) 
title of issue (b,c,d)                                          rate       year      amount             
                                                                                                        

 New York (8.1%)                                                                                        
 Dormitory Authority City University System                                                             
    Consolidated 3rd Resolution Revenue Bonds                                                           
    Series 1994-2 (MBIA Insured)                                6.25        2019   2,500,000   2,638,925
 Metropolitan Transportation Authority Commuter Facility                                                
    Service Contract Bonds Series L (AMBAC Insured)             7.50        2017   1,300,000   1,367,028
 New York City General Obligation Pre-Refunded Bonds                                                    
    Series A (FGIC Insured)                                     8.125       2007   1,145,000   1,178,320
 New York City Municipal Water Finance Authority                                                        
    Water & Sewer System Revenue Bonds Series A                                                         
    (Secondary MBIA Insured)                                    5.50        2023   5,000,000   4,878,450
 State Dormitory Authority State University Education Facility                                          
    Revenue Bonds (Secondary AMBAC Insured)                     5.25        2015   2,700,000   2,681,262
 State Energy Resource & Development Authority                                                          
    Gas Facility Revenue Bonds Brooklyn Union Gas                                                       
    (MBIA Insured) A.M.T.                                       5.60        2025   4,500,000   4,357,890
 State Energy Resource & Development Authority                                                          
    Pollution Control Bonds Series 1987A (MBIA Insured)         6.15        2026   3,000,000   3,094,920
 State Energy Resource & Development Authority                                                          
    Pollution Control Refunding Revenue Bonds                                                           
    Rochester Gas & Electric (MBIA Insured) A.M.T.              6.50        2032   4,000,000   4,270,880
 State Energy Resource & Development Authority                                                          
    Solid Waste Disposal Revenue Bonds                                                                  
    New York State Electric & Gas Series A                                                              
    (MBIA Insured) A.M.T.                                       5.70        2028  11,210,000  11,016,403
 State Urban Development Corporation Correctional                                                       
    Capital Facilities Lease Revenue Bonds                                                              
    Series 1995-6 (AMBAC Insured)                               5.375       2025   3,000,000   2,889,570
 State Urban Development Correctional Facilities                                                        
    Pre-Refunded Revenue Bonds Series 1 (FSA Insured)           7.50        2020   1,500,000   1,642,725
 Total                                                                                        40,016,373

 North Carolina (2.0%)                                                                                  
 Charlotte Pre-Refunded Certificates of Participation                                                   
    Convention Facility Series 1991 (AMBAC Insured)             6.75        2021   3,150,000   3,505,635
 Concord Certificate of Participation Series B (MBIA Insured)   5.75        2016   1,480,000   1,501,504
 Fayetteville Financial Corporation Installment Payment                                                 
    Revenue Bonds Series 1996 (MBIA Insured)                    5.625       2014     300,000     304,164
 Pasquotank County Certificates of Participation                                                        
    Elizabeth Pasquotank Public School                                                                  
    Series 1995 (MBIA Insured)                                  5.00        2020   5,000,000   4,645,550
 Total                                                                                         9,956,853

 North Dakota (0.8%)                                                                                    
 Fargo Health System Meritcare Obligated Group A                                                        
    Revenue Bonds (MBIA Insured)                                5.375       2027   4,350,000   4,153,902

 Ohio (1.3%)                                                                                            
 Lorain County Hospital Facilities Refunding Revenue Bonds                                              
    EMH Regional Medical Center Series 1995 (AMBAC Insured)     5.375       2021   2,000,000   1,919,920
 Lucas County Hospital Refunding Revenue Bonds                                                          
    St. Vincent Medical Center Series 1993C (MBIA Insured)      5.25        2022   1,725,000   1,617,498
 Montgomery County Hospital Facility                                                                    
    Refunding Revenue & Improvement Bonds                                                               
    Kettering Medical Center (MBIA Insured)                     5.50        2026   2,500,000   2,426,025
 North Olmsted Limited General Obligation Bonds                                                         
    Series 1996 (AMBAC Insured)                                 5.00        2016     500,000     475,525
 Total                                                                                         6,438,968

See accompanying notes to investments in securities.                            

(This annual report is not part of the prospectus.)                             

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 Investments in securities                                                                                       
      IDS Insured Tax-Exempt Fund                                                                                
                                                                                 (Percentages represent          
                                                                                   value of investments          
                                                                                 compared to net assets)         
Municipal bonds (continued)                                                                                      
Name of issuer and                                            Coupon   Maturity        Principal        Value(a) 
title of issue (b,c,d)                                          rate       year           amount                 
                                                                                                                 
 Oklahoma (1.1%)                                                                                                 
 McAlester Public Works Authority Oklahoma Improvement                                                           
    Refunding Revenue Bonds (FSA Insured)                       5.25     2017-18        2,470,000       2,374,248
 Moore Public Works Authority Refunding Revenue Bonds                                                            
    Series 1989 (AMBAC Insured)                                 7.60        2006        2,700,000       2,911,248
 Total                                                                                                  5,285,496

 Oregon (0.1%)                                                                                                   
 Port of Portland Airport Revenue Bonds                                                                          
    Series 1996-11 (FGIC Insured) A.M.T.                        5.625       2026          500,000         491,715

 Pennsylvania (4.8%)                                                                                             
 Allegheny County Airport Revenue Bonds                                                                          
    Pittsburgh International Series D (FGIC Insured) A.M.T.     7.75        2019        2,300,000       2,337,444
 Allegheny County Sanitation Authority                                                                           
    Sewer Revenue Bonds Series 1997 (MBIA Insured)              5.375       2024        5,000,000(i)    4,815,950
 Harrisburg Authority Dauphin County Revenue Bonds                                                               
    Series 1997-II (MBIA Insured)                               5.625       2022        2,000,000       1,990,480
 Pittsburgh Water & Sewer Authority System                                                                       
    Pre-Refunded Revenue Bonds Series 1991A (FGIC Insured)      6.50        2014       10,000,000      10,966,100
 Robinson Township Municipal Authority Water & Sewer                                                             
    Revenue Bonds (FGIC Insured)                                6.00        2019        2,200,000       2,276,912
 Turnpike Commission Pre-Refunded Revenue Bonds                                                                  
    Series 1989K (MBIA Insured)                                 7.50        2012        1,000,000       1,094,420
 Total                                                                                                 23,481,306

 Rhode Island (0.6%)                                                                                             
 Health & Education Building Corporation Higher Education                                                        
    Facility Revenue Bonds Series 1996 (MBIA Insured)           5.625       2026        3,000,000       2,943,150

 South Carolina (0.2%)                                                                                           
 Piedmont Municipal Power Agency Electric                                                                        
    Refunding Revenue Bonds (FGIC Insured)                      6.25        2021        1,000,000       1,102,480

 Tennessee (1.2%)                                                                                                
 Knox County Health Education & Housing Facility Board                                                           
    Hospital Refunding Revenue Bonds Fort Sanders                                                                
    Alliance Obligation Group Series 1993 (MBIA Insured)        5.75        2014        3,750,000       3,879,712
 Metropolitan Government Nashville & Davidson County                                                             
    Sports Authority Public Improvement Revenue Bonds                                                            
    Series 1996 (AMBAC Insured)                                 5.75        2017        2,160,000       2,198,772
 Total                                                                                                  6,078,484

 Texas (19.8%)                                                                                                   
 Austin Airport System Prior Lien Revenue Bonds Series 1995A                                                     
    (MBIA Insured) A.M.T.                                       6.125       2025        3,000,000       3,086,760
 Austin Combined Utilities System Refunding Revenue Bonds                                                        
    Series 1994 (FGIC Insured)                                  5.75        2024        8,500,000       8,544,965
 Austin Combined Utilities System Revenue Bonds                                                                  
    Series 1987 (BIG Insured)                                   8.625    2012-17        1,250,000       1,473,175
 Austin Combined Utilities System Capital Appreciation                                                           
    Refunding Revenue Bonds Series 1994 Zero Coupon                                                              
    (FGIC Insured)                                              5.83        2017        5,900,000(e)    1,912,190
 Bexar County Health Facility Development Hospital                                                               
    Revenue Bonds San Antonio Baptist Memorial                                                                   
    Hospital System Series 1994 (MBIA Insured)                  6.75        2019        5,000,000       5,692,550

See accompanying notes to investments in securities.                            

(This annual report is not part of the prospectus.)                             

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Municipal bonds (continued)                                                                               
Name of issuer and                                           Coupon   Maturity   Principal       Value(a) 
title of issue (b,c,d)                                         rate       year      amount                
                                                                                                          
 Brazos River Authority Collateralized Pollution Control                                                  
    Refunding Revenue Bonds Texas Utility Electric                                                        
    Series 1992C (FGIC Insured) A.M.T.                         6.70        2022  14,935,000     16,129,651
 Colorado River Municipal Water District Water System                                                     
    Pre-Refunded Revenue Bonds Series A (AMBAC Insured)        6.625       2021   8,900,000      9,554,239
 Corsicana Waterworks & Sewer System                                                                      
    Refunding Revenue Bonds Series 1997A (FGIC Insured)        5.75        2022   2,075,000      2,089,089
 Georgetown Combination Tax & Utitlities System                                                           
    Limited Revenue Certificates of Obligation                                                            
    Series 1997 (FGIC Insured)                                 5.375       2017   1,000,000        988,430
 Harris County Health Facilities Development Hospital                                                     
    Revenue Bonds State Children's Hospital                                                               
    Series 1989A (MBIA Insured)                                7.00        2019   1,500,000      1,617,585
 Harris County Public Facilities Corporation                                                              
    Detention Facility Mortgage Pre-Refunded Revenue Bonds                                                
    (MBIA Insured)                                             7.80        2011   1,000,000      1,071,990
 Harris County Toll Road Senior Lien                                                                      
    Pre-Refunded Revenue Bonds Series A (AMBAC Insured)        6.50        2017   8,170,000      9,055,873
 Hillsboro Independent School District                                                                    
    Unlimited Tax School Building & Refunding Revenue Bonds                                               
    Series 1997 (PSFG Insured)                                 5.25        2026   1,000,000        958,240
 Houston Water & Sewer System                                                                             
    Junior Lien Refunding Revenue Bonds                                                                   
    Series 1997A (FGIC Insured)                                5.25        2022   7,210,000      6,879,133
 Kilgore Independent School District Unlimited Tax                                                        
    General Obligation Refunding Revenue Bonds                                                            
    Series 1997 (PSFG Insured)                                 5.375       2018     500,000(i)     491,105
 League City General Obligation                                                                           
    Refunding & Improvement Bonds                                                                         
    Series 1990 (FGIC Insured)                                 6.25        2013   2,500,000      2,640,050
 Matagorda County Navigation District #1                                                                  
    Collateralized Pollution Control Revenue Bonds                                                        
    Central Power & Light Series 1984A (AMBAC Insured)         7.50        2014   2,500,000      2,742,325
 Matagorda County Navigation District #1 Pollution Control                                                
    Refunding Revenue Bonds Houston Light & Power                                                         
    Series E (FGIC Insured)                                    7.20        2018   2,150,000      2,324,301
 Matagorda County Navigation District #1 Pollution Control                                                
    Revenue Bonds Central Power & Light                                                                   
    Series 1990 (AMBAC Insured) A.M.T.                         7.50        2020   2,000,000      2,161,500
 Municipal Power Agency Refunding Revenue Bonds                                                           
    Series 1991A (AMBAC Insured)                               6.75        2012   5,250,000      5,705,910
 North Central State Health Facilities Pre-Refunded Bonds                                                 
    Children's Medical Center (BIG Insured)                    7.875       2018   2,000,000      2,040,220
 Turnpike Authority Dallas North Tollway                                                                  
    Pre-Refunded Revenue Bonds Series 1990                                                                
    (AMBAC Insured)                                            6.00        2020   5,000,000      5,137,800
 Turnpike Authority Dallas North Tollway Revenue Bonds                                                    
    Addison Airport Toll Tunnel Series 1994 (FGIC Insured)     6.60        2023   2,000,000      2,200,640
 University of Houston System Consolidated                                                                
    Pre-Refunded Revenue Bonds Series 1990A (MBIA Insured)     7.40        2006   3,160,000      3,403,762
 Total                                                                                          97,901,483

 Utah (0.4%)                                                                                              
 Intermountain Power Authority Power Supply                                                               
    Pre-Refunded Revenue Bonds Series 1987C (AMBAC Insured)    8.375       2012     900,000        918,108
 Salt Lake City-County Airport Pre-Refunded Revenue Bonds                                                 
    Series 1989 (FGIC Insured) A.M.T.                          7.875       2018   1,000,000      1,036,390
 Total                                                                                           1,954,498

See accompanying notes to investments in securities.                            

(This annual report is not part of the prospectus.)                             

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 Investments in securities                                                                                       
      IDS Insured Tax-Exempt Fund                                                                                
                                                                                 (Percentages represent          
                                                                                   value of investments          
                                                                                 compared to net assets)         

Municipal bonds (continued)                                                                                      
Name of issuer and                                            Coupon   Maturity        Principal        Value(a) 
title of issue (b,c,d)                                          rate       year           amount                 
                                                                                                                 
 Virginia (3.7%)                                                                                                 
 Chesapeake Industrial Development Authority Public                                                              
    Facilities Lease Revenue Bonds Series 1996 (MBIA Insured)   5.25        2017        1,300,000       1,254,799
 Hanover County Industrial Development Authority                                                                 
    Memorial Regional Medical Center (MBIA Insured)             5.50        2025        3,800,000       3,662,934
 Loudoun County Sanitation Authority Waste & Sewer                                                               
    Refunding Revenue Bonds (MBIA Insured)                      5.25        2030        1,435,000       1,356,118
 Portsmouth Redevelopment Housing Authority                                                                      
    Multi-family Housing Refunding Revenue Bonds                                                                 
    (FNMA Insured)                                              6.05        2008        5,780,000       6,033,915
 Upper Occoquan Sewer Authority Regional Sewer                                                                   
    Revenue Bonds Series A (MBIA Insured)                       4.75        2029        4,000,000       3,485,840
 William County Lease Certificate of Participation Bonds                                                         
    (MBIA Insured)                                              5.50        2020        2,590,000       2,526,623
 Total                                                                                                 18,320,229

 Washington (1.8%)                                                                                               
 Public Power Supply System Non-Refunded Revenue Bonds                                                           
    Nuclear Project #1 Series A (MBIA Insured)                  7.50        2015        3,000,000       3,247,110
 Public Power Supply System Pre-Refunded Revenue Bonds                                                           
    Nuclear Project #3 Series 1989A (BIG Insured)               7.25        2016        1,000,000       1,077,610
 Public Power Supply System Refunding Revenue Bonds                                                              
    Nuclear Project #3 Series 1989A (BIG Insured)               6.00        2018        3,000,000       3,057,630
 Spokane Regional Solid Waste Management System                                                                  
    Revenue Bonds Series 1989 (AMBAC Insured) A.M.T.            7.75        2011          300,000         318,543
 Spokane Regional Solid Waste Management System                                                                  
    Revenue Bonds Series 1989 (AMBAC Insured) A.M.T.            7.875       2007        1,250,000       1,329,500
 Total                                                                                                  9,030,393

 West Virginia (2.7%)                                                                                            
 Board of Regents Registration Fee Pre-Refunded Revenue Bonds                                                    
    Series 1989B (MBIA Insured)                                 7.40        2009        2,000,000       2,146,180
 School Building Authority Capital Improvement                                                                   
    Pre-Refunded Revenue Bonds (MBIA Insured)                   7.25        2015        3,415,000       3,757,080
 School Building Authority Capital Improvement                                                                   
    Revenue Bonds Series 1990B (MBIA Insured)                   6.75        2017        5,000,000       5,431,150
 State Parkway Economic Development & Tourism                                                                    
    Authority Parkway Pre-Refunded Revenue Bonds                                                                 
    Series 1989 (FGIC Insured)                                  7.125       2019        2,000,000       2,150,460
 Total                                                                                                 13,484,870

 Wisconsin (0.5%)                                                                                                
 Center District Sales Tax Appreciation Senior Dedicated Bonds                                                   
    Series A Zero Coupon (MBIA Insured)                         6.03        2017        7,400,000(e)    2,343,506

 Total municipal bonds                                                                                           
 (Cost: $454,600,456)                                                                                $490,904,655

 Total investments in securities                                                                                 
 (Cost: $454,600,456)(j)                                                                             $490,904,655


See accompanying notes to investments in securities.                            

(This annual report is not part of the prospectus.)                             

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Notes to investments in securities                                            
(a) Securities are valued by procedures described in Note 1 to the financial    
statements.                                                                     
(b) Investments in bonds, by rating category as a percentage of total bonds,    
are as follows:                                                                 

 (Unaudited)
Rating                                       06-30-97            06-30-96       
--------------------------------------------------------------------------------
AAA                                            100%                100%         
AA                                             --                   --          
A                                              --                   --          
BBB                                            --                   --          
BB and below                                   --                   --          
Non-rated                                      --                   --          
Total                                          100%                100%         

(c) The following abbreviations are used in portfolio descriptions to identify  
the insurer of the issue:                                                       
AMBAC       --   American Municipal Bond Association Corporation                
BIG         --   Bond Investors Guarantee                                       
CGIC        --   Capital Guaranty Insurance Company                             
FGIC        --   Financial Guarantee Insurance Corporation                      
FNMA         --  Federal National Mortgage Association                          
FSA         --   Financial Security Assurance                                   
GNMA        --   Government National Mortgage Association                       
MBIA        --   Municipal Bond Investors Assurance                             
PSFG        --   Permanent School Fund Guarantee                                

(d) The following abbreviation is used in the portfolio descriptions:  A.M.T. --
Alternative  Minimum Tax -- As of June 30, 1997, the value of securities subject
to alternative  minimum tax represented 19.4% of net assets.                    

(e) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.                                     

(f) For those zero coupon bonds that become coupon paying at a future date, the 
interest rate disclosed represents the annualized effective yield from the date 
of acquisition to interest reset date disclosed.                                

(g) Inverse floaters represent securities that pay interest at a rate that      
increases (decreases) in the same magnitude as, or in a multiple of, a decline  
(increase) in market short-term rates. Interest rate disclosed is the rate in   
effect on June 30, 1997. Inverse floaters in the aggregate represent 2.4% of the
Fund's net assets as of June 30, 1997.                                          

(h) Partially pledged as initial deposit on the following open interest rate    
futures contracts (see Note 5 to the financial statements):                     

Type of security                                             Notional amount    
------------------------------------------------------------------------------- 
Sales contracts                                                                 

Municipal Bonds Index Sept. 1997                               $20,000,000      

(i) At June 30, 1997, the cost of securities purchased on a when-issued basis   
was $5,332,884.                                                                 

(j) At June 30, 1997, the cost of securities for federal income tax purposes was
$454,217,436 and the aggregate gross unrealized appreciation and depreciation   
based on that cost was:                                                         

Unrealized appreciation.........................................$36,801,236   
Unrealized depreciation............................................(114,017)  
                                                                --------
Net unrealized appreciation.....................................$36,687,219   
                                                             ===========

(This annual report is not part of the prospectus.)                             

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IDS mutual funds                                                                

Global/International funds                                                      

Funds in this group seek capital growth and/or income by investing primarily in 
foreign securities. Foreign investments may be subject to currency fluctuations 
and political and economic risks of the countries in which the investments are  
made. They are high risk mutual funds with a potential for high reward.         

IDS Emerging Markets Fund                                                       

Invests in a Portfolio comprised primarily of stocks of companies in developing 
countries throughout the world that are believed to offer growth potential.     
Seeks to provide long-term growth of capital.                                   

(icon of) world with countries                                                  

IDS Global Growth Fund                                                          

Invests in a Portfolio comprised primarily of stocks of companies throughout the
world that are positioned to meet market needs in a changing world economy.     
These companies offer above-average potential for long-term growth.             

(icon of) world                                                                 

IDS International Fund                                                          

Invests primarily in common stocks of foreign companies that offer potential for
superior growth. The Fund may invest up to 20% of its assets in the U.S. market.

(icon of) three flags                                                           

IDS Global Balanced Fund                                                        

Invests in stocks and bonds in, for the most part, major markets throughout the 
world, including the U.S. Seeks to provide a balance of growth of capital and   
current income.                                                                 

(icon of) scale holding two worlds                                              

IDS Global Bond Fund                                                            

Invests in a Portfolio comprised primarily of debt securities of U.S. and       
foreign issuers to seek high total return through income and growth of capital. 

(icon of) globe                                                                 

Growth funds                                                                    

Funds in this group seek capital growth, primarily from common stocks. They are 
high risk mutual funds with a potential for high reward.                        

IDS Precious Metals Fund                                                        

Invests primarily in the securities of foreign or domestic companies that       
explore for, mine and process or distribute gold and other precious metals. A   
highly aggressive and speculative fund that seeks long-term growth of capital.  

(icon of) cart of precious gems                                                 

IDS Discovery Fund                                                              

Invests in small- and medium-size, growth-oriented companies emphasizing        
technological innovation and productivity enhancement.                          
Buys and holds larger growth-oriented stocks.                                   

(icon of) ship                                                                  

IDS Small Company Index Fund                                                    

Invests in all or a representative group of the equity securities comprising the
S&P SmallCap 600 Index, as it strives to provide long-term capital appreciation.

(icon of) office building                                                       

IDS Strategy Aggressive Fund                                                    

Invests primarily in common stocks of companies that are selected for their     
potential for above-average growth. Above-average means that their growth       
potential is better, in the opinion of the portfolio's investment manager, than 
the Standard & Poor's Corporation (S&P) 500 Stock Index.                        

(icon of) chess piece                                                           

IDS Research Opportunities Fund                                                 

Invests in a Portfolio comprised primarily of equity securities of companies    
included in the S&P 500 Index that are believed to have strong growth potential.
The Portfolio is managed using a research methodology by the Research Department
of AEFC. Goal is long-term appreciation.                                        

(icon of) magnifying glass                                                      

(This annual report is not part of the prospectus.)                             

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IDS Growth Fund                                                                 

Invests in a Portfolio comprised primarily of companies that have above-average 
potential for long-term growth as a result of new management, marketing         
opportunities or technological superiority.                                     

(icon of) trees                                                                 

(This annual report is not part of the prospectus.)                             

IDS New Dimensions Fund                                                         

Invests in a Portfolio comprised primarily of companies with significant growth 
potential due to superiority in technology, marketing or management. The Fund   
frequently changes its industry mix.                                            

(icon of) dimension                                                             

IDS Progressive Fund                                                            

Invests primarily in undervalued common stocks. The Fund holds stocks for the   
long term with the goal of capital growth.                                      

(icon of) shooting star                                                         

Growth & income funds                                                           

These funds focus on securities of medium to large, well-established companies  
that offer long-term growth of capital and reasonable income from dividends and 
interest. Foreign investments may be subject to currency fluctuations and       
political and economic risks of the countries in which the investments are made.

IDS Equity Select Fund                                                          

Invests primarily in a combination of moderate growth stocks, higher-yielding   
equities and bonds. Seeks growth of capital and income.                         

(icon of) three pine trees                                                      

IDS Blue Chip Advantage Fund                                                    

Invests in selected stocks from a major market index. Securities purchased are  
those recommended by our research analysts as the best from each industry       
represented on the index. Offers potential for long-term growth as well as      
dividend income.                                                                

(icon of) ribbon                                                                

IDS Managed Allocation Fund                                                     

Invests in a Portfolio comprised primarily of U.S. equity securities, U.S. and  
foreign debt securities, foreign equity securities and money market instruments.
The Fund provides diversification among these major investment categories and   
has a target mix that represents the way the Fund's investments will be         
allocated over the long term. Seeks maximum total return.                       

(icon of) gyroscope                                                             

IDS Stock Fund                                                                  

Invests in a Portfolio comprised primarily of common stock of companies         
representing many sectors of the economy. Seeks current income and growth of    
capital.                                                                        

(icon of) building with columns                                                 

IDS Equity Value Fund                                                           

Invests primarily in undervalued common stocks that offer potential for growth  
of capital and income.                                                          

(icon of) three growing flowers                                                 

IDS Utilities Income Fund                                                       

Invests primarily in the stocks of public utility companies to seek high current
income and growth of income and capital with reduced volatility.                

(icon of) light bulb                                                            

IDS Diversified Equity Income Fund                                              

Invests in a Portfolio comprised primarily of high-yielding common stocks to    
seek high current income and, secondarily, to benefit from the growth potential 
offered by stock investments.                                                   

(icon of) two puzzle pieces                                                     

IDS Mutual                                                                      

Invests in a Portfolio that seeks to balance between common stocks and senior   
securities (preferred stocks and bonds). Seeks a balance of growth of capital   
and current income.                                                             

(icon of) scale of justice                                                      

(This annual report is not part of the prospectus.)                             

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IDS mutual funds                                                                

Income funds                                                                    

The funds in this group invest their assets primarily in corporate bonds or     
government securities to seek interest income. Secondary objective is capital   
growth. Risk varies by bond quality.                                            

IDS Extra Income Fund                                                           

Invests in a Portfolio comprised mainly of long-term, high-yielding corporate   
fixed-income securities in the lower rated, higher risk bond categories to seek 
high current income. Secondary objective is capital growth.                     

(icon of) coins                                                                 

IDS Bond Fund                                                                   

Invests mainly in corporate bonds, at least 50% in the higher rated, lower risk 
bond categories, or the equivalent, and in government bonds.                    

(icon of) greek column                                                          

IDS Selective Fund                                                              

Invests in a Portfolio comprised primarily of high-quality corporate bonds and  
other highly rated debt instruments including government securities and         
short-term investments. Seeks current income and preservation of capital.       

(icon of) skyline                                                               

IDS Federal Income Fund                                                         

Invests in a Portfolio comprised primarily of securities issued or guaranteed as
to the timely payment of principal and interest by the U.S. government, its     
agencies and instrumentalities. Seeks a high level of current income and safety 
of principal consistent with its type of investments.                           

(icon of) shield with eagle head enclosed                                       

Tax-exempt income funds                                                         

These funds provide tax-free income by investing in municipal bonds. The income 
is generally free from federal income tax, but a portion of the income may be   
subject to state and local taxes.                                               
Risk varies by bond quality.                                                    

IDS Tax-Exempt Bond Fund                                                        

Invests mainly in bonds and notes of state or local government units, with at   
least 75% in the four highest rated, lowest risk bond categories.               

(icon of) shield with Greek column enclosed                                     

IDS Insured Tax-Exempt Fund                                                     

Invests primarily in municipal securities that are insured as to the timely     
payment of principal and interest. The insurance feature minimizes credit risk  
of the Fund but does not guarantee the market value of the Fund's shares.       

(icon of) shield with star enclosed                                             

IDS State Tax-Exempt Funds                                                      
(CA, MA, MI, MN, NY, OH)                                                        

Invests primarily in high- and medium-grade municipal securities to provide     
income to residents of each respective state that is exempt from federal, state 
and local income taxes. (New York is the only state that is exempt at the local 
level.)                                                                         

(icon of) shield with U.S. enclosed                                             

IDS High Yield Tax-Exempt Fund                                                  

Invests in a Portfolio comprised primarily of medium- and lower-quality         
municipal bonds and notes. Lower-quality securities generally involve greater   
risk of principal and income.                                                   

(icon of) shield with basket of apples enclosed                                 

IDS Intermediate Tax-Exempt Fund                                                

Invests in mainly investment-grade bonds and other debt securities with         
intermediate-term maturities issued by state and local government units. Goal is
to seek a high level of current income exempt from federal taxes.               

(icon of) shield with a tree enclosed                                           

(This annual report is not part of the prospectus.)                             

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Money market funds                                                              

These money market funds have three main goals: conservation of capital,        
constant liquidity and the highest possible current income consistent with these
objectives. An investment in these funds is neither insured nor guaranteed by   
the U.S. government, and there can be no assurance that these funds will be able
to maintain a stable net asset value of $1.00 per share. Very limited risk.     

IDS Cash Management Fund                                                        

Invests in such money market securities as high quality commercial paper,       
bankers' acceptances, certificates of deposit (CDs) and other bank securities.  

(icon of) piggy bank                                                            

IDS Tax-Free Money Fund                                                         

Invests primarily in short-term bonds and notes issued by state and local       
governments to seek high current income exempt from federal income taxes.       

(icon of) shield with piggy bank enclosed                                       

For more complete information about any of these funds, including charges and   
expenses, you can obtain a prospectus by contacting your financial advisor or   
writing to American Express Shareholder Service, P.O. Box 534, Minneapolis, MN  
55440-0534. Read it carefully before you invest or send money.                  

(This annual report is not part of the prospectus.)                             

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Federal income tax information                                                

IDS Insured Tax-Exempt Fund                                         

The Fund is required by the Internal Revenue                        
Code of 1986 to tell its shareholders about the tax treatment of the
  dividends it pays during its fiscal year. Some of the dividends listed
below were reported to you on your year-end statement, last January.
    Dividends paid to you since the end of last year will be reported to you
on a tax statement sent next January.                               

IDS Insured Tax-Exempt Fund                                         
Fiscal year ended June 30, 1997                                     

Class A                                                             

Exempt-interest dividends -- taxable status explained below.            

   Payable date                                                      Per share
   July 26, 1996                                                      $0.02320
   Aug. 26, 1996                                                       0.02373
   Sept. 25, 1996                                                      0.02413
   Oct. 28, 1996                                                       0.02574
   Nov. 26, 1996                                                       0.02282
   Dec. 26, 1996                                                       0.02299
   Jan. 29, 1997                                                       0.02636
   Feb. 26, 1997                                                       0.02393
   March 26, 1997                                                      0.02165
   April 28, 1997                                                      0.02598
   May 28, 1997                                                        0.02471
   June 26, 1997                                                       0.02723
   Total                                                              $0.29247

Taxable dividend -- income distribution taxable as dividend income.     
   Payable date                                                      Per share
   Dec. 26, 1996                                                      $0.00166
    Total distributions                                                 $0.29413

(This annual report is not part of the prospectus.)                             

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Class B                                                                   
Exempt-interest dividends -- taxable status explained below.            

   Payable date                                                      Per share
   July 26, 1996                                                      $0.01986
   Aug. 26, 1996                                                       0.02023
   Sept. 25, 1996                                                      0.02076
   Oct. 28, 1996                                                       0.02198
   Nov. 26, 1996                                                       0.01951
   Dec. 26, 1996                                                       0.01957
   Jan. 29, 1997                                                       0.02250
   Feb. 26, 1997                                                       0.02074
   March 26, 1997                                                      0.01849
   April 28, 1997                                                      0.02229
   May 28, 1997                                                        0.02133
   June 26, 1997                                                       0.02394
   Total                                                              $0.25120

Taxable dividend -- income distribution taxable as dividend income.     
   Payable date                                                      Per share
   Dec. 26, 1996                                                      $0.00166
  Total distributions                                                 $0.25286

(This annual report is not part of the prospectus.)                             

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Federal income tax information                                                  

Class Y                                                                   
Exempt-interest dividends -- taxable status explained below.            

   Payable date                                                      Per share
   July 26, 1996                                                      $0.02415
   Aug. 26, 1996                                                       0.02475
   Sept. 25, 1996                                                      0.02474
   Oct. 28, 1996                                                       0.02678
   Nov. 26, 1996                                                       0.02336
   Dec. 26, 1996                                                       0.02386
   Jan. 29, 1997                                                       0.02721
   Feb. 26, 1997                                                       0.02481
   March 26, 1997                                                      0.02230
   April 28, 1997                                                      0.02694
   May 28, 1997                                                        0.02535
   June 26, 1997                                                       0.02789
   Total                                                              $0.30214

Taxable dividend -- income distribution taxable as dividend income.     
   Payable date                                                      Per share
   Dec. 26, 1996                                                      $0.00166
   Total distributions                                                $0.30380

Source of distributions                                             

  Distributions during the fiscal year ended June 30, 1997, were derived
exclusively from interest on tax-exempt securities.                 

Federal taxation                                                    

     Exempt-interest dividends are exempt from federal income taxes and should
not be included in shareholders' gross income.                      

Other taxation                                                      

   Exempt-interest dividends may be subject to state and local taxes. Each
    shareholder should consult a tax advisor about reporting this income for
state and local tax purposes.                                       

(This annual report is not part of the prospectus.)                             

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Source of income by state                                           

   Percentages of income from municipal securities earned by the Fund from
various states during the fiscal year ended June 30, 1997 are listed
below.                                                              

Alabama                                                    0.789%   
Alaska                                                     1.059    
Arizona                                                    1.739    
Arkansas                                                   0.223    
California                                                12.890    
Colorado                                                   2.101    
Connecticut                                                0.204    
Delaware                                                   0.228    
Florida                                                    4.150    
Georgia                                                    2.879    
Hawaii                                                     0.044    
Illinois                                                   3.649    
Indiana                                                    2.166    
Kentucky                                                   0.115    
Louisiana                                                  2.589    
Maine                                                      0.352    
Maryland                                                   0.142    
Massachusetts                                              4.739    
Michigan                                                   3.194    
Minnesota                                                  1.940    
Mississippi                                                0.214    
Missouri                                                   0.776    
Montana                                                    2.005    
Nevada                                                     0.911    
New Hampshire                                              1.197    
New Mexico                                                 0.202    
New York                                                   7.139    
North Carolina                                             2.531    
North Dakota                                               0.217    
Ohio                                                       1.264    
Oklahoma                                                   1.431    
Oregon                                                     0.349    
Pennsylvania                                               3.777    
Rhode Island                                               0.475    
South Carolina                                             0.380    
Tennessee                                                  1.296    
Texas                                                     18.480    
Utah                                                       0.518    
Virginia                                                   3.368    
Washington                                                 1.967    
Washington, DC                                             2.982    
West Virginia                                              2.855    
Wisconsin                                                  0.474    

(This annual report is not part of the prospectus.)                             

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Quick telephone reference                                                       
-----------------------------------------------------------------               

American Express Financial Advisors Telephone Transaction Service               

Redemptions and exchanges, dividend payments or reinvestments and               
automatic payment arrangements                                                  

National/Minnesota:  800-437-3133                                               
Mpls./St. Paul area:  671-3800                                                  
-----------------------------------------------------------------               

TTY Service                                                                     

For the hearing impaired                                                        

800-846-4852                                                                    
-----------------------------------------------------------------               

American Express Financial Advisors Easy Access Line                            

Automated account information (TouchToneR phones only), including current fund  
prices and performance, account values and recent account transactions          

800-862-7919                                                                    

AMERICAN                                                                        
EXPRESS                                                                         
Financial                                                                 
Advisors                                                                  

IDS Insured Tax-Exempt Fund                                                     
IDS Tower 10                                                                    
Minneapolis, MN  55440-0010                                                     

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STATEMENT OF DIFFERENCES                                                        

Difference                              Description                             
1)   The layout is different            1)   Some of the layout in the          
throughout the annual report            annual report to shareholders 
                            is in two columns.

2)   Headings.                          2)   The headings in the annual report  
                                        and prospectus are placed in a
                                            blue strip at the top of the page.

3)   There are pictures, icons and      3)   Each picture, icon and graph is    
graphs throughout the annual            described in parentheses.     
report and prospectus.                                                

4)   Footnotes for charts and graphs    4)   The footnotes for each chart or    
are described at the left margin.       graph are typed below the     
                                            description of the chart or graph.

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘N-30D’ Filing		Date		First		Last			Other Filings
Filed on:		9/5/97
		8/1/97		9
For Period End:		6/30/97		5		39			24F-2NT,  NSAR-B
		12/26/96		36		38
		7/26/96		36		38
		7/1/96		5
		6/30/96		5		20			24F-2NT,  N-30D,  NSAR-B,  NSAR-B/A
		3/20/95		8		19
									List all Filings