<PAGE>
PAGE 1
1996 ANNUAL REPORT
IDS Selective Fund
(prospectus enclosed)
(icon of) city skyline
The goals of IDS Selective Fund, Inc. are current income and the
preservation of capital by investing in investment-grade bonds.
(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.
<PAGE>
PAGE 2
(icon of) city skyline
A quest for quality
Not all bonds are created equal. A bond's quality depends on the
ability of its issuer to make the interest and principal payments
owed to the bondholders. The quality is determined by independent
rating agencies, which assign a credit rating (in the form of a
letter grade) to each bond.
Since its establishment in 1945, Selective Fund has concentrated
its investments in the four highest investment grades. Along the
way, investors have enjoyed a steady stream of interest income with
minimal risk to their principal.<PAGE>
PAGE 3
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.
1996 annual report
From the president 4
From the portfolio manager 4
Ten largest holdings 6
Making the most of your Fund 7
Long-term performance 8
Independent auditors' report 9
Financial statements 10
Notes to financial statements 13
Investments in securities 26
IDS mutual funds 34
Federal income tax information 37
1996 prospectus
The Fund in brief 3p
Goals 3p
Investment policies and risks 3p
Structure of the Fund 4p
Manager and distributor 4p
Portfolio manager 4p
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
Valuing Fund shares 16p
How to purchase, exchange or redeem shares 17p
Alternative purchase arrangements 17p
How to purchase shares 19p
How to exchange shares 22p
How to redeem shares 22p
Reductions and waivers of the sales charge 27p
Special shareholder services 31p
Services 31p
Quick telephone reference 31p
<PAGE>
PAGE 4
Distributions and taxes 32p
Dividend and capital gain distributions 32p
Reinvestments 33p
Taxes 34p
How to determine the correct TIN 36p
How the Fund is organized 37p
Shares 37p
Voting rights 37p
Shareholder meetings 37p
Special considerations regarding
master/feeder structure 37p
Board members and officers 39p
Investment manager 41p
Administrator and Transfer Agent 41p
Distributor 42p
About American Express Financial Corporation 43p
General information 43p
Appendices 44p
Description of investment-grade corporate
bond ratings 44p
Descriptions of derivative instruments 46p
<PAGE>
PAGE 5
To our shareholders
(photo of) William R. Pearce
President of the Fund
(photo of) Ray Goodner
Portfolio manager
From the president
If you're an experienced investor, you know that the 1990s have
contained some unusually strong periods for the U.S. 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 review periodically
their long-term goals and assess 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
even important if there's a major change in your financial
situation or in the financial markets.
William R. Pearce
From the portfolio manager
The bond market displayed a split personality during the past 12
months, as it rallied strongly during the final half of 1995, only
to backtrack dramatically in 1996. IDS Selective Fund's
performance reflected the up-and-down trend, gaining considerable
ground last year, then giving back profits in the ensuing months.
Ultimately, investors experienced a negative total return (net
change plus interest income) for the Dec. 1995 through May 1996
fiscal period.
What had disturbed bonds in 1994 -- a fear that a rapidly growing
economy would soon lead to an increase in the inflation rate and,
consequently, higher interest rates -- was largely forgotten during
1995 as the economy slowed down and inflation reports remained
unthreatening. In that light, the interest income provided by
longer-term bonds looked increasingly attractive to investors, and
as they rushed back into the market, long term interest rates
continued to fall. Except for a relatively brief downturn in July
1995, the market enjoyed strong and consistent momentum, and
finished the year on a positive note. As always, bond prices rose
in concert with the rate decline, benefitting funds such as this
one.
Bonds retreat on inflation fear
The market's mercurial nature started to emerge, however, not long
after the new year began. What initially spooked the market were
indications that economic growth might be more robust than
expected. That in turn spawned fears of imminent higher inflation,
although clear signs of it were nowhere in sight. Already edgy, <PAGE>
PAGE 6
the market then had to come to grips with the likelihood that an
agreement to balance the federal budget wouldn't be reached anytime
soon, if ever. At that point, the news evidently was more than the
market could bear, and it beat a steady retreat until mid-April,
sending longer-term interest rates sharply higher along the way.
Our key strategy during the early months of the fiscal period was
to maintain a long average maturity of bonds in the portfolio to
capture the capital appreciation generated by rising bond prices.
(The longer the maturity, the greater a bond's price-sensitivity to
a change in interest rates.) In addition, I reduced cash reserves,
whose returns were meager compared with what could be realized from
bonds. Beyond that, I maintained an exposure to dollar-denominated
foreign bonds, especially in Asia, which also proved to be
productive.
But if a longer-than-average maturity helps during rate declines,
it hurts when rates go up. Therefore, during the riding-rate trend
in 1996, I reduced the portfolio's maturity level, primarily by
selling 30-year Treasury bonds -- the sector most sensitive to a
rate rise. Along with my concurrent decision to increase the cash
reserves in the portfolio, this helped cushion the Fund's net asset
value in the face on the market downturn. Still, some of the gains
realized earlier in the fiscal year were ultimately eroded.
Market settles down as data improves
Thanks to some relatively unthreatening news regarding employment
growth and commodity prices, bonds found more solid ground during
the last several weeks of the period, even rallying a bit at times.
While I don't expect a rapid comeback, I do think at this point
(mid-June) that the worst is over for the market. My reasoning is
based on three factors: elected officials seem to have some
resolve about curbing the federal deficit; any consumer price
inflation in the U.S is likely to be modest given the service-led
nature of the economy; and sluggish economic growth in most foreign
countries should preclude inflation being "imported" to this
country. Ultimately, I think those factors will prevent a
meaningful rise in domestic rates during the rest of 1996, which
should restore bond investors' confidence and lead to a more
productive market.
Ray Goodner
Class A
6-month performance
(All figures per share)
Net asset value (NAV)
__________________________
May 31, 1996 $ 9.00
__________________________
Nov. 30, 1995 $ 9.53
__________________________
Decrease $ 0.53
__________________________
<PAGE>
PAGE 7
Distributions
Nov. 30, 1995-May 31, 1996
__________________________
From income $ 0.34
__________________________
From capital gains $ --
__________________________
Total distributions $ 0.34
__________________________
Total return* -2.0%**
__________________________
Class B
6-month performance
(All figures per share)
Net asset value (NAV)
__________________________
May 31, 1996 $ 9.00
__________________________
Nov. 30, 1995 $ 9.53
__________________________
Decrease $ 0.53
__________________________
Distributions
Nov. 30, 1995-May 31, 1996
__________________________
From income $ 0.31
__________________________
From capital gains $ --
__________________________
Total distributions $ 0.31
__________________________
Total return* -2.4%**
__________________________
Class Y
6-month performance
(All figures per share)
Net asset value (NAV)
__________________________
May 31, 1996 $ 9.00
__________________________
Nov. 30, 1995 $ 9.53
__________________________
Decrease $ 0.53
__________________________
Distributions
Nov. 30, 1995-May 31, 1996
__________________________
From income $ 0.35
__________________________
From capital gains $ --
__________________________
Total distributions $ 0.35
__________________________
Total return* -2.0%**
__________________________
*The prospectus discusses the
effect of the sales charges,<PAGE>
PAGE 8
if any, on the various classes.
**The total return is a hypothetical
investment in the Fund with all
distributions reinvested.
<PAGE>
PAGE 9
<TABLE>
<CAPTION>
IDS Selective Fund, Inc.
The Fund's ten largest holdings
(Pie chart)
The ten holdings listed here make up 11.06% of the Fund's net assets
Percent Value
(of Fund's net assets) (as of May 31, 1996)
<S> <C> <C>
Japan Finance 1.58% $27,381,661
9.25% 1998
Bundes Republic 1.39 23,946,674
7.50% 2004
Southern California Edison 1.26 21,697,620
8.875% 1st Mortgage 2023
Republic of Italy 1.19 20,572,368
6.875% 2023
Tokyo Electric Power Euro 1.17 20,166,140
6.125% 2003
Dayton Hudson 1.01 17,497,135
7.875% 2023
PDV America .90 15,632,265
7.875% 2003
Pacific Bell .89 15,337,650
8.50% 2031
Schering-Plough .84 14,570,850
7.31% Zero Coupon 1996
Texas Utilities Electric .83 14,321,710
9.75% 1st Mortgage 2021
Excludes U.S. Treasury and government agencies holdings that total 41% of the
Fund's net assets.
</TABLE>
<PAGE>
PAGE 10
Making the most of the Fund
Average annual total return
(as of May 31, 1996)
1 year 5 years 10 years or
since inception
Class A -0.90% +7.79% +8.24%
Class B* -0.60% -- % +3.95%
Class Y* +4.48% -- % +9.47%
* Inception date was March 20, 1995.
The performance of Class B and Class Y will vary from the
performance of Class A based on differences in sales charges and
fees.
Your investment and return values fluctuate so that your shares,
when redeemed, may be worth more or less than the original cost.
Figures for Class A and Class B reflect the effect of the maximum
5% sales charge. This was a period of widely fluctuating security
prices. Past performance is no guarantee of future results.
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.
This does not ensure a profit or avoid a loss if the market
declines. But, if you can continue to invest regularly through
changing market conditions, it 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 September) and fewer shares when the
per share market price is high.
<PAGE>
PAGE 11
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.
<PAGE>
PAGE 12
The Fund's long-term performance
Three ways to benefit from a mutual fund:
o your shares increase in value when the Fund's investments do
well
o you receive capital gains when the gains on investments sold
by the Fund exceed losses
o 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 Selective Fund
x
$22,087
Selective Fund
$20,000 Class A
x Lehman Aggregate Bond Index
x
$9,500 (line graph showing the return of Selective
Fund tracking slightly below the Lehman
Aggregate Bond Index)
'85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95
Average annual total return
(as of May 31, 1996)
1 year 5 years 10 years or
since inception
Class A -0.90% +7.79% +8.24%
Class B* -0.60% -- % +3.95%
Class Y* +4.48% -- % +9.47%
* Inception date was March 20, 1995.
(the following two paragraphs appear in the margin to the left of
the graph above:)
Assumes: -Holding period from 6/1/86 to 5/31/96. -Returns do not
reflect taxes payable on distributions. -Reinvestment of all
income and capital gain distributions for the Fund, with a value of
$12,349. Also see "Performance" in the Fund's current prospectus.
The Lehman Aggregate bond Index is made up of a representative list
of government and corporate bonds as well as asset-backed
securities and mortgage-backed securities. The index is frequently
used as a general measure of bond market performance. However, the
securities used to create the index may not be representative of <PAGE>
PAGE 13
the bonds held in Selective Fund.
On the graph above you can see how the Fund's total return compared
to a widely cited performance measure, the Lehman Aggregate Bond
Index. In comparing Selective Fund 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. If you were actually to buy either
individual bonds or bond mutual funds, any sales charges that you
pay would reduce your total return as well.
Your investment and return values fluctuate so that your shares,
when redeemed, may be worth more or less than the original cost.
This was a period of widely fluctuating security prices. Past
performance is no guarantee of future results.<PAGE>
PAGE 14
Independent auditors' report
___________________________________________________________________
The board and shareholders
IDS Selective Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments in securities,
of IDS Selective Fund, Inc. as of May 31, 1996, and the related
statements of operations and changes in net assets, and the
financial highlights for the six months then ended and the
statement of changes in net assets for the year ended November 30,
1995, and the financial highlights for each of the years in the
nine-year period ended November 30, 1995. 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 and securities on loan, 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
Selective Fund, Inc. at May 31, 1996, and the results of its
operations and changes in its net assets for the six months then
ended and the changes in its net assets for the year ended November
30, 1995, 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
July 5, 1996
<PAGE>
PAGE 15
<TABLE>
<CAPTION>
Statement of assets and liabilities
Financial Statements
IDS Selective Fund, Inc.
May 31, 1996
______________________________________________________________________________________________________________
Assets
______________________________________________________________________________________________________________
<S> <C>
Investments in securities, at value (Note 1)
(identified cost $1,688,840,430) $1,701,491,531
Dividends and accrued interest receivable 28,654,566
Receivable for Investment Securities Sold 11,617,805
Unrealized appreciation on foreign currency contracts held, at value (Notes 1 and 7) 490,142
U.S. government securities held as collateral (Note 5) 92,884,309
_____________________________________________________________________________________________________________
Total assets 1,835,138,353
_____________________________________________________________________________________________________________
Liabilities
____________________________________________________________________________________________________________
Disbursements in excess of cash on demand deposit 1,627,857
Dividends payable to shareholders 854,967
Payable for investment securities purchased 10,718,762
Unrealized depreciation on foreign currency contracts held, at value (Notes 1 and 7) 3,697
Payable upon return of securities loaned (Note 5) 92,884,309
Accrued investment management services fee 24,167
Accrued distribution fee 2,224
Accrued service fee 7,277
Accrued transfer agency fee 5,064
Accrued administrative services fee 2,271
Other accrued expenses 356,644
_____________________________________________________________________________________________________________
Total liabilities 106,487,239
_____________________________________________________________________________________________________________
Net assets applicable to outstanding capital stock $1,728,651,114
_____________________________________________________________________________________________________________
Represented by
_____________________________________________________________________________________________________________
Capital stock -- authorized 10,000,000,000 shares of $.01 par value $ 1,921,411
Additional paid-in capital 1,688,666,163
Undistributed net investment income 529,978
Accumulated net realized gain (Note 1) 23,824,667
Unrealized appreciation of investments and on translation
of assets and liabilities in foreign currencies (Note 7) 13,708,895
_____________________________________________________________________________________________________________
Total -- representing net assets applicable to outstanding capital stock $1,728,651,114
_____________________________________________________________________________________________________________
Net assets applicable to outstanding shares: Class A $1,408,373,750
Class B $ 108,109,795
Class Y $ 212,167,569
Net asset value per share of outstanding capital stock: Class A shares 156,543,298 $ 9.00
Class B shares 12,016,634 $ 9.00
Class Y shares 23,581,187 $ 9.00
See accompanying notes to financial statements.
<PAGE>
PAGE 16
Financial statements
Statement of operations
IDS Selective Fund, Inc.
Six months ended May 31, 1996
_____________________________________________________________________________________________________________
Investment income
_____________________________________________________________________________________________________________
Income:
Interest (net of foreign taxes withheld of $4,077) $62,295,370
_____________________________________________________________________________________________________________
Expenses (Note 2):
Investment management services fee 4,416,446
Distribution fee -- Class B 350,902
Transfer agency fee 932,533
Incremental transfer agency fee - Class B 3,579
Service fee
Class A 1,254,108
Class B 81,753
Administrative services fee 415,138
Compensation of board members 17,995
Compensation of officers 7,995
Custodian fees 58,042
Postage 137,298
Registration fees 99,752
Reports to shareholders 76,154
Audit fees 35,000
Administrative 3,864
Other 3,992
_____________________________________________________________________________________________________________
Total expenses 7,894,551
Earnings credit on cash balances (Note 2) (2,895)
_____________________________________________________________________________________________________________
Total net expenses 7,891,656
_____________________________________________________________________________________________________________
Investment income -- net 54,403,714
_____________________________________________________________________________________________________________
Realized and unrealized gain (loss) -- net
_____________________________________________________________________________________________________________
Net realized gain on security and foreign currency transactions
(including gain of $1,034,306 from foreign currency transactions) (Note 3) 22,625,628
Net realized gain on closed interest rate futures contracts 388,606
Net realized gain on closed option contracts written (Note 8) 48,530
_____________________________________________________________________________________________________________
Net realized gain on investments and foreign currency 23,062,764
Net change in unrealized appreciation or depreciation of investments
and on translation of assets and liabilities in foreign currencies (Note 7) (113,687,462)
_____________________________________________________________________________________________________________
Net loss on investments and foreign currency (90,624,698)
_____________________________________________________________________________________________________________
Net decrease in net assets resulting from operations $(36,220,984)
_____________________________________________________________________________________________________________
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 17
<TABLE>
<CAPTION>
Financial statements
Statements of changes in net assets
IDS Selective Fund, Inc.
_____________________________________________________________________________________________________________
Operations and distributions May 31, 1996 Nov. 30, 1995
_____________________________________________________________________________________________________________
Six months ended Year ended
<S> <C> <C>
Investment income -- net $ 54,403,714 $ 99,914,474
Net realized gains on investments and foreign currency 23,062,764 7,644,942
Net change in unrealized appreciation or depreciation of investments
and on translation of assets and liabilities in foreign currencies (113,687,462) 173,013,840
_____________________________________________________________________________________________________________
Net increase (decrease) in net assets resulting from operations (36,220,984) 280,573,256
_____________________________________________________________________________________________________________
Distributions to shareholders from:
Net investment income
Class A (48,380,959) (91,687,959)
Class B (2,717,675) (1,325,265)
Class Y (5,835,989) (5,767,587)
Net realized gain
Class A (4,513,331) (20,000,191)
Class B (242,090) --
Class Y (433,179) --
Excess distribution of realized gain (Note 1)
Class A (763,230) --
Class B (93,149) --
Class Y (193,212) --
_____________________________________________________________________________________________________________
Total distributions (63,172,814) (118,781,002)
_____________________________________________________________________________________________________________
Capital share transactions (Note 4)
_____________________________________________________________________________________________________________
Proceeds from sales
Class A shares (Note 2) 111,507,134 207,511,368
Class B shares 58,275,961 74,256,461
Class Y shares 111,069,550 146,334,859
Reinvestment of distributions at net asset value
Class A shares 40,178,831 83,864,001
Class B shares 2,823,107 1,205,720
Class Y shares 6,425,412 5,694,035
Payments for redemptions
Class A shares (150,106,899) (352,508,286)
Class B shares (Note 2) (18,994,240) (6,231,036)
Class Y shares (36,979,985) (20,194,720)
_____________________________________________________________________________________________________________
Increase in net assets from capital share transactions 124,198,871 139,932,402
_____________________________________________________________________________________________________________
Total increase in net assets 24,805,073 301,724,656
Net assets at beginning of period 1,703,846,041 1,402,121,385
_____________________________________________________________________________________________________________
Net assets at end of period
(including undistributed net investment income of
$529,978 and $2,530,909) $1,728,651,114 $1,703,846,041
_____________________________________________________________________________________________________________
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 18
Notes to financial statements
IDS Selective Fund, Inc.
___________________________________________________________________
1. Summary of significant accounting policies
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 investment-grade bonds. The Fund
offers Class A, Class B and Class Y shares. Class A shares are sold
with a front-end sales charge. Class B shares may be subject to a
contingent deferred sales charge and such shares automatically
convert to Class A after eight years. Class Y shares have no sales
charge and are offered only to qualifying institutional investors.
All classes of shares have identical voting, dividend, liquidation
and other rights, and the same terms and conditions, except that
the level of distribution fee, transfer agency fee and service fee
(class specific expenses) differs among classes. Income, expenses
(other than class specific expenses) and realized and unrealized
gains or losses on investments are allocated to each class of
shares based upon its relative net assets.
Significant accounting policies followed by the Fund are summarized
below:
Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of increase and decrease in net assets from
operations during the period. Actual results could differ from
those estimates.
Valuation of securities
All securities are valued at the close of each business day.
Securities traded on national securities exchanges or included in
national market systems are valued at the last quoted sales price;
securities for which market quotations are not readily available,
including illiquid securities, are valued at fair value according
to methods selected in good faith by the board. Determination of
fair value involves, among other things, reference to market
indexes, matrixes and data from independent brokers. Short-term
securities maturing in more than 60 days from the valuation date
are valued at the market price or approximate market value based on
current interest rates; those maturing in 60 days or less are
valued at amortized cost.
Option transactions
In order to produce incremental earnings, protect gains, and
facilitate buying and selling of securities for investment
purposes, the Fund may buy or write options traded on any U.S. or
<PAGE>
PAGE 19
foreign exchange or in the over-the-counter market where the
completion of the obligation is dependent upon the credit standing
of the other party. The Fund also 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.
Option contracts are valued daily at the closing prices on their
primary exchanges and unrealized appreciation or depreciation is
recorded. The Fund will realize a gain or loss upon expiration or
closing of the option transaction. When options on debt securities
or futures are exercised, the Fund will realize a gain or loss.
When other options are exercised, the proceeds on sales for a
written call option, the purchase cost for a written put option or
the cost of a security for a purchased put or call option is
adjusted by the amount of premium received or paid.
Futures transactions
In order to gain exposure to or protect itself from changes in the
market, the Fund may buy and sell futures contracts traded on any
U.S. or foreign exchange. The Fund also may buy or write put and
call options on these 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.
Foreign currency translations and
foreign currency contracts
Securities and other assets and liabilities denominated in foreign
currencies are translated daily into U.S. dollars at the closing
rate of exchange. Foreign currency amounts related to the purchase
or sale of securities and income and expenses are translated at the
exchange rate on the transaction date. The effect of changes in
foreign exchange rates on realized and unrealized security gains or
losses is reflected as a component of such gains or losses. In the
statement of operations, net realized gains or losses from foreign
currency transactions may arise from sales of foreign currency,
closed forward contracts, exchange gains or losses realized between
the trade date and settlement dates on securities transactions, and
<PAGE>
PAGE 20
other translation gains or losses on dividends, interest income and
foreign withholding taxes.
The Fund may enter into forward foreign currency exchange contracts
for operational purposes and to protect against adverse exchange
rate fluctuation. The net U.S. dollar value of foreign currency
underlying all contractual commitments held by the Fund and the
resulting unrealized appreciation or depreciation are determined
using foreign currency exchange rates from an independent pricing
service. The Fund is subject to the credit risk that the other
party will not complete the obligations of the contract.
Federal taxes
Since the Fund's policy is to comply with all sections of the
Internal Revenue Code applicable to regulated investment companies
and to distribute all of its taxable income to shareholders, no
provision for income or excise taxes is required.
Net investment income (loss) and net realized gains (losses) may
differ for financial statement and tax purposes primarily because
of the deferral of losses on certain futures contracts, the
recognition of certain foreign currency gains (losses) as ordinary
income (loss) for tax purposes, and losses deferred due to "wash
sale" transactions. The character of distributions made during the
year from net investment income or net realized gains may differ
from their ultimate characterization for federal income tax
purposes. The effect on dividend distributions of certain book-to-
tax differences is presented as "excess distributions" in the
statement of changes in net assets. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are
distributed may differ from the year that the income or realized
gains (losses) were recorded by the 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 $529,978 and accumulated net realized
gain has been decreased by $529,978.
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. Dividend income is recognized on the ex-dividend
date. For U.S. dollar denominated bonds, interest income includes
level-yield amortization of premium and discount. For foreign
bonds, except for original issue discount, the Fund does not
amortize premium and discount. Interest income, including level-
yield amortization of premium and discount, is accrued daily.
<PAGE>
PAGE 21
___________________________________________________________________
2. Expenses and sales charges
Effective March 20, 1995, the Fund entered into agreements with
American Express Financial Corporation (AEFC) for managing its
portfolio, providing administrative services and serving as
transfer agent as follows: 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 0.52% to 0.395%
annually.
Under an Administrative Services Agreement, the Fund pays AEFC for
administration and accounting services at a percentage of the
Fund's average daily net assets in reducing percentages from 0.05%
to 0.025% annually.
Under a separate Transfer Agency Agreement, AEFC maintains
shareholder accounts and records. The Fund pays AEFC an annual fee
per shareholder account for this service as follows:
o Class A $15.50
o Class B $16.50
o Class Y $15.50
Also effective March 20, 1995, the Fund entered into agreements
with American Express Financial Advisors Inc. for distribution and
shareholder servicing-related services as follows: 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.
AEFC will assume and pay any expenses (except taxes and brokerage
commissions) that exceed the most restrictive applicable state
expense limitation.
Sales charges received by American Express Financial Advisors Inc.
for distributing Fund shares were $2,251,978 for Class A and
$28,826 for Class B for the fiscal period ended May 31, 1996.
During the fiscal period ended May 31, 1996, the Fund's custodian
fees were reduced by $2,895 as a result of earnings credits from
overnight cash balances.
Prior to April 30, 1996, the Fund had a retirement plan for its
independent board members. The plan was terminated April 30, 1996.
The retirement plan expense amounted to $7,719 for the fiscal
period. The total liability for the plan is $88,613, which will be
paid out at some future date.
<PAGE>
PAGE 22
___________________________________________________________________
3. Securities transactions
Cost of purchases and proceeds from sales of securities (other than
short-term obligations) aggregated $315,096,352 and $283,469,123,
respectively, for the fiscal period ended May 31, 1996. Realized
gains and losses are determined on an identified cost basis.
___________________________________________________________________
4. Capital share transactions
Transactions in shares of capital stock for the periods indicated
are as follows:
Six months ended May 31, 1996
Class A Class B Class Y
___________________________________________________________________
Sold 11,921,387 6,232,510 12,031,481
Issued for reinvested 4,313,212 303,969 692,487
distributions
Redeemed (16,151,779) (2,050,373) (4,007,375)
___________________________________________________________________
Net increase 82,820 4,486,106 8,716,593
___________________________________________________________________
Year ended Nov. 30, 1995
Class A Class B* Class Y*
___________________________________________________________________
Sold 23,080,473 8,072,716 16,445,854
Issued for reinvested 9,414,149 129,691 618,114
distributions
Redeemed (39,632,200) (671,879) (2,199,374)
___________________________________________________________________
Net increase (decrease) (7,137,578) 7,530,528 14,864,594
___________________________________________________________________
*Inception date was March 20, 1995.
___________________________________________________________________
5. Lending of portfolio securities
At May 31, 1996, securities valued at $90,143,020 were on loan to
brokers. For collateral, the Fund received $86,063,000 in U.S.
government securities valued at $92,884,309. Income from securities
lending amounted to $57,952 for the fiscal period ended May 31,
1996. The risks to the Fund of securities lending are that the
borrower may not provide additional collateral when required or
return the securities when due.
___________________________________________________________________
6. Illiquid Securities
At May 31, 1996, investments in securities included issues that are
illiquid. The Fund currently limits investments in illiquid
securities to 10% of the net assets, at market value, at the time
of purchase. The aggregate value of such securities at May 31,
1996, was $8,000,758 representing 0.5% of the net assets. Pursuant
to guidelines adopted by the Fund's board, certain unregistered <PAGE>
PAGE 23
securities are determined to be liquid and are not included within
the 10% limitation specified above.
___________________________________________________________________
7. Foreign currency contracts
At May 31, 1996, the Fund had entered into five foreign currency
exchange contracts that obligate the Fund to deliver currencies at
specified future dates. The unrealized appreciation and/or
depreciation on these contracts are included in the accompanying
financial statements. The terms of the open contracts are as
follows:
<TABLE>
<CAPTION>
Exchange date Currency to be Currency to be Unrealized Unrealized
delivered received appreciation deprecication
______________________________________________________________________________________________
<S> <C> <C> <C> <C>
June 4, 1996 216,751 172,480 $ -- $ 519
Australian Dollar U.S. Dollar
June 17, 1996 12,650,000 10,132,650 43,516 --
Australian Dollar U.S. Dollar
June 26, 1996 15,350,000 10,442,177 373,830 --
Deutsche Mark U.S. Dollar
July 9, 1996 22,567,000 14,885,884 72,796 --
Deutsche Mark U.S. Dollar
July 9, 1996 9,460,000 6,206,412 -- 3,178
Deutsche Mark U.S. Dollar
_________ _______
$490,142 $3,697
</TABLE>
___________________________________________________________________
8. Option contracts written
The number of contracts and premium amounts associated with
covered call option contracts written is as follows:
Period ended May 31, 1996
_____________________________
Contracts Premium
___________________________________________
Balance Nov. 30, 1995 -- $ --
Opened 250 108,125
Closed (250) (108,125)
___________________________________________
Balance May 31, 1996 -- $ --
___________________________________________________________________
9. Interest rate futures contracts
At May, 31, 1996, investments in securities included securities
valued at $2,061,000 that were pledged as collateral to cover
initial margin deposits on 750 open sales contracts. The market
value of the open contracts at May 31, 1996, was $81,046,875 with a
net unrealized gain of $568,594.
<PAGE>
PAGE 24
___________________________________________________________________
10. Change of Fund's fiscal year
The By-Laws of the Fund were amended on Jan. 10-11, 1996, changing
its fiscal year-end from Nov. 30 to May 31, effective 1996.
___________________________________________________________________
11. Subsequent event
The Fund invested its assets in a master portfolio, called the
Quality Income Portfolio, on June 10, 1996. The Portfolio is a
separate investment company, but has the same goals and investment
policies of the Fund. Additional information on investment policies
may be found in the prospectus and Statement of Additional
Information (SAI).
___________________________________________________________________
12. Financial highlights
"Financial highlights" showing per share data and selected
information is presented on pages 7 and 8 of the prospectus.
<PAGE>
PAGE 25
<TABLE>
<CAPTION>
Investments in securities
IDS Selective Fund, Inc. (Percentages represent value of
May 31, 1996 investments compared to net assets)
_____________________________________________________________________________________________________________________________
Bonds (90.0%)
_____________________________________________________________________________________________________________________________
Issuer Coupon Maturity Principal Value(a)
rate year amount
_____________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
U.S. government obligations (31.5%)
U.S. Treasury 6.875% 1999 $ 60,000,000 $ 60,626,400
7.25 1996-04 70,000,000 (b) 71,265,700
7.50 2001-16 200,300,000 (b) 207,700,231
8.00 2021 35,000,000 (b) 38,330,950
8.625 1997 50,745,000 (j) 52,292,722
Resolution Funding Corp
Zero Coupon 7.61 2017 39,000,000 (c) 8,391,240
7.89 2016 35,900,000 (b,c) 8,533,071
7.98 2016 47,000,000 (c) 10,905,880
8.19 2014 48,000,000 (c) 13,344,480
8.27 2014 10,000,000 (c) 2,680,900
8.35 2006 48,000,000 (c) 23,976,960
8.94 2006 25,000,000 (c) 12,709,500
8.95 2006 68,000,000 (c) 32,793,000
_____________
Total 543,551,034
_____________________________________________________________________________________________________________________________
Mortgage-backed securities (9.2%)
Federal Home Loan Mtge Corp 7.50 2024 18,241,958 17,905,576
8.00 2016-25 11,953,022 11,986,629
8.50 2017-22 11,255,425 11,547,045
9.00 2020-21 6,626,738 6,907,292
Collateralized Mtge Obligation 8.50 2019 6,608,944 6,646,020
Federal Housing Admin 7.43 2024 9,251,785 8,959,859
Federal Natl Mtge Assn 6.50 2023 13,394,813 12,436,280
10.00 2002 140 148
Collateralized Mtge Obligation 8.00 2021 13,756,661 13,964,247
8.50 2019 3,233,904 3,332,441
Principal Only 9.50 2018 1,484,201 (e) 1,099,243
9.89 2020 2,629,671 (e) 2,213,368
Trust Series Z 6.00 2024 19,450,581 (d) 13,922,337
See accompanying notes to investments in securities.
<PAGE>
PAGE 26
Govt Natl Mtge Assn 8.00 1922-24 34,664,111 34,848,178
9.00 1924-25 7,861,832 8,223,004
Collateralized Mtge Obligation Trust 7.75 2012 1,927,113 1,952,801
Prudential Bache
Collateralized Mtge Obligation 7.965 2019 3,827,924 3,762,735
______________
Total 159,707,203
_____________________________________________________________________________________________________________________________
Financial (9.5%)
Banks and savings & loans (3.3%)
BankAmerica
Sub Nts 7.50 2002 8,810,000 8,910,522
Boatmen's Bancshares
Sub Nts 9.25 2001 8,950,000 9,836,050
First Bank System 6.875 2007 8,550,000 8,121,816
First Chicago
Sr Nts 9.00 1999 7,900,000 8,359,306
NCNB
Sub Nts 9.125 2001 10,000,000 10,888,400
Standard Credit Card 8.625 2002 10,000,000 10,152,100
______________
Total 56,268,194
_____________________________________________________________________________________________________________________________
Financial services (4.4%)
Aristar
Sr Deb 8.875 1998 10,520,000 10,921,338
Beneficial 9.125 1998 10,000,000 10,400,000
General Motors Acceptance
Medium Term Nts 5.95 1998 8,000,000 7,896,720
7.00 2000 14,300,000 14,321,021
Greyhound Financial
Medium Term Nts 7.95 1999 9,600,000 9,876,864
Salomon 7.75 2000 5,000,000 5,082,400
Medium Term Nts 8.91 1998 8,400,000 8,687,616
SunAmerica 9.95 2012 8,000,000 9,257,680
______________
Total 76,443,639
_____________________________________________________________________________________________________________________________
Insurance (1.8%)
American United Life 7.75 2026 4,800,000 (g) 4,396,512
Arkwright 9.625 2026 4,000,000 (g) 4,080,560
Berkley (WR) 8.70 2022 10,000,000 10,597,400
Equitable Life 7.70 2015 5,000,000 (g) 4,838,700
Nationwide Trust
Credit Sensitive Nt 9.875 2025 6,500,000 (g) 7,086,885
_____________
Total 31,000,057
_____________________________________________________________________________________________________________________________
Industrial (11.9%)
Aerospace & defense (0.7%)
United Technologies 8.875 2019 10,000,000 11,325,000
_____________________________________________________________________________________________________________________________
Automotive & related (1.0%)
Ford Capital 9.00 1996 9,700,000 9,700,873
General Motors 8.875 2003 7,050,000 7,586,505
____________
Total 17,287,378
Beverages & tobacco (0.6%)
<PAGE>
PAGE 27
Philip Morris 8.10 1996 10,000,000 10,043,200
_____________________________________________________________________________________________________________________________
Chemicals (0.6%)
Dow Chemical 8.85 2021 10,000,000 10,776,600
_____________________________________________________________________________________________________________________________
Ecological services & equipment (0.5%)
Browning-Ferris Inds 9.25 2021 7,000,000 8,115,380
____________________________________________________________________________________________________________________________
Electronics (0.3%)
Harris 10.375 2018 3,900,000 4,254,315
_____________________________________________________________________________________________________________________________
Energy (2.1%)
PDV America 7.875 2003 16,500,000 15,632,265
Texaco Capital
Gtd Deb 7.50 2043 12,000,000 11,520,360
USX 9.375 2022 9,200,000 9,965,256
______________
Total 37,117,881
_____________________________________________________________________________________________________________________________
Energy Equipment and Services (0.4%)
Foster Wheeler 6.75 2005 8,000,000 7,547,040
_____________________________________________________________________________________________________________________________
Health care (1.5%)
Lilly (Eli) 6.77 2036 13,300,000 11,892,195
Schering-Plough
Zero Coupon 7.31 1996 15,000,000 (c,g) 14,570,850
_____________
Total 26,463,045
_____________________________________________________________________________________________________________________________
Industrial equipment & services (1.2%)
Case 7.25 2005 10,000,000 9,764,200
Deere 8.95 2019 10,000,000 11,025,800
_____________
Total 20,790,000
_____________________________________________________________________________________________________________________________
Media (1.4%)
Tele-communications
Sr Deb 7.875 2013 8,300,000 7,496,726
9.875 2022 5,000,000 5,341,600
Time Warner Entertainment 8.375 2033 12,000,000 11,684,880
_____________
Total 24,523,206
_____________________________________________________________________________________________________________________________
Paper & packaging (0.6%)
Georgia-Pacific
Credit Sensitive Nt 9.85 1997 10,000,000 10,307,400
_____________________________________________________________________________________________________________________________
Retail (1.0%)
Dayton Hudson 7.875 2023 18,850,000 17,497,135
_____________________________________________________________________________________________________________________________
Transportation (0.5%)
Burlington Northern 7.00 2025 10,000,000 8,913,900
_____________________________________________________________________________________________________________________________
Utilities (9.1%)
Electric (7.1%)
Arizona Public Service
1st Mtge 8.75 2024 5,000,000 5,236,000
Sale Lease-Backed Obligation 8.00 2015 9,000,000 8,731,800
Cajun Electric Power Cooperative
Mtge Trust 8.92 2019 4,960,000 5,444,195
Commonwealth Edison 6.50 2000 9,000,000 8,766,270
<PAGE>
PAGE 28
8.375 2023 10,000,000 9,733,300
Long Island Lighting 9.625 2024 10,000,000 10,110,600
RGS Funding
Sale Lease-Backed Obligation 9.82 2022 9,940,610 11,658,745
Salton Sea Funding 7.84 2010 10,000,000 9,496,900
San Diego Gas & Electric
1st Mtge 9.625 2020 9,950,000 10,930,572
Southern California Edison
1st Mtge 8.875 2023 21,000,000 21,697,620
Texas Utilities Electric
1st Mtge 9.75 2021 13,000,000 14,321,710
Wisconsin Electric Power 6.875 2095 8,000,000 6,948,240
_______________
Total 123,075,952
_____________________________________________________________________________________________________________________________
Telephone (2.0%)
BellSouth Telecommunications 7.00 2095 10,000,000 9,091,200
GTE 10.25 2020 2,000,000 2,287,640
New York Telephone 9.375 2031 7,000,000 7,539,070
Pacific Bell 8.50 2031 15,000,000 15,337,650
______________
Total 34,255,560
_____________________________________________________________________________________________________________________________
Foreign (18.3%)(h)
ABN Amro Bank
(U.S. Dollar) 7.75 2023 12,000,000 11,931,960
Alcan Aluminum
(U.S. Dollar) 8.875 2022 9,600,000 9,981,984
Austria Republic Euro
(U.S. Dollar) 10.00 1998 5,000,000 5,324,055
Bank of China
(U.S. Dollar) 8.25 2014 7,100,000 6,427,559
British Airport Authority Euro
(British Pound) 5.75 2006 1,500,000 2,546,647
Bundes Republic
(Deutsche Mark) 6.00 2016 10,000,000 5,798,421
(Deutsche Mark) 7.50 2004 34,000,000 23,946,674
City of Helsinki
Sr Nts
(U.S. Dollar) 8.00 2006 2,000,000 (i) 1,917,500
8.65 2006 1,500,000 (i) 1,461,150
8.75 2006 1,500,000 (i) 1,483,050
9.00 2007 1,650,000 (i) 1,640,183
9.15 2006 1,500,000 (i) 1,498,875
Euratom Euro
(U.S. Dollar) 7.75 1997 6,100,000 6,172,438
Govt of Australia
(Australian Dollar) 9.00 2004 13,100,000 10,586,828
Govt of Canada
(Canadian Dollar) 8.00 2023 10,000,000 7,204,876
(Canadian Dollar) 10.50 2001 10,000,000 8,286,844
Govt of Poland Discount Euro
(U.S. Dollar) 6.81 2024 9,300,000 8,579,250
Guang Dong Enterprise
(U.S. Dollar) 8.75 2003 15,000,000 (g) 13,512,600
Intl Bank Reconstruction & Development
(U.S. Dollar) 12.375 2002 6,000,000 7,631,700
Intl Finance Euro
(U.S. Dollar) 8.25 1996 8,000,000 8,024,960
Japan Finance
(U.S. Dollar) 9.25 1998 25,950,000 27,381,661
<PAGE>
PAGE 29
KFW Intl Finance
(U.S. Dollar) 8.50 1999 10,000,000 10,566,500
Kingdom of Denmark Euro
(U.S. Dollar) 7.25 1996 8,000,000 8,035,000
Korea Electric Power
(U.S. Dollar) 7.75 2013 14,000,000 13,651,680
8.00 2002 9,000,000 9,277,200
Zero Coupon 9.27 2016 35,000,000 (f) 4,598,650
Peoples Republic China
(U.S. Dollar) 9.00 2096 10,000,000 9,163,100
Petronas
(U.S. Dollar) 7.75 2015 10,000,000 (g) 9,860,900
Republic of Columbia
(U.S. Dollar) 7.25 2004 13,400,000 12,349,842
Republic of Italy
(U.S. Dollar) 6.875 2023 23,200,000 20,572,368
Rodamco
(U.S. Dollar) 7.30 2005 10,000,000 9,896,200
State of Isreal
(U.S. Dollar) 6.375 2005 7,300,000 6,747,682
Telekom Malaysia
(U.S. Dollar) 7.875 2025 10,000,000 (g) 9,835,800
Tokyo Electric Power Euro
(U.S. Dollar) 6.125 2003 21,500,000 20,166,140
______________
Total 316,060,277
_____________________________________________________________________________________________________________________________
Total bonds
(Cost: $1,542,671,708) $1,555,323,396
</TABLE>
<TABLE>
<CAPTION>
_____________________________________________________________________________________________________________________________
Short-term securities (8.4%)
_____________________________________________________________________________________________________________________________
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
_____________________________________________________________________________________________________________________________
<S> <C> <C> <C>
U.S. government agency (0.3%)
Federal Home Loan Mtge Disc Nt
06-12-96 5.21% $5,800,000 $5,790,784
_____________________________________________________________________________________________________________________________
Commercial paper (7.8%)
AIG Funding
06-05-96 5.30 4,700,000 4,697,248
Albertson's
06-03-96 5.30 3,200,000 3,199,061
American General Finance
06-21-96 5.30 6,000,000 5,982,400
BellSouth Telephone
06-04-96 5.30 3,100,000 3,098,636
Cargill
06-11-96 5.31 8,000,000 7,988,244
Colgate Palmolive
06-06-96 5.31 6,500,000 (k) 6,495,224
Dean Witter
06-24-96 5.30 4,600,000 4,584,483
<PAGE>
PAGE 30
Fleet Funding
06-10-96 5.33 6,146,000 (k) 6,137,857
06-17-96 5.32 6,300,000 (k) 6,285,160
Gannett
06-07-96 5.31 5,300,000 (k) 5,295,327
06-18-96 5.31 6,800,000 (k) 6,783,013
Kredietbank
North America Finance
07-03-96 5.31 4,800,000 4,777,429
Metlife Funding
06-11-96 5.31 5,000,000 4,992,667
Michigan Consolidated Gas
06-17-96 5.31 14,000,000 13,967,084
Mobil Australia Finance
06-12-96 5.32 5,500,000 (k) 5,491,093
Pacific Mutual
06-03-96 5.32 4,300,000 4,298,734
06-12-96 5.31 6,000,000 5,990,302
Reed Elsevier
06-21-96 5.30 8,000,000 (k) 7,976,533
St. Paul Companies
06-18-96 5.31 6,600,000 (k) 6,583,513
Sandoz
06-19-96 5.32 5,500,000 (k) 5,484,895
07-09-96 5.30 1,400,000 1,392,212
Southern California Gas
06-03-96 5.30 5,000,000 (k) 4,998,533
Toyota Motor
06-05-96 5.32 2,500,000 2,498,528
U S WEST Communications
06-13-96 5.32 6,600,000 6,588,362
_____________
Total 135,586,538
______________________________________________________________________________________________________________________________
Letter of credit (0.3%)
Bank of America-
AES Barbers Point
06-14-96 5.32 4,800,000 4,790,813
_____________________________________________________________________________________________________________________________
Total short-term securities
(Cost: $146,168,722) $ 146,168,135
_____________________________________________________________________________________________________________________________
Total investments in securities
(Cost: $1,688,840,430(l) $1,701,491,531
_____________________________________________________________________________________________________________________________
Notes to investments in securities
_____________________________________________________________________________________________________________________________
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b) Security is partially or fully on loan. See Note 5 to the financial statements.
(c) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition.
(d) This security is a collateralized mortgage obligation that pays no interest or principal during its initial accrual period
until payment of previous series within the trust have been paid off. Interest is accrued at an effective yield; similar to a
zero coupon bond.
(e) Principal only represents securities that entitle holders to receive only principal payments on the underlying mortgages. The
yield to maturity of a principal only is sensitive to the rate of principal payments on the underlying mortgage assets. A slow
(rapid) rate of principal repayments may have an adverse (positive) effect on yield to maturity. Interest rate disclosed
represents current yield based upon the current cost basis and estimated timing of future cash flows.
(f) For those zero coupon bonds that become coupon paying at a future date, the interest rate disclosed repesents the annualized
effective yield from the date of acquisition to interest rate reset date disclosed.
(g) Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended.
This security has been determined to be liquid under guidelines established by the board.
<PAGE>
PAGE 31
(h) Foreign security values are stated in U.S. dollars. For debt securities, principal amounts are denominated in the currency
indicated.
(i) Identifies issues considered to be illiquid, (see Note 6 to the financial statements). Information concerning such security
holdings at May 31, 1996, is as follows:
Security Acquisition Cost
date
City of Helsinki 02-07-95 $1,859,160
City of Helsinki 02-07-95 1,462,155
City of Helsinki 02-07-95 1,472,805
City of Helsinki 02-07-95 1,638,450
City of Helsinki 02-07-95 1,497,750
(j) Partially pledged as initial margin deposit on the following open interest rate futures contracts
(see Note 9 to the financial statements):
Type of security Notional amount
_________________________________________________________________
Sales Contracts
U.S. Treasury Bonds June 1996 $75,000,000
(k) Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This
security has been determined to be liquid under guidelines established by the board.
(l) At May 31, 1996, the cost of securities for federal income tax purposes was $1,686,181,898 and the aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation $46,289,329
Unrealized depreciation (30,979,696)
____________________________________________________________________________________________
Net unrealized appreciation $15,309,633
____________________________________________________________________________________________
</TABLE>
<PAGE>
PAGE 32
IDS mutual funds
Cash equivalent investments
These money market funds have three main goals: conservation of
capital, constant liquidity and the highest possible current income
consistent with these objectives. Very limited risk.
IDS Cash Management Fund
Invests in such money market securities as high quality commercial
paper, bankers' acceptances, certificates of deposits (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
Income investments
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 Global Bond Fund
Invests primarily in debt securities of U.S. and foreign issuers to
seek high total return through income and growth of capital.
(icon of) globe
IDS Extra Income Fund
Invests mainly in 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
<PAGE>
PAGE 33
IDS Selective Fund
Invests in 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 primarily in 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 investments
These funds provide tax-free income by investing in municipal
bonds. The income is generally free from federal income tax. Risk
varies by bond quality.
IDS High Yield Tax-Exempt Fund
Invests primarily in 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 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 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
<PAGE>
PAGE 34
Growth and income investments
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. Moderate risk.
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 Managed Retirement Fund
Invests in 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.
(icon of) bird in a nest
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 Stock Fund
Invests in 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
<PAGE>
PAGE 35
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 primarily in 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 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
Growth investments
Funds in this group seek capital growth, primarily from common
stocks. They are high risk mutual funds with a potential for high
reward.
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 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 Growth Fund
Invests primarily in companies that have above-average potential
for long-term growth as a result of new management, marketing
opportunities or technological superiority.
(icon of) trees
<PAGE>
PAGE 36
IDS Global Growth Fund
Invests in 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 New Dimensions Fund
Invests primarily in 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
Specialty growth investment
This fund aggressively seeks capital growth as a hedge against
inflation.
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. This is the most aggressive and most
speculative IDS mutual fund.
(icon of) cart of precious gems
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.
<PAGE>
PAGE 37
Federal income tax information
IDS Selective Fund, Inc.
___________________________________________________________________
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 a Form 1099-DIV, Dividends and Distributions,
last January. Dividends paid to you since the end of last year will
be reported to you on a tax statement sent next January.
Shareholders should consult a tax advisor on how to report
distributions for state and local purposes.
IDS Selective Fund, Inc.
Fiscal period ended May 31, 1996
Class A
Income distributions taxable as dividend income, none qualifying
for deduction by corporations.
Payable date Per share
Dec. 27, 1995 $0.08720
Jan. 25, 1996 0.04576
Feb. 26, 1996 0.04727
March 27, 1996 0.04381
April 26, 1996 0.04532
May 28, 1996 0.07265
Total $0.34201
The distribution of $0.08720 per share, payable Dec. 27, 1995,
consisted of $0.05830 derived from net investment income and
$0.02890 from net short-term capital gains.
Class B
Income distributions taxable as dividend income, none qualifying
for deduction by corporations.
Dec. 27, 1995 $0.08131
Jan. 25, 1996 0.04000
Feb. 26, 1996 0.04100
March 27, 1996 0.03801
April 26, 1996 0.03964
May 28, 1996 0.06662
Total distributions $0.30658
The distribution of $0.08131 per share, payable Dec. 27, 1995,
consisted of $0.05241 derived from net investment income and
$0.02890 from net short-term capital gains.
<PAGE>
PAGE 38
Class Y
Income distributions taxable as dividend income, none qualifying
for deduction by corporations.
Dec. 27, 1995 $0.08857
Jan. 25, 1996 0.04704
Feb. 26, 1996 0.04873
March 27, 1996 0.04507
April 26, 1996 0.04660
May 28, 1996 0.07399
Total distributions $0.35000
The distribution of $0.08857 per share, payable Dec. 27, 1995,
consisted of $0.05967 derived from net investment income and
$0.02890 from net short-term capital gains.
<PAGE>
PAGE 39
Quick telephone reference
American Express Telephone Transaction Service
Redemptions and exchanges, dividend payments or reinvestments and
automatic payment arrangements
National/Minnesota: 800-437-3133
Mpls./St. Paul area: 671-3800
American Express Shareholder Service
Fund performance, objectives and account inquiries
612-671-3733
TTY Service
For the hearing impaired
800-846-4852
American Express Infoline
Automated account information (TouchToneR phones only), including
current fund prices and performance, account values and recent
account transactions
National/Minnesota: 800-272-4445
Mpls./St. Paul area: 671-1630
AMERICAN
EXPRESS
Financial
Advisors
IDS Selective Fund
IDS Tower 10
Minneapolis, MN 55440-0010
<PAGE>
PAGE 40
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 3) Each picture, icon and
and graphs throughout the graph is described in
annual report and prospectus. parentheses.
4) Footnotes for charts and 4) The footnotes for each
graphs are described at chart or graph are typed
the left margin. below the description of
the chart or graph.
