<PAGE>
PAGE 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 85 (File No. 2-10700) X
------ ---
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 33 (File No. 811-499) X
------ ---
IDS SELECTIVE FUND
IDS Tower 10, Minneapolis, MN 55440
Leslie L. Ogg - 901 S. Marquette Avenue, Suite 2810,
Minneapolis, MN 55402-3268
(612) 330-9283
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check
appropriate box)
immediately upon filing pursuant to paragraph (b)
X on July 30, 1997 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant has registered an indefinite number or amount of securities under
the Securities Act of 1933 pursuant to Section 24(f) of the Investment Company
Act of 1940. Registrant's Rule 24f-2 Notice for its most recent fiscal year will
be filed on or about July 30, 1997.
IDS Selective Fund, a series of the Registrant, has adopted a master/feeder
operating structure. This Post-Effective Amendment includes a signature page for
Income Trust, the master fund.
<PAGE>
PAGE 2
Cross reference sheet showing the location in its prospectus and the Statement
of Additional Information of the information called for by the items enumerated
in Parts A and B of Form N-1A.
Negative answers omitted from prospectus are so indicated.
<TABLE>
<CAPTION>
PART A PART B
<S> <C> <C> <C>
Section Section in
Item No. in Prospectus Item No. Statement of Additional Information
1 Cover page of prospectus 10 Cover page of SAI
2(a) Sales charge and Fund expenses 11 Table of Contents
(b) The Fund in brief
(c) The Fund in brief 12 NA
3(a) Financial highlights 13(a) Additional Investment Policies; all
(b) NA appendices except Dollar-Cost Averaging
(c) Performance (b) Additional Investment Policies
(d) Financial highlights (c) Additional Investment Policies
(d) Security Transactions
4(a) The Fund in brief; Investment policies and
risks; How the Fund is organized 14(a) Board members and officers of the Fund;**
(b) Investment policies and risks Board members and officers
(c) Investment policies and risks (b) Board members and Officers
(c) Board members and Officers
5(a) Board members and officers; Board members
and officers of the Fund (listing) 15(a) NA
(b)(i) Investment manager; (b) NA
About American Express Financial (c) Board members and Officers
Corporation -- General Information
(b)(ii) Investment manager 16(a)(i) How the Fund is organized; About American
(b)(iii) Investment manager Express Financial Corporation**
(c) Portfolio manager (a)(ii) Agreements: Investment Management Services
(d) Administrator and transfer agent Agreement, Plan and Agreement of Distribution
(e) Administrator and transfer agent
(f) Distributor (a)(iii) Agreements: Investment Management Services Agreement
(g) Investment manager; (b) Agreements: Investment Management Services Agreement
About American Express Financial (c) NA
Corporation -- General Information (d) Agreements: Administrative Services
Agreement, Shareholder Service Agreement
5A(a) * (e) NA
(b) * (f) Agreements: Distribution Agreement
(g) NA
6(a) Shares; Voting rights (h) Custodian; Independent Auditors
(b) NA (i) Agreements: Transfer Agency Agreement; Custodian
(c) NA
(d) Voting rights 17(a) Security Transactions
(e) Cover page; Special shareholder services (b) Brokerage Commissions Paid to Brokers Affiliated
(f) Dividends and capital gain distributions; with American Express Financial Corporation
Reinvestments (c) Security Transactions
(g) Taxes (d) Security Transactions
(h) Alternative sales arrangements; Special (e) Security Transactions
considerations regarding master/feeder
structure 18(a) Shares; Voting rights**
(b) NA
7(a) Distributor
(b) Valuing Fund shares 19(a) Investing in the Fund
(c) How to purchase, exchange or redeem shares (b) Valuing Fund Shares; Investing in the Fund
(d) How to purchase shares (c) NA
(e) NA
(f) Distributor 20 Taxes
8(a) How to redeem shares 21(a) Agreements: Distribution Agreement
(b) NA (b) Agreements: Distribution Agreement
(c) How to purchase shares: Three ways to invest (c) NA
(d) How to purchase, exchange or redeem shares:
Redemption policies -- "Important..." 22(a) Performance Information (for money market
funds only)
9 None (b) Performance Information (for all funds except
money market funds)
23 Financial Statements
</TABLE>
*Designates information is located in annual report.
**Designates location in prospectus.
<PAGE>
PAGE 3
IDS Selective Fund
Prospectus
July 30, 1997
The goals of IDS Selective Fund, Inc. are current income and the
preservation of capital by investing in investment-grade bonds.
The Fund seeks to achieve its goals by investing all of its assets in Quality
Income Portfolio of Income Trust. The Portfolio is managed by American Express
Financial Corporation and has the same goals as the Fund. This arrangement is
commonly known as a
master/feeder structure.
This prospectus contains facts that can help you decide if the Fund is the right
investment for you. Read it before you invest and keep it for future reference.
Additional facts about the Fund are in a Statement of Additional Information
(SAI), filed with the Securities and Exchange Commission (SEC) and available for
reference, along with other related materials, on the SEC Internet web site
(http://www.sec.gov). The SAI is incorporated herein by reference. For a free
copy, contact American Express Shareholder Service.
Like all mutual fund shares, these securities have not been approved or
disapproved by the Securities and Exchange Commission or any state securities
commission, nor has the Securities and Exchange Commission or any state
securities commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
Please note that the Fund:
o is not a bank deposit
o is not federally insured
o is not endorsed by any bank or government agency
o is not guaranteed to achieve its goals
American Express Shareholder Service
P.O. Box 534
Minneapolis, MN
55440-0534
800-862-7919
TTY: 800-846-4852
Web site address: http://www.americanexpress.com/advisors
<PAGE>
PAGE 4
Table of contents
The Fund in brief
Goals
Investment policies and risks
Structure of the Fund
Manager and distributor
Portfolio manager
Alternative purchase arrangements
Sales charge and Fund expenses
Performance
Financial highlights
Total returns
Yield
Investment policies and risks
Facts about investments and their risks
Valuing Fund shares
How to purchase, exchange or redeem shares
Alternative purchase arrangements
How to purchase shares
How to exchange shares
How to redeem shares
Reductions and waivers of the sales charge
Special shareholder services
Services
Quick telephone reference
Distributions and taxes
Dividend and capital gain distributions
Reinvestments
Taxes
How to determine the correct TIN
How the Fund and Portfolio are organized
Shares
Voting rights
Shareholder meetings
Special considerations regarding master/feeder structure
Board members and officers
Investment manager
Administrator and transfer agent
Distributor
About American Express Financial Corporation
General information
Appendices
Description of investment-grade corporate bond ratings
Descriptions of derivative instruments
<PAGE>
PAGE 5
The Fund in brief
Goals
IDS Selective Fund (the Fund) seeks to provide shareholders with current income
and preservation of capital by investing in investment-grade bonds. It does so
by investing all of its assets in Quality Income Portfolio (the Portfolio) of
Income Trust (the Trust) rather than by directly investing in and managing its
own portfolio of securities. Both the Fund and the Portfolio are diversified
investment companies that have the same goals. Because any investment involves
risk, achieving these goals cannot be guaranteed. The goals can be changed only
by holders of a majority of outstanding securities.
The Fund may withdraw its assets from the Portfolio at any time if the board
determines that it is in the best interests of the Fund to do so. In that event,
the Fund would consider what action should be taken, including whether to retain
an investment advisor to manage the Fund's assets directly or to reinvest all of
the Fund's assets in another pooled investment entity.
Investment policies and risks
Both the Fund and the Portfolio have the same investment policies. Accordingly,
the Portfolio invests at least 90% of its net assets in the four highest
investment grades of corporate debt securities, certain unrated debt securities
the portfolio manager believes have the same investment qualities, government
securities, derivative instruments and money market securities. Other
investments may include common and preferred stocks and convertible securities.
The investments are both U.S. and foreign. Some of the Portfolio's investments
may be considered speculative and involve additional investment risks. For
further information, refer to the later section in the prospectus titled
"Investment policies and risks."
Structure of the Fund
This Fund uses what is commonly known as a master/feeder structure. This means
that the Fund (the feeder fund) invests all of its assets in the Portfolio (the
master fund). The Portfolio invests in and manages the securities and has the
same goals and investment policies as the Fund. This structure is described in
more detail in the section captioned "Special considerations regarding
master/feeder structure." Here is an illustration of the structure:
Investors buy
shares in the Fund
The Fund invests
in the Portfolio
The Portfolio invests
in securities, such
as stocks or bonds
<PAGE>
PAGE 6
Manager and distributor
The Portfolio is managed by American Express Financial Corporation (AEFC), a
provider of financial services since 1894. AEFC currently manages more than $63
billion in assets for the IDS MUTUAL FUND GROUP. Shares of the Fund are sold
through American Express Financial Advisors Inc., a wholly-owned subsidiary of
AEFC.
Portfolio manager
Ray Goodner joined AEFC in 1977 and serves as vice president and senior
portfolio manager. He has managed the assets of the Fund since 1985 and serves
as portfolio manager of the Portfolio. He also serves as portfolio manager of
IDS Global Balanced Fund, World Income Portfolio and IDS Life Global Yield Fund.
Alternative purchase arrangements
The Fund offers its shares in three classes. Class A shares are subject to a
sales charge at the time of purchase. Class B shares are subject to a contingent
deferred sales charge (CDSC) on redemptions made within six years of purchase
and an annual distribution (12b-1) fee. Class Y shares are sold without a sales
charge to qualifying institutional investors.
Sales charge and Fund expenses
Shareholder transaction expenses are incurred directly by an investor on the
purchase or redemption of Fund shares. Fund operating expenses are paid out of
Fund assets for each class of shares and include expenses charged by both the
Fund and the Portfolio. Operating expenses are reflected in the Fund's daily
share price and dividends, and are not charged directly to shareholder accounts.
Shareholder transaction expenses
Class A Class B Class Y
Maximum sales charge on purchases*
(as a percentage of offering price).......5% 0% 0%
Maximum deferred sales charge
imposed on redemptions (as a
percentage of original purchase price)....0% 5% 0%
Annual Fund and allocated Portfolio operating expenses (as a percentage of
average daily net assets):
Class A Class B Class Y
Management fee** 0.51% 0.51% 0.51%
12b-1 fee 0.00% 0.75% 0.00%
Other expenses*** 0.37% 0.38% 0.30%
Total**** 0.88% 1.64% 0.81%
*This charge may be reduced depending on your total investments in IDS funds.
See "Reductions of the sales charge."
**The management fee is paid by the Trust on behalf of the Portfolio.
<PAGE>
PAGE 7
***Other expenses include an administrative services fee, a shareholder services
fee, a transfer agency fee and other nonadvisory expenses.
****The Fund changed to a master/feeder structure on June 10, 1996. The board
considered whether the aggregate expenses of the Fund and the Portfolio would
be more or less than if the Fund invested directly in the type of securities
being held by the Portfolio. AEFC has agreed to pay the small additional
costs required to use a master/feeder structure to manage the investment
portfolio during the first year of its operation and half of such costs in the
second year, approximately $14,300 in year one and $7,100 in year two. These
additional costs may be more than offset in subsequent years if the assets
being managed increase.
Example: Suppose for each year for the next 10 years, Fund expenses are as above
and annual return is 5%. If you sold your shares at the end of the following
years, for each $1,000 invested, you would pay total expenses of:
1 year 3 years 5 years 10 years
Class A $59 $77 $ 96 $153
Class B $67 $92 $109 $174**
Class B* $17 $52 $ 89 $174**
Class Y $ 8 $26 $ 45 $101
*Assuming Class B shares are not redeemed at the end of the period.
**Based on conversion of Class B shares to Class A shares after
eight years.
This example does not represent actual expenses, past or future. Actual expenses
may be higher or lower than those shown. Because Class B pays annual
distribution (12b-1) fees, long-term shareholders of Class B may indirectly pay
an equivalent of more than a 6.25% sales charge, the maximum permitted by the
National Association of Securities Dealers.
<PAGE>
Performance
Financial highlights
PAGE 8
IDS Selective Fund, Inc.
Fiscal period ended May 31,
Per share income and capital changes(a)
<TABLE>
<CAPTION>
Class A
1997 1996(b) 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $9.00 $9.53 $8.57 $9.77 $9.20 $8.93 $8.41 $8.69 $8.44 $8.27 $9.03
beginning of year
Income from investment operations:
Net investment .59 .33 .59 .60 .63 .66 .69 .70 .72 .74 .77
income
Net gains (losses) .12 (.52) 1.08 (1.05) .69 .27 .52 (.30) .27 .17 (.71)
(both realized
and unrealized)
Total from .71 (.19) 1.67 (.45) 1.32 .93 1.21 .40 .99 .91 .06
investment
operations
Less distributions:
Dividends from net (.58) (.31) (.58) (.60) (.64) (.66) (.69) (.68) (.74) (.74) (.77)
investment income
Distributions (.13) (.03) (.13) (.15) (.11) -- -- -- -- -- (.05)
from
realized gains
Total (.71) (.34) (.71) (.75) (.75) (.66) (.69) (.68) (.74) (.74) (.82)
distributions
Net asset value, $9.00 $9.00 $9.53 $8.57 $9.77 $9.20 $8.93 $8.41 $8.69 $8.44 $8.27
end of period
Ratios/supplemental data:
Class A
1997 1996(b) 1995 1994 1993 1992 1991 1990 1989 1988 1987
Net assets, end of $1,286 $1,408 $1,490 $1,402 $1,737 $1,541 $1,403 $1,196 $1,167 $1,081 $1,101
period (in
millions)
Ratio of expenses .88% .89%(c) .85% .72% .72% .74% .77% .76% .77% .74% .75%
to average daily net
assets
Ratio of net 6.36% 6.27%(c) 6.59% 6.53% 6.57% 7.32% 7.94% 8.58% 8.42% 8.67% 8.80%
income to average
daily net assets
Portfolio 31% 18% 26% 30% 30% 62% 59% 54% 79% 86% 74%
turnover rate (excluding
short-term securities)
Total return(d) 8.1% (2.0%) 20.3% (4.7%) 14.8% 10.8% 15.0% 4.8% 12.3% 11.3% 0.6%
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) The Fund's fiscal year-end was changed from Nov. 30 to May 31, effective 1996.
(c) Adjusted to an annual basis.
(d) Total return does not reflect payment of a sales charge.
</TABLE>
<PAGE>
PAGE 9
IDS Selective Fund, Inc.
Fiscal period ended May 31,
Per share income and capital changes(a)
Class B Class Y
1997 1996(e) 1995(b) 1997 1996(e) 1995(b)
Net asset value, $9.00 $9.53 $8.78 $9.00 $9.53 $8.78
beginning of year
Income from investment operations:
Net investment .52 .30 .40 .60 .34 .46
income
Net gains (losses) .12 (.52) .75 .12 (.52) .75
(both realized
and unrealized)
Total from .64 (.22) 1.15 .72 (.18) 1.21
investment
operations
Less distributions:
Dividends from net (.51) (.28) (.40) (.59) (.32) (.46)
investment income
Distributions (.13) (.03) -- (.13) (.03) --
from
realized gains
Total (.64) (.31) (.40) (.72) (.35) (.46)
distributions
Net asset value, $9.00 $9.00 $9.53 $9.00 $9.00 $9.53
end of period
Ratios/supplemental data:
Class B Class Y
1997 1996(e) 1995(b) 1997 1996(e) 1995(b)
Net assets, end of $126 $108 $72 $202 $212 $142
period (in
millions)
Ratio of expenses 1.64% 1.63%(d) 1.67%(d) .72% .70%(d) .73%(d)
to average daily net
assets
Ratio of net 6.40% 5.56%(d) 5.68%(d) 7.02% 6.51%(d) 6.64%(d)
income to average
daily net assets
Portfolio 31% 18% 26% 31% 18% 26%
turnover rate (excluding
short-term securities)
Total return(c) 7.3% (2.4%) 13.1% 8.3% (2.0%) 13.8%
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date was March 20, 1995.
(c) Total return does not reflect payment of a sales charge.
(d) Adjusted to an annual basis.
(e) The Fund's fiscal year-end was changed from Nov. 30 to May 31,
effective 1996.
The information in these tables has been audited by KPMG Peat Marwick LLP,
independent auditors. The independent auditors' report and additional
information about the performance of the Fund are contained in the Fund's annual
report which, if not included with this prospectus, may be obtained without
charge.
<PAGE>
PAGE 10
Total returns
Total return is the sum of all of your returns for a given period, assuming you
reinvest all distributions. It is calculated by taking the total value of shares
you own at the end of the period (including shares acquired by reinvestment),
less the price of shares you purchased at the beginning of the period.
Average annual total return is the annually compounded rate of return over a
given time period (usually two or more years). It is the total return for the
period converted to an equivalent annual figure.
Average annual total returns as of May 31, 1997
Purchase 1 year Since 5 years 10 years
made ago inception* ago ago
IDS Selective:
Class A +2.68% --% +6.84% +8.31%
Class B +3.27% +6.43% --% --%
Class Y +8.27% +9.09% --% --%
Lehman
Aggregate
Bond Index +8.32% +8.39%** +7.16% +8.84%
*Inception date was March 20, 1995.
**Measurement period started April 1, 1995.
Cumulative total returns as of May 31, 1997
Purchase 1 year Since 5 years 10 years
made ago inception* ago ago
IDS Selective:
Class A +2.68% --% +39.29% +122.48%
Class B +3.27% +14.68% --% --%
Class Y +8.27% +21.10% --% --%
Lehman
Aggregate
Bond Index +8.32% +19.08%** +41.28% +133.25%
*Inception date was March 20, 1995.
**Measurement period started April 1, 1995.
These examples show total returns from hypothetical investments in Class A,
Class B and Class Y shares of the Fund. These returns are compared to those of a
popular index for the same periods. The performance of Class B and Class Y will
vary from the performance of Class A based on differences in sales charges and
fees. March 20, 1995 was the inception date for Class B and Class Y. Past
performance for Class Y for the periods prior to March 20, 1995 may be
calculated based on the performance of Class A, adjusted to reflect differences
in sales charges although not for other differences in expenses.
<PAGE>
PAGE 11
For purposes of calculation, information about the Fund assumes:
o a sales charge of 5% for Class A shares
o redemption at the end of the period and deduction of the
applicable contingent deferred sales charge for Class B shares
o no sales charge for Class Y shares
o no adjustments for taxes an investor may have paid on the
reinvested income and capital gains
o a period of widely fluctuating securities prices. Returns
shown should not be considered a representation of the Fund's
future performance.
Lehman Aggregate Bond Index is an unmanaged index made up of a representative
list of government and corporate bonds as well as asset-backed 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 the bonds held in the Fund. The index reflects
reinvestment of all distributions and changes in market prices, but excludes
brokerage commissions or other fees.
Yield
Yield is the net investment income earned per share for a specified time period,
divided by the offering price at the end of the period. The Fund's annualized
yield for the 30-day period ended May 31, 1997, was 6.07% for Class A, 5.63 for
Class B and 6.49% for Class Y. The Fund calculates this 30-day annualized yield
by dividing:
o net investment income per share deemed earned during a 30-day
period by
o the public offering price per share on the last day of the
period, and
o converting the result to a yearly equivalent figure
This yield calculation does not include any contingent deferred sales charge,
ranging from 5% to 0% on Class B shares, which would reduce the yield quoted.
The Fund's yield varies from day to day, mainly because share values and
offering prices (which are calculated daily) vary in response to changes in
interest rates. Net investment income normally changes much less in the short
run. Thus, when interest rates rise and share values fall, yield tends to rise.
When interest rates fall, yield tends to follow.
Past yields should not be considered an indicator of future yields.
Investment policies and risks
The policies described below apply both to the Fund and the Portfolio. The
Portfolio invests in the four highest investment grades of marketable corporate
debt securities, certain unrated debt securities the portfolio manager believes
have the same investment qualities, government securities, derivative
instruments and money market instruments. The investments are both U.S. and
<PAGE>
PAGE 12
foreign. Under normal market conditions, at least 90% of the Portfolio's net
assets will be in these investments. The remaining 10% of the Portfolio's net
assets may be invested in common and preferred stocks and convertible
securities.
The various types of investments the portfolio manager uses to achieve
investment performance are described in more detail in the next section and in
the SAI.
Facts about investments and their risks
Debt securities: The price of bonds generally falls as interest rates increase,
and rises as interest rates decrease. The price of bonds also fluctuates if the
credit rating is upgraded or downgraded. The Portfolio does not invest in
securities considered by the investment manager to have investment qualities
lower than investment grade. Securities that are subsequently downgraded in
quality may continue to be held by the Portfolio and will be sold only when the
investment manager believes it is advantageous to do so. For a description of
investment-grade corporate bonds ratings, please see the Appendix to this
prospectus.
Common stocks: Stock prices are subject to market fluctuations. Stocks of
larger, established companies that pay dividends may be less volatile than the
stock market as a whole.
Preferred stocks: If a company earns a profit, it generally must pay its
preferred stockholders a dividend at a pre-established rate.
Convertible securities: These securities generally are preferred stocks or bonds
that can be exchanged for other securities, usually common stock, at prestated
prices. When the trading price of the common stock makes the exchange likely,
convertible securities trade more like common stock.
Foreign investments: Securities of foreign companies and governments may be
traded in the United States, but often they are traded only on foreign markets.
Frequently, there is less information about foreign companies and less
government supervision of foreign markets. Foreign investments are subject to
political and economic risks of the countries in which the investments are made,
including the possibility of seizure or nationalization of companies, imposition
of withholding taxes on income, establishment of exchange controls or adoption
of other restrictions that might affect an investment adversely. If an
investment is made in a foreign market, the local currency may be purchased
using a forward contract in which the price of the foreign currency in U.S.
dollars is established on the date the trade is made, but delivery of the
currency is not made until the securities are received. As long as the Portfolio
holds foreign currencies or securities valued in foreign currencies, the value
of those assets will be affected by changes in the value of the currencies
relative to the U.S. dollar. Because of the limited trading volume in some
foreign markets, efforts to buy or sell a security may change the price of the
security, and it may be difficult to complete the transaction. The Portfolio may
invest up to 25% of its total assets in foreign investments.
<PAGE>
PAGE 13
Derivative instruments: The portfolio manager may use derivative instruments in
addition to securities to achieve investment performance. Derivative instruments
include futures, options and forward contracts. Such instruments may be used to
maintain cash reserves while remaining fully invested, to offset anticipated
declines in values of investments, to facilitate trading, to reduce transaction
costs or to pursue higher investment returns. Derivative instruments are
characterized by requiring little or no initial payment and a daily change in
price based on or derived from a security, a currency, a group of securities or
currencies, or an index. A number of strategies or combination of instruments
can be used to achieve the desired investment performance characteristics. A
small change in the value of the underlying security, currency or index will
cause a sizable gain or loss in the price of the derivative instrument.
Derivative instruments allow the portfolio manager to change the investment
performance characteristics very quickly and at lower costs. Risks include
losses of premiums, rapid changes in prices, defaults by other parties and
inability to close such instruments. The Portfolio will use derivative
instruments only to achieve the same investment performance characteristics it
could achieve by directly holding those securities and currencies permitted
under the investment policies. The Portfolio will designate cash or appropriate
liquid assets to cover its portfolio obligations. No more than 5% of the
Portfolio's net assets can be used at any one time for good faith deposits on
futures and premiums for options on futures that do not offset existing
investment positions. This does not, however, limit the portion of the
Portfolio's assets at risk to 5%. The Portfolio is not limited as to the
percentage of its assets that may be invested in permissible investments,
including derivatives, except as otherwise explicitly provided in this
prospectus or the SAI. For descriptions of these and other types of derivative
instruments, see the Appendix to this prospectus and the SAI.
Securities and other instruments that are illiquid: A security or other
instrument is illiquid if it cannot be sold quickly in the normal course of
business. Some investments cannot be resold to the U.S. public because of their
terms or government regulations. Securities and instruments, however, can be
sold in private sales, and many may be sold to other institutions and qualified
buyers or on foreign markets. The portfolio manager will follow guidelines
established by the board and consider relevant factors such as the nature of the
security and the number of likely buyers when determining whether a security is
illiquid. No more than 10% of the Portfolio's net assets will be held in
securities and other instruments that are illiquid.
Money market instruments: Short-term debt securities rated in the top two grades
or the equivalent are used to meet daily cash needs and at various times to hold
assets until better investment opportunities arise. Generally, less than 25% of
the Portfolio's total assets are in these money market instruments. However, for
temporary defensive purposes these investments could exceed that amount for a
limited period of time.
The investment policies described above may be changed by the boards.
<PAGE>
PAGE 14
Lending portfolio securities: The Portfolio may lend its securities to earn
income so long as borrowers provide collateral equal to the market value of the
loans. The risks are that borrowers will not provide collateral when required or
return securities when due. Unless a majority of the outstanding voting
securities approve otherwise, loans may not exceed 30% of the Portfolio's net
assets.
Valuing Fund shares
The public offering price is the net asset value (NAV) adjusted for the sales
charge for Class A. It is the NAV for Class B and Class Y.
The NAV is the value of a single Fund share. The NAV usually changes daily, and
is calculated at the close of business, normally 3 p.m. Central time, each
business day (any day the New York Stock Exchange is open). NAV generally
declines as interest rates increase and rises as interest rates decline.
To establish the net assets, all securities held by the Portfolio are valued as
of the close of each business day. In valuing assets:
o Securities (except bonds) and assets with available market
values are valued on that basis
o Securities maturing in 60 days or less are valued at amortized
cost
o Bonds and assets without readily available market values are
valued according to methods selected in good faith by the
board
How to purchase, exchange or redeem shares
Alternative purchase arrangements
The Fund offers three different classes of shares - Class A, Class B and Class
Y. The primary differences among the classes are in the sales charge structures
and in their ongoing expenses. These differences are summarized in the table
below. You may choose the class that best suits your circumstances and
objectives.
Sales charge and
distribution
(12b-1) fee Service fee Other information
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Class A Maximum initial 0.175% of average Initial sales charge
sales charge of daily net assets waived or reduced
5%; no 12b-1 fee for certain purchases
</TABLE>
<PAGE>
PAGE 15
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Class B No initial sales 0.175% of average Shares convert to charge;
maximum CDSC daily net assets Class A after eight of 5% declines
to 0% years; CDSC waived in after six years; 12b-1 certain
circumstances fee of 0.75% of average daily net assets
Class Y None 0.10% of average Available only to
daily net assets certain qualifying
institutional investors
</TABLE>
Conversion of Class B shares to Class A shares - During the ninth calendar year
of owning your Class B shares, Class B shares will convert to Class A shares and
will no longer be subject to a distribution fee. Class B shares that convert to
Class A shares are not subject to a sales charge or distribution fee. Class B
shares purchased through reinvested dividends and distributions also will
convert to Class A shares in the same proportion as the other Class B shares.
This means more of your money will be put to work for you.
Considerations in determining whether to purchase Class A or Class B shares -
You should consider the information below in determining whether to purchase
Class A or Class B shares. The distribution fee (included in "Ongoing expenses")
and sales charges are structured so that you will have approximately the same
total return at the end of eight years regardless of which class you chose.
Sales charges on purchase or redemption
If you purchase Class A If you purchase Class B
shares shares
o You will not have all o All of your money is
of your purchase price invested in shares of
invested. Part of your stock. However, you will
purchase price will go pay a sales charge if you
to pay the sales charge. redeem your shares within
You will not pay a sales six years of purchase.
charge when you redeem
your shares.
o You will be able to o No reductions of the
take advantage of sales charge are
reductions in the sales available for large
charge. purchases.
If your investments in IDS funds that are subject to a sales charge total
$250,000 or more, you are better off paying the reduced sales charge in Class A
than paying the higher fees in Class B. If you qualify for a waiver of the sales
charge, you should purchase Class A shares.
<PAGE>
PAGE 16
Ongoing expenses
If you purchase Class A If you purchase Class B
shares shares
o Your shares will have o The distribution and
a lower expense ratio transfer agency fees for
than Class B shares Class B will cause your
because Class A does not shares to have a higher
pay a distribution fee expense ratio and to pay
and the transfer agency lower dividends than
fee for Class A is lower Class A shares. After
than the fee for Class B. eight years, Class B
As a result, Class A shares shares will convert to
will pay higher dividends Class A shares and you
than Class B shares. will no longer be
subject to higher fees.
You should consider how long you plan to hold your shares and whether the
accumulated higher fees and CDSC on Class B shares prior to conversion would be
less than the initial sales charge on Class A shares. Also consider to what
extent the difference would be offset by the lower expenses on Class A shares.
To help you in this analysis, the example in the "Sales charge and Fund
expenses" section of the prospectus illustrates the charges applicable to each
class of shares.
Class Y shares - Class Y shares are offered to certain institutional investors.
Class Y shares are sold without a front-end sales charge or a CDSC and are not
subject to a distribution fee. The following investors are eligible to purchase
Class Y shares:
o Qualified employee benefit plans* if the plan:
- uses a daily transfer recordkeeping service offering
participants daily access to IDS funds and has
- at least $10 million in plan assets or
- 500 or more participants; or
- does not use daily transfer recordkeeping and has
- at least $3 million invested in funds of the IDS MUTUAL FUND GROUP or
- 500 or more participants.
o Trust companies or similar institutions, and charitable organizations
that meet the definition in Section 501(c)(3) of the Internal Revenue
Code.* These must have at least $10 million invested in funds of the IDS
MUTUAL FUND GROUP.
o Nonqualified deferred compensation plans* whose participants are
included in a qualified employee benefit plan described above.
* Eligibility must be determined in advance by American Express Financial
Advisors. To do so, contact your financial advisor.
<PAGE>
PAGE 17
How to purchase shares
If you are investing in this Fund for the first time, you'll need to set up an
account. Your financial advisor will help you fill out and submit an
application. Once your account is set up, you can choose among several
convenient ways to invest.
Important: When opening an account, you must provide AEFC with
your correct Taxpayer Identification Number (Social Security or
Employer Identification number). See "Distributions and taxes."
When you purchase shares for a new or existing account, the price you pay per
share is determined at the close of business on the day your investment is
received and accepted at the Minneapolis headquarters.
Purchase policies:
o Investments must be received and accepted in the Minneapolis
headquarters on a business day before 3 p.m. Central time to be included
in your account that day and to receive that day's share price.
Otherwise, your purchase will be processed the next business day and you
will pay the next day's share price.
o The minimums allowed for investment may change from time to
time.
o Wire orders can be accepted only on days when your bank, AEFC, the Fund
and Norwest Bank Minneapolis are open for business.
o Wire purchases are completed when wired payment is received
and the Fund accepts the purchase.
o AEFC and the Fund are not responsible for any delays that
occur in wiring funds, including delays in processing by the
bank.
o You must pay any fee the bank charges for wiring.
o The Fund reserves the right to reject any application for any
reason.
o If your application does not specify which class of shares you are
purchasing, it will be assumed that you are investing in Class A shares.
Three ways to invest
<TABLE>
<CAPTION>
1
<S> <C> <C> <C>
By regular account Send your check and application Minimum amounts
(or your name and account number Initial investment: $2,000
if you have an established account) Additional
to: investments: $ 100
American Express Financial Advisors Inc. Account balances: $ 300*
P.O. Box 74 Qualified retirement
Minneapolis, MN 55440-0074 accounts: none
Your financial advisor will help you with this process.
</TABLE>
<PAGE>
PAGE 18
<TABLE>
<CAPTION>
<S> <C> <C> <C>
By scheduled Contact your financial advisor Minimum amounts
investment plan to set up one of the following Initial investment: $100
scheduled plans: Additional
investments: $100/each payment
o automatic payroll deduction Account balances: none
(on active plans of
o bank authorization monthly payments)
o direct deposit of If account balance is below $2000.00,
Social Security check frequency of payment must be at least
monthly.
o other plan approved by the Fund
3
By wire If you have an established account, If this information is not
you may wire money to: included, the order may be
rejected and all money
Norwest Bank Minneapolis received by the Fund, less
Routing No. 091000019 any costs the Fund or AEFC
Minneapolis, MN incurs, will be returned
Attn: Domestic Wire Dept. promptly.
Give these instructions: Minimum amounts
Credit IDS Account #00-30-015 Each wire investment: $1,000
for personal account # (your
account number) for (your name).
</TABLE>
*If your account balance falls below $300, you will be asked in writing to bring
it up to $300 or establish a scheduled investment plan. If you don't do so
within 30 days, your shares can be redeemed and the proceeds mailed to you.
How to exchange shares
You can exchange your shares of the Fund at no charge for shares of the same
class of any other publicly offered fund in the IDS MUTUAL FUND GROUP available
in your state. Exchanges into IDS Tax-Free Money Fund must be made from Class A
shares. For complete information on any other fund, including fees and expenses,
read that fund's prospectus carefully.
If your exchange request arrives at the Minneapolis headquarters before the
close of business, your shares will be redeemed at the net asset value set for
that day. The proceeds will be used to purchase new fund shares the same day.
Otherwise, your exchange will take place the next business day at that day's net
asset value.
For tax purposes, an exchange represents a redemption and purchase and may
result in a gain or loss. However, you cannot use the sales charge imposed on
the purchase of Class A shares to create or increase a tax loss (or reduce a
taxable gain) by exchanging from the Fund within 91 days of your purchase. For
further explanation, see the SAI.
How to redeem shares
You can redeem your shares at any time. American Express Shareholder Service
will mail payment within seven days after receiving your request.
<PAGE>
PAGE 19
When you redeem shares, the amount you receive may be more or less than the
amount you invested. Your shares will be redeemed at net asset value, minus any
applicable sales charge, at the close of business on the day your request is
accepted at the Minneapolis headquarters. If your request arrives after the
close of business, the price per share will be the net asset value, minus any
applicable sales charge, at the close of business on the next business day.
A redemption is a taxable transaction. If your proceeds from your redemption are
more or less than the cost of your shares, you will have a gain or loss, which
can affect your tax liability. Redeeming shares held in an IRA or qualified
retirement account may subject you to certain federal taxes, penalties and
reporting requirements. Consult your tax advisor.
Two ways to request an exchange or redemption of shares
1
By letter Include in your letter:
o the name of the fund(s)
o the class of shares to be exchanged or
redeemed
o your account number(s) (for exchanges,
both funds must be registered in the same
ownership) o your Taxpayer Identification
Number (TIN) o the dollar amount or number
of shares you want to exchange or redeem o
signature of all registered account owners
o for redemptions, indicate how you want
your money delivered to you o any paper
certificates of shares you hold
Regular mail:
American Express Shareholder Service
Attn: Redemptions
P.O. Box 534
Minneapolis, MN 55440-0534
Express mail:
American Express Shareholder Service
Attn: Redemptions
733 Marquette Ave.
Minneapolis, MN 55402
2
By phone
American Express Financial
Advisors Telephone
Transaction Service:
800-437-3133 or
612-671-3800
o The Fund and AEFC will honor any telephone exchange or redemption request
believed to be authentic and will use reasonable procedures to confirm
that they are. This includes or asking identifying questions and tape
recording calls. If reasonable procedures are not followed, the Fund or AEFC
will be liable for any loss resulting from fraudulent requests.
o Phone exchange and redemption privileges automatically apply to all accounts
except custodial, corporate or qualified retirement accounts unless you request
these privileges NOT apply by writing American Express Shareholder Service. Each
registered owner must sign the request.
o AEFC answers phone requests promptly, but you may experience delays when call
volume is high. If you are unable to get through, use mail procedure as an
alternative.
o Acting on your instructions, your financial advisor may conduct telephone
transactions on your behalf.
o Phone privileges may be modified or discontinued at any time.
Minimum amount
Redemption: $100
Maximum amount
Redemption: $50,000
<PAGE>
PAGE 20
Exchange policies:
o You may make up to three exchanges within any 30-day period, with each limited
to $300,000. These limits do not apply to scheduled exchange programs and
certain employee benefit plans or other arrangements through which one
shareholder represents the interests of several. Exceptions may be allowed with
pre-approval of the Fund.
o Exchanges must be made into the same class of shares of the new
fund.
o If your exchange creates a new account, it must satisfy the minimum investment
amount for new purchases.
o Once we receive your exchange request, you cannot cancel it.
o Shares of the new fund may not be used on the same day for
another exchange.
o If your shares are pledged as collateral, the exchange will be delayed until
written approval is obtained from the secured party.
o AEFC and the Fund reserve the right to reject any exchange, limit the amount,
or modify or discontinue the exchange privilege, to prevent abuse or adverse
effects on the Fund and its shareholders. For example, if exchanges are too
numerous or too large, they may disrupt the Fund's investment strategies or
increase its costs.
Redemption policies:
o A "change of mind" option allows you to change your mind after requesting a
redemption and to use all or part of the proceeds to purchase new shares in the
same account from which you redeemed. If you reinvest in Class A, you will
purchase the new shares at net asset value rather than the offering price on the
date of a new purchase. If you reinvest in Class B, any CDSC you paid on the
amount you are reinvesting also will be reinvested. To take advantage of this
option, send a written request within 30 days of the date your redemption
request was received. Include your account number and mention this option. This
privilege may be limited or withdrawn at any time, and it may have tax
consequences.
o A telephone redemption request will not be allowed within 30 days of a
phoned-in address change.
Important: If you request a redemption of shares you recently purchased by a
check or money order that is not guaranteed, the Fund will wait for your check
to clear. It may take up to 10 days from the date of purchase before a check is
mailed to you. (A check may be mailed earlier if your bank provides evidence
satisfactory to the Fund and AEFC that your check has cleared.)
<PAGE>
PAGE 21
Three ways to receive payment when you redeem shares
1
<TABLE>
<CAPTION>
<S> <C>
By regular or express mail o Mailed to the address on record
o Payable to names listed on the account
NOTE: You will be charged a fee if you
request express mail delivery.
2
By wire o Minimum wire redemption: $1,000
o Request that money be wired to your bank
o Bank account must be in the same
ownership as the IDS fund account
NOTE: Pre-authorization required. For
instructions, contact your financial
advisor or American Express Shareholder Service.
3
By scheduled payout plan o Minimum payment: $50
o Contact your financial advisor or American
Express Shareholder Service to set up regular
payments to you on a monthly, bimonthly,
quarterly, semiannual or annual basis
o Purchasing new shares while under a payout
plan may be disadvantageous because of
the sales charges
</TABLE>
Reductions and waivers of the sales charge
Class A - initial sales charge alternative
On purchases of Class A shares, you pay a 5% sales charge on the first $50,000
of your total investment and less on investments after the first $50,000:
Total investment Sales charge as a
percent of:*
Public Net
offering amount
price invested
Up to $50,000 5.0% 5.26%
Next $50,000 4.5 4.71
Next $400,000 3.8 3.95
Next $500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
* To calculate the actual sales charge on an investment greater than $50,000 and
less than $1,000,000, amounts for each applicable increment must be totaled. See
the SAI.
Reductions of the sales charge on Class A shares
Your sales charge may be reduced, depending on the totals of:
o the amount you are investing in this Fund now,
o the amount of your existing investment in this Fund, if any, and
<PAGE>
PAGE 22
o the amount you and your primary household group are investing or have in other
funds in the IDS MUTUAL FUND GROUP that carry a sales charge. (The primary
household group consists of accounts in any ownership for spouses or domestic
partners and their unmarried children under 21. Domestic partners are
individuals who maintain a shared primary residence and have joint property or
other insurable interests.)
Other policies that affect your sales charge:
o IDS Tax-Free Money Fund and Class A shares of IDS Cash Management Fund do not
carry sales charges. However, you may count investments in these funds if you
acquired shares in them by exchanging shares from IDS funds that carry sales
charges.
o IRA purchases or other employee benefit plan purchases made through a payroll
deduction plan or through a plan sponsored by an employer, association of
employers, employee organization or other similar entity, may be added together
to reduce sales charges for all shares purchased through that plan.
o If you intend to invest $1 million over a period of 13 months, you can reduce
the sales charges in Class A by filing a letter of intent.
For more details, see the SAI.
Waivers of the sales charge for Class A shares
Sales charges do not apply to:
o Current or retired board members, officers or employees of the Fund or AEFC or
its subsidiaries, their spouses and unmarried children under 21.
o Current or retired American Express financial advisors, their spouses and
unmarried children under 21.
o Investors who have a business relationship with a newly associated financial
advisor who joined AEFA from another investment firm provided that (1) the
purchase is made within six months of the advisor's appointment date with AEFA,
(2) the purchase is made with proceeds of a redemption of shares that were
sponsored by the financial advisor's previous broker-dealer, and (3) the
proceeds must be the result of a redemption of an equal or greater value where a
sales load was previously assessed.
o Qualified employee benefit plans* using a daily transfer recordkeeping system
offering participants daily access to IDS funds.
(Participants in certain qualified plans for which the initial sales charge is
waived may be subject to a deferred sales charge of up to 4% on certain
redemptions. For more information, see the SAI.)
<PAGE>
PAGE 23
o Shareholders who have at least $1 million invested in funds of the IDS MUTUAL
FUND GROUP. If the investment is redeemed in the first year after purchase, a
CDSC of 1% will be charged on the redemption. The CDSC will be waived only in
the circumstances described for waivers for Class B shares.
o Purchases made within 30 days after a redemption of shares (up to the amount
redeemed):
- of a product distributed by American Express Financial
Advisors in a qualified plan subject to a deferred sales
charge or
- in a qualified plan where American Express Trust Company has a
recordkeeping, trustee, investment management or investment servicing
relationship.
Send the Fund a written request along with your payment, indicating the amount
of the redemption and the date on which it occurred.
o Purchases made with dividend or capital gain distributions from the same class
of another fund in the IDS MUTUAL FUND GROUP that has a sales charge.
o Purchases made through or under a "wrap fee" product sponsored by American
Express Financial Advisors Inc. (total amount of all investments must be
$50,000); the University of Texas System ORP; or a segregated separate account
offered by Nationwide Life Insurance Company or Nationwide Life and Annuity
Insurance Company.
o Purchases made with the proceeds from IDS Life Real Estate Variable Annuity
surrenders through December 31, 1997.
*Eligibility must be determined in advance by American Express
Financial Advisors. To do so, contact your financial advisor.
Class B - contingent deferred sales charge alternative
Where a CDSC is imposed on a redemption, it is based on the amount of the
redemption and the number of calendar years, including the year of purchase,
between purchase and redemption. The following table shows the declining scale
of percentages that apply to redemptions during each year after a purchase:
If a redemption is The percentage rate
made during the for the CDSC is:
First year 5%
Second year 4%
Third year 4%
Fourth year 3%
Fifth year 2%
Sixth year 1%
Seventh year 0%
If the amount you are redeeming reduces the current net asset value of your
investment in Class B shares below the total dollar amount of all your purchase
payments during the last six years (including the year in which your redemption
is made), the CDSC is based on the lower of the redeemed purchase payments or
market value.
<PAGE>
PAGE 24
The following example illustrates how the CDSC is applied. Assume you had
invested $10,000 in Class B shares and that your investment had appreciated in
value to $12,000 after 15 months, including reinvested dividend and capital gain
distributions. You could redeem any amount up to $2,000 without paying a CDSC
($12,000 current value less $10,000 purchase amount). If you redeemed $2,500,
the CDSC would apply only to the $500 that represented part of your original
purchase price. The CDSC rate would be 4% because a redemption after 15 months
would take place during the second year after purchase.
Because the CDSC is imposed only on redemptions that reduce the total of your
purchase payments, you never have to pay a CDSC on any amount you redeem that
represents appreciation in the value of your shares, income earned by your
shares or capital gains. In addition, when determining the rate of any CDSC,
your redemption will be made from the oldest purchase payment you made. Of
course, once a purchase payment is considered to have been redeemed, the next
amount redeemed is the next oldest purchase payment. By redeeming the oldest
purchase payments first, lower CDSCs are imposed than would otherwise be the
case.
Waivers of the contingent deferred sales charge
The CDSC on Class B shares will be waived on redemptions of shares:
o In the event of the shareholder's death,
o Purchased by any board member, officer or employee of a fund
o AEFC or its subsidiaries,
o Held in a trusteed employee benefit plan,
o Held in IRAs or certain qualified plans for which American Express Trust
Company acts as custodian, such as Keogh plans, tax-sheltered custodial
accounts or corporate pension plans, provided that the shareholder is:
- at least 59-1/2 years old, and
- taking a retirement distribution (if the redemption is part of a
transfer to an IRA or qualified plan in a product distributed by
American Express Financial Advisors, or a custodian-to-custodian
transfer to a product not distributed by American Express Financial
Advisors, the CDSC will not be waived), or
- redeeming under an approved substantially equal periodic payment
arrangement.
For investors in Class A shares who have over $1 million invested in one year,
the 1% CDSC on redemption of those shares will be waived in the same
circumstances described for Class B.
Special shareholder services
Services
To help you track and evaluate the performance of your investments, AEFC
provides these services:
Quarterly statements listing all of your holdings and transactions during the
previous three months.
<PAGE>
PAGE 25
Yearly tax statements featuring average-cost-basis reporting of capital gains or
losses if you redeem your shares along with distribution information which
simplifies tax calculations.
A personalized mutual fund progress report detailing returns on your initial
investment and cash-flow activity in your account. It calculates a total return
to reflect your individual history in owning Fund shares. This report is
available from your financial advisor.
Quick telephone reference
American Express Financial Advisors Telephone Transaction Service
Redemptions and exchanges, dividend payments or reinvestments and
automatic payment arrangements
National/Minnesota: 800-437-3133
Mpls./St. Paul area: 671-3800
TTY Service
For the hearing impaired
800-846-4852
American Express Financial Advisors Easy Access Line
Automated account information (TouchToneR phones only), including
current Fund prices and performance, account values and recent account
transactions
800-862-7919
Distributions and taxes
As a shareholder you are entitled to your share of the Fund's net income and any
net gains realized on its investments. The Fund distributes dividends and
capital gain distributions to qualify as a regulated investment company and to
avoid paying corporate income and excise taxes. Dividend and capital gain
distributions will have tax consequences you should know about.
Dividend and capital gain distributions
The Portfolio allocates investment income from dividends and interest and net
realized capital gains or losses, if any, to the Fund. The Fund deducts direct
and allocated expenses from the investment income. The Fund's net investment
income is distributed to you monthly as dividends. Short-term capital gains are
distributed at the end of the calendar year and are included in net investment
income. Long-term capital gains are realized whenever a security held for more
than one year is sold for a higher price than was paid for it. The Fund will
offset any net realized capital gains by any available capital loss carryovers.
Net realized long-term capital gains, if any, are distributed at the end of the
calendar year as capital gain distributions. Before they are distributed, net
long-term capital gains are included in the value of each share. After they are
distributed, the value of each share drops by the per-share amount of the
distribution. (If your distributions are reinvested, the total value of your
holdings will not change.)
<PAGE>
PAGE 26
Dividends for each class will be calculated at the same time, in the same manner
and will be the same amount prior to deduction of expenses. Expenses
attributable solely to a class of shares will be paid exclusively by that class.
Reinvestments
Dividends and capital gain distributions are automatically reinvested in
additional shares in the same class of the Fund, unless:
o you request the Fund in writing or by phone to pay
distributions to you in cash, or
o you direct the Fund to invest your distributions in the same class of
another publicly available IDS fund for which you've previously opened
an account.
The reinvestment price is the net asset value at close of business on the day
the distribution is paid. (Your quarterly statement will confirm the amount
invested and the number of shares purchased.)
If you choose cash distributions, you will receive only those declared after
your request has been processed.
If the U.S. Postal Service cannot deliver the checks for the cash distributions,
we will reinvest the checks into your account at the then-current net asset
value and make future distributions in the form of additional shares.
Taxes
The Fund has received a Private Letter Ruling from the Internal Revenue Service
stating that, for purposes of the Internal Revenue Code, the Fund will be
regarded as directly holding its allocable share of the income and gain realized
by the Portfolio.
Distributions are subject to federal income tax and also may be subject to state
and local taxes. Distributions are taxable in the year the Fund declares them
regardless of whether you take them in cash or reinvest them.
Each January, you will receive a tax statement showing the kinds and total
amount of all distributions you received during the previous year. You must
report distributions on your tax returns, even if they are reinvested in
additional shares.
Buying a dividend creates a tax liability. This means buying shares shortly
before a capital gain distribution. You pay the full pre-distribution price for
the shares, then receive a portion of your investment back as a distribution,
which is taxable.
Redemptions and exchanges subject you to a tax on any capital gain. If you sell
shares for more than their cost, the difference is a capital gain. Your gain may
be either short term (for shares held for one year or less) or long term (for
shares held for more than one year).
<PAGE>
PAGE 27
Your Taxpayer Identification Number (TIN) is important. As with any financial
account you open, you must list your current and correct Taxpayer Identification
Number (TIN) -- either your Social Security or Employer Identification number.
The TIN must be certified under penalties of perjury on your application when
you open an account at AEFC.
If you don't provide the TIN, or the TIN you report is incorrect, you could be
subject to backup withholding of 31% of taxable distributions and proceeds from
certain sales and exchanges. You also could be subject to further penalties,
such as:
o a $50 penalty for each failure to supply your correct TIN
o a civil penalty of $500 if you make a false statement that
results in no backup withholding
o criminal penalties for falsifying information
You also could be subject to backup withholding because you failed to report
interest or dividends on your tax return as required.
<TABLE>
<CAPTION>
How to determine the correct TIN
<S> <C>
Use the Social Security or
For this type of account: Employer Identification number
of:
Individual or joint account The individual or individuals
listed on the account
Custodian account of a minor The minor
(Uniform Gifts/Transfers to
Minors Act)
A living trust The grantor-trustee (the person
who puts the money into the
trust)
An irrevocable trust, pension The legal entity (not the
trust or estate personal representative or
trustee, unless no legal entity
is designated in the account
title)
Sole proprietorship The owner
Partnership The partnership
Corporate The corporation
Association, club or The organization
tax-exempt organization
</TABLE>
For details on TIN requirements, ask your financial advisor or local American
Express Financial Advisors office for federal Form W-9, "Request for Taxpayer
Identification Number and Certification."
<PAGE>
PAGE 28
Important: This information is a brief and selective summary of certain federal
tax rules that apply to this Fund. Tax matters are highly individual and
complex, and you should consult a qualified tax advisor about your personal
situation.
How the Fund and Portfolio are organized
Shares
The Fund is owned by its shareholders. The Fund issues shares in three classes -
Class A, Class B and Class Y. Each class has different sales arrangements and
bears different expenses. Each class represents interests in the assets of the
Fund. Par value is one cent per share. Both full and fractional shares can be
issued.
The Fund no longer issues stock certificates.
Voting rights
As a shareholder, you have voting rights over the Fund's management and
fundamental policies. You are entitled to one vote for each share you own.
Shares of the Fund have cumulative voting rights. Each class has exclusive
voting rights with respect to the provisions of the Fund's distribution plan
that pertain to a particular class and other matters for which separate class
voting is appropriate under applicable law.
Shareholder meetings
The Fund does not hold annual shareholder meetings. However, the board members
may call meetings at their discretion, or on demand by holders of 10% or more of
the outstanding shares, to elect or remove board members.
Special considerations regarding master/feeder structure
The Fund pursues its goal by investing its assets in a master fund called the
Portfolio. This means that the Fund does not invest directly in securities;
rather the Portfolio invests in and manages its portfolio of securities. The
Portfolio is a separate investment company, but it has the same goal and
investment policies as the Fund. The goal and investment policies of the
Portfolio are described under the captions "Investment policies and risks" and
"Facts about investments and their risks." Additional information on investment
policies may be found in the SAI.
Board considerations: The board considered the advantages and disadvantages of
investing the Fund's assets in the Portfolio. The board believes that the
master/feeder structure can be in the best interest of the Fund and its
shareholders since it offers the opportunity for economies of scale. The Fund
may redeem all of its assets from the Portfolio at any time. Should the board
determine that it is in the best interest of the Fund and its shareholders to
terminate its investment in the Portfolio, it would consider hiring an
investment advisor to manage the Fund's assets, or other
<PAGE>
PAGE 29
appropriate options. The Fund would terminate its investments if the Portfolio
changed its goals, investment policies or restrictions without the same change
being approved by the Fund.
Other feeders: The Portfolio sells securities to other affiliated mutual funds
and may sell securities to non-affiliated investment companies and institutional
accounts (known as feeders). These feeders buy the Portfolio's securities on the
same terms and conditions as the Fund and pay their proportionate share of the
Portfolio's expenses. However, their operating costs and sales charges are
different from those of the Fund. Therefore, the investment returns for other
feeders are different from the returns of the Fund. Information about other
feeders may be obtained by calling American Express Financial Advisors at
1-800-AXP-SERV.
Each feeder that invests in the Portfolio is different and activities of its
investors may adversely affect all other feeders, including the Fund. For
example, if one feeder decides to terminate its investment in the Portfolio, the
Portfolio may elect to redeem in cash or in kind. If cash is used, the Portfolio
will incur brokerage, taxes and other costs in selling securities to raise the
cash. This may result in less investment diversification if entire investment
positions are sold, and it also may result in less liquidity among the remaining
assets. If in-kind distribution is made, a smaller pool of assets remains that
may affect brokerage rates and investment options. In both cases, expenses may
rise since there are fewer assets to cover the costs of managing those assets.
Shareholder meetings: Whenever the Portfolio proposes to change a fundamental
investment policy or to take any other action requiring approval of its security
holders, the Fund will hold a shareholder meeting. The Fund will vote for or
against the Portfolio's proposals in proportion to the vote it receives for or
against the same proposals from its shareholders.
Board members and officers
Shareholders elect a board that oversees the operations of the Fund and chooses
its officers. Its officers are responsible for day-to-day business decisions
based on policies set by the board. The board has named an executive committee
that has authority to act on its behalf between meetings. Board members and
officers serve 47 IDS and IDS Life funds and 15 Master Trust portfolios, except
for William H. Dudley, who does not serve the nine IDS Life funds. The board
members also serve as members of the board of the Trust which manages the
investments of the Fund and other accounts. Should any conflict of interest
arise between the interests of the shareholders of the Fund and those of the
other accounts, the board will follow written procedures to address the
conflict.
<PAGE>
PAGE 30
Board members and officers of the Fund
President and interested board member
William R. Pearce
Chairman of the board, Board Services Corporation (provides administrative
services to boards including the boards of the IDS and IDS Life funds and Master
Trust portfolios).
Independent board members
H. Brewster Atwater, Jr.
Former chairman and chief executive officer, General Mills, Inc.
Lynne V. Cheney
Distinguished fellow, American Enterprise Institute for Public
Policy Research.
Robert F. Froehlke
Former president of all funds in the IDS MUTUAL FUND GROUP.
Heinz F. Hutter
Former president and chief operating officer, Cargill, Inc.
Anne P. Jones
Attorney and telecommunications consultant.
Melvin R. Laird
Senior counsellor for national and international affairs, The Reader's Digest
Association, Inc.
Alan K. Simpson
Former United States senator for Wyoming.
Edson W. Spencer
Former chairman and chief executive officer, Honeywell, Inc.
Wheelock Whitney
Chairman, Whitney Management Company.
C. Angus Wurtele
Chairman of the board, The Valspar Corporation.
Interested board members who are officers and/or employees of AEFC
William H. Dudley
Senior advisor to the chief executive officer, AEFC.
David R. Hubers
President and chief executive officer, AEFC.
John R. Thomas
Senior vice president, AEFC.
<PAGE>
PAGE 31
Officers who also are officers and/or employees of AEFC
Peter J. Anderson
Senior vice president, AEFC. Vice president - Investments for the Fund.
Melinda S. Urion
Senior vice president and chief financial officer, AEFC. Treasurer for the Fund.
Other officer
Leslie L. Ogg
President, treasurer and corporate secretary of Board Services Corporation. Vice
president, general counsel and secretary for the Fund.
Refer to the SAI for the board members' and officers' biographies.
Investment manager
The Portfolio pays AEFC for managing its assets. The Fund pays its proportionate
share of the fee. Under the Investment Management Services Agreement, AEFC is
paid a fee for these services based on the average daily net assets of the
Portfolio, as follows:
Assets Annual rate
(billions) at each asset level
First $1.0 0.520%
Next 1.0 0.495
Next 1.0 0.470
Next 3.0 0.445
Next 3.0 0.420
Over 9.0 0.395
For the fiscal year ended May 31, 1997, the Portfolio paid AEFC a total
investment management fee of 0.51% of its average daily net assets. Under the
Agreement, the Portfolio also pays taxes, brokerage commissions and nonadvisory
expenses.
Administrator and transfer agent
The Fund pays AEFC for shareholder accounting and transfer agent services under
two agreements. The first agreement, the Administrative Services Agreement, has
a declining annual rate beginning at 0.05% and decreasing to 0.025% as assets
increase. The second agreement, the Transfer Agency Agreement, has an annual fee
per shareholder account as follows:
o Class A $15.50
o Class B $16.50
o Class Y $15.50
<PAGE>
PAGE 32
Distributor
The Fund has an exclusive distribution agreement with American Express Financial
Advisors, a wholly-owned subsidiary of AEFC. Financial advisors representing
American Express Financial Advisors provide information to investors about
individual investment programs, the Fund and its operations, new account
applications, and exchange and redemption requests. The cost of these services
is paid partially by the Fund's sales charges.
Persons who buy Class A shares pay a sales charge at the time of purchase.
Persons who buy Class B shares are subject to a contingent deferred sales charge
on a redemption in the first six years and pay an asset-based sales charge (also
known as a 12b-1 fee) of 0.75% of the Fund's average daily net assets. Class Y
shares are sold without a sales charge and without an asset-based sales charge.
Financial advisors may receive different compensation for selling Class A, Class
B and Class Y shares. Portions of the sales charge also may be paid to
securities dealers who have sold the Fund's shares or to banks and other
financial institutions. The amounts of those payments range from 0.8% to 4% of
the Fund's offering price depending on the monthly sales volume.
Under a Shareholder Service Agreement, the Fund also pays a fee for service
provided to shareholders by financial advisors and other servicing agents. The
fee is calculated at a rate of 0.175% of average daily net assets for Class A
and Class B and 0.10% for Class Y.
Total expenses paid by the Fund's Class A shares for the fiscal year ended May
31, 1997, were 0.88% of its average daily net assets. Expenses for Class B and
Class Y were 1.64% and 0.72%, respectively.
About American Express Financial Corporation
General information
The AEFC family of companies offers not only mutual funds but also insurance,
annuities, investment certificates and a broad range of financial management
services.
Besides managing investments for all funds in the IDS MUTUAL FUND GROUP, AEFC
also manages investments for itself and its subsidiaries, IDS Certificate
Company and IDS Life Insurance Company. Total assets under management on May 31,
1997 were more than $158 billion.
American Express Financial Advisors serves individuals and businesses through
its nationwide network of more than 178 offices and more than 8,599 advisors.
Other AEFC subsidiaries provide investment management and related services for
pension, profit sharing, employee savings and endowment funds of businesses and
institutions.
<PAGE>
PAGE 33
AEFC is located at IDS Tower 10, Minneapolis, MN 55440-0010. It is a
wholly-owned subsidiary of American Express Company (American Express), a
financial services company with headquarters at American Express Tower, World
Financial Center, New York, NY 10285. The Portfolio may pay brokerage
commissions to broker-dealer affiliates of AEFC.
<PAGE>
PAGE 34
Appendix A
Description of investment-grade corporate bond ratings
Bond ratings concern the quality of the issuing corporation. They are not an
opinion of the market value of the security. Such ratings are opinions on
whether the principal and interest will be repaid when due. A security's rating
may change, which could affect its price. Ratings by Moody's Investors Service,
Inc. are Aaa, Aa, A and Baa. Ratings by Standard & Poor's Corporation are AAA,
AA, A and BBB. The following is a compilation of the two agencies' rating
descriptions. For further information, see the SAI.
Aaa/AAA - Judged to be of the best quality and carry the smallest degree of
investment risk. Interest and principal are secure.
Aa/AA - Judged to be high-grade although margins of protection for interest and
principal may not be quite as good as Aaa or AAA rated securities.
A - Considered upper-medium grade. Protection for interest and principal is
deemed adequate but may be susceptible to future impairment.
Baa/BBB - Considered medium-grade obligations. Protection for interest and
principal is adequate over the short-term; however, these obligations may have
certain speculative characteristics.
Non-rated securities will be considered for investment when they possess a risk
comparable to that of rated securities consistent with the Portfolio's
objectives and policies. When assessing the risk involved in each non-rated
security, the Portfolio will consider the financial condition of the issuer or
the protection afforded by the terms of the security.
Definitions of zero-coupon and pay-in-kind securities
A zero-coupon security is a security that is sold at a deep discount from its
face value and makes no periodic interest payments. The buyer of such a security
receives a rate of return by gradual appreciation of the security, which is
redeemed at face value on the maturity date.
A pay-in-kind security is a security in which the issuer has the option to make
interest payments in cash or in additional securities. The securities issued as
interest usually have the same terms, including maturity date, as the
pay-in-kind securities.
<PAGE>
PAGE 35
Appendix B
Descriptions of derivative instruments
What follows are brief descriptions of derivative instruments the Portfolio may
use. At various times the Portfolio may use some or all of these instruments and
is not limited to these instruments. It may use other similar types of
instruments if they are consistent with the Portfolio's investment goal and
policies. For more information on these instruments, see the SAI.
Options and futures contracts. An option is an agreement to buy or sell an
instrument at a set price during a certain period of time. A futures contract is
an agreement to buy or sell an instrument for a set price on a future date. The
Portfolio may buy and sell options and futures contracts to manage its exposure
to changing interest rates, security prices and currency exchange rates. Options
and futures may be used to hedge the Portfolio's investments against price
fluctuations or to increase market exposure.
Asset-backed and mortgage-backed securities. Asset-backed securities include
interests in pools of assets such as motor vehicle installment sale contracts,
installment loan contracts, leases on various types of real and personal
property, receivables from revolving credit (credit card) agreements or other
categories of receivables. Mortgage-backed securities include collateralized
mortgage obligations and stripped mortgage-backed securities. Interest and
principal payments depend on payment of the underlying loans or mortgages. The
value of these securities may also be affected by changes in interest rates, the
market's perception of the issuers and the creditworthiness of the parties
involved. The non-mortgage related asset-backed securities do not have the
benefit of a security interest in the related collateral. Stripped
mortgage-backed securities include interest only (IO) and principal only (PO)
securities. Cash flows and yields on IOs and POs are extremely sensitive to the
rate of principal payments on the underlying mortgage loans or mortgage-backed
securities.
Indexed securities. The value of indexed securities is linked to currencies,
interest rates, commodities, indexes or other financial indicators. Most indexed
securities are short- to intermediate- term fixed income securities whose values
at maturity or interest rates rise or fall according to the change in one or
more specified underlying instruments. Indexed securities may be more volatile
than the underlying instrument itself.
Inverse floaters. Inverse floaters are created by underwriters using the
interest payment on securities. A portion of the interest received is paid to
holders of instruments based on current interest rates for short-term
securities. The remainder, minus a servicing fee, is paid to holders of inverse
floaters. As interest rates go down, the holders of the inverse floaters receive
more income and an increase in the price for the inverse floaters. As interest
rates go up, the holders of the inverse floaters receive less income and a
decrease in the price for the inverse floaters.
<PAGE>
PAGE 36
Structured products. Structured products are over-the-counter financial
instruments created specifically to meet the needs of one or a small number of
investors. The instrument may consist of a warrant, an option or a forward
contract embedded in a note or any of a wide variety of debt, equity and/or
currency combinations. Risks of structured products include the inability to
close such instruments, rapid changes in the market and defaults by other
parties.
<PAGE>
PAGE 37
STATEMENT OF ADDITIONAL INFORMATION
FOR
IDS SELECTIVE FUND
July 30, 1997
This Statement of Additional Information (SAI) is not a prospectus. It should be
read together with the prospectus and the financial statements contained in the
Annual Report which may be obtained from your American Express financial advisor
or by writing to American Express Shareholder Service, P.O. Box 534,
Minneapolis, MN 55440-0534.
This SAI is dated July 30, 1997, and it is to be used with the prospectus dated
July 30, 1997, and the Annual Report for the fiscal year ended May 31, 1997.
<PAGE>
PAGE 38
TABLE OF CONTENTS
Goals and Investment Policies.......................See Prospectus
Additional Investment Policies...............................p. 3
Security Transactions........................................p. 6
Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation.......................p. 9
Performance Information......................................p. 9
Valuing Fund Shares..........................................p. 11
Investing in the Fund........................................p. 13
Redeeming Shares.............................................p. 17
Pay-out Plans................................................p. 17
Taxes........................................................p. 19
Agreements...................................................p. 20
Organizational Information...................................p. 23
Board Members and Officers...................................p. 23
Compensation for Board Members...............................p. 27
Independent Auditors.........................................p. 28
Financial Statements.............................See Annual Report
Prospectus...................................................p. 28
Appendix A: Foreign Currency Transactions...................p. 29
Appendix B: Options and Interest Rate Futures Contracts.....p. 34
Appendix C: Mortgage-Backed Securities......................p. 40
Appendix D: Dollar-Cost Averaging...........................p. 41
<PAGE>
PAGE 39
ADDITIONAL INVESTMENT POLICIES
The Fund pursues its goals by investing all of its assets in Quality Income
Portfolio (the "Portfolio") of Income Trust (the "Trust"), a separate investment
company, rather than by directly investing in and managing its own portfolio of
securities. The Portfolio has the same investment objectives, policies and
restrictions as the Fund.
Fundamental investment policies adopted by the Fund or Portfolio cannot be
changed without the approval of a majority of the outstanding voting securities
of the Fund or Portfolio, respectively, as defined in the Investment Company Act
of 1940 (the 1940 Act). Whenever the Fund is requested to vote on a change in
the investment policies of the corresponding Portfolio, the Fund will hold a
meeting of Fund shareholders and will cast the Fund's vote as instructed by the
shareholders.
Notwithstanding any of the Fund's other investment policies, the Fund may invest
its assets in an open-end management investment company having substantially the
same investment objectives, policies and restrictions as the Fund for the
purpose of having those assets managed as part of a combined pool.
These are investment policies in addition to those presented in the prospectus.
The policies below are fundamental policies that apply to both the Fund and the
Portfolio and may be changed only with shareholder approval. Unless holders of a
majority of the outstanding voting securities agree to make the change, the Fund
and Portfolio will not:
'Act as an underwriter (sell securities for others). However, under the
securities laws, the Portfolio may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them.
'Borrow money or property, except as a temporary measure for extraordinary or
emergency purposes, in an amount not exceeding one-third of the market value of
its total assets (including borrowings) less liabilities (other than borrowings)
immediately after the borrowing. The Portfolio has not borrowed in the past and
has no present intention to borrow.
'Make cash loans if the total commitment amount exceeds 5% of the Portfolio's
total assets.
'Concentrate in any one industry. According to the present interpretation by the
Securities and Exchange Commission (SEC), this means no more than 25% of the
Portfolio's total assets, based on current market value at time of purchase, can
be invested in any one industry.
'Purchase more than 10% of the outstanding voting securities of an
issuer.
<PAGE>
PAGE 40
'Invest more than 5% of its total assets in securities of any one company,
government or political subdivision thereof, except the limitation will not
apply to investments in securities issued by the U.S. government, its agencies
or instrumentalities, and except that up to 25% of the Portfolio's total assets
may be invested without regard to this 5% limitation.
'Buy or sell real estate, unless acquired as a result of ownership of securities
or other instruments, except this shall not prevent the Portfolio from investing
in securities or other instruments backed by real estate or securities of
companies engaged in the real estate business or real estate investment trusts.
For purposes of this policy, real estate includes real estate limited
partnerships.
'Buy or sell physical commodities unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Portfolio
from buying or selling financial instruments (such as options and futures
contracts) or from investing in securities or other instruments backed by, or
whose value is derived from, physical commodities.
'Make a loan of any part of its assets to American Express Financial Corporation
(AEFC), to the board members and officers of AEFC or to its own board members
and officers.
'Purchase securities of an issuer if the board members and officers of the Fund,
the Portfolio and AEFC hold more than a certain percentage of the issuer's
outstanding securities. If the holdings of all board members and officers of the
Fund, the Portfolio and of AEFC who own more than 0.5% of an issuer's securities
are added together, and if in total they own more than 5%, the Portfolio will
not purchase securities of that issuer.
'Lend Portfolio securities in excess of 30% of its net assets. The current
policy of the Portfolio's board is to make these loans, either long- or
short-term, to broker-dealers. In making loans, the Portfolio receives the
market price in cash, U.S. government securities, letters of credit or such
other collateral as may be permitted by regulatory agencies and approved by the
board. If the market price of the loaned securities goes up, the Portfolio will
get additional collateral on a daily basis. The risks are that the borrower may
not provide additional collateral when required or return the securities when
due. During the existence of the loan, the Portfolio receives cash payments
equivalent to all interest or other distributions paid on the loaned securities.
A loan will not be made unless the investment manager believes the opportunity
for additional income outweighs the risks.
'Issue senior securities, except this restriction shall not be deemed to
prohibit the Portfolio from borrowing from banks, using options or futures
contracts, lending its securities or entering into repurchase agreements.
<PAGE>
PAGE 41
Unless changed by the board, the Fund and Portfolio will not:
'Buy on margin or sell short, except the Portfolio may enter into interest rate
futures contracts.
'Pledge or mortgage its assets beyond 15% of total assets. If the Portfolio were
ever to do so, valuation of the pledged or mortgaged assets would be based on
market values. For purposes of this policy, collateral arrangements for margin
deposits on futures contracts are not deemed to be a pledge of assets.
'Invest more than 5% of its total assets in securities of companies, including
any predecessors, that have a record of less than three years continuous
operations.
'Invest more than 10% of its total assets in securities of
investment companies.
'Invest in a company to control or manage it.
'Invest in exploration or development programs, such as oil, gas or
mineral leases.
'Invest more than 5% of its net assets in warrants.
'Invest more than 10% of its net assets in securities and other instruments that
are illiquid. For purposes of this policy illiquid securities include some
privately placed securities, public securities and Rule 144A securities that for
one reason or another may no longer have a readily available market, repurchase
agreements with maturities greater than seven days, non-negotiable fixed-time
deposits, and over-the-counter options.
In determining the liquidity of Rule 144A securities, which are unregistered
securities offered to qualified institutional buyers, and interest-only and
principal-only fixed mortgage-backed securities (IOs and POs) issued by the U.S.
government or its agencies and instrumentalities, the investment manager, under
guidelines established by the board, will consider any relevant factors
including the frequency of trades, the number of dealers willing to purchase or
sell the security and the nature of marketplace trades.
In determining the liquidity of commercial paper issued in transactions not
involving a public offering under Section 4(2) of the Securities Act of 1933,
the investment manager, under guidelines established by the board, will evaluate
relevant factors, such as the issuer and the size and nature of its commercial
paper programs, the willingness and ability of the issuer or dealer to
repurchase the paper, and the nature of the clearance and settlement procedures
for the paper.
The Portfolio may make contracts to purchase securities for a fixed price at a
future date beyond normal settlement time (when-issued securities or forward
commitments). Under normal market conditions, the Portfolio does not intend to
commit more than 5% of
<PAGE>
PAGE 42
its total assets to these practices. The Portfolio does not pay for the
securities or receive dividends or interest on them until the contractual
settlement date. The Portfolio will designate cash or liquid high-grade debt
securities at least equal in value to its commitments to purchase the
securities. When-issued securities or forward commitments are subject to market
fluctuations and they may affect the Portfolio's total assets the same as owned
securities.
The Portfolio may maintain a portion of its assets in cash and cash-equivalent
investments. The cash-equivalent investments the Portfolio may use are
short-term U.S. and Canadian government securities and negotiable certificates
of deposit, non-negotiable fixed-time deposits, bankers' acceptances and letters
of credit of banks or savings and loan associations having capital, surplus and
undivided profits (as of the date of its most recently published annual
financial statements) in excess of $100 million (or the equivalent in the
instance of a foreign branch of a U.S. bank) at the date of investment. Any
cash-equivalent investments in foreign securities will be subject to the
limitations on foreign investments described in the prospectus. The Portfolio
also may purchase short-term corporate notes and obligations rated in the top
two classifications by Moody's Investors Service, Inc. (Moody's) or Standard &
Poor's Corporation (S&P) or the equivalent and may use repurchase agreements
with broker-dealers registered under the Securities Exchange Act of 1934 and
with commercial banks. A risk of a repurchase agreement is that if the seller
seeks the protection of the bankruptcy laws, the Portfolio's ability to
liquidate the security involved could be impaired.
The Portfolio may invest in foreign securities that are traded in the form of
American Depositary Receipts (ADRs). ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying securities of
foreign issuers. European Depositary Receipts (EDRs) and Global Depositary
Receipts (GDRs) are receipts typically issued by foreign banks or trust
companies, evidencing ownership of underlying securities issued by either a
foreign or U.S. issuer. Generally Depositary Receipts in registered form are
designed for use in the U.S. securities market and Depositary Receipts in bearer
form are designed for use in securities markets outside the U.S. Depositary
Receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. Depositary Receipts also
involve the risks of other investments in foreign securities.
For a discussion about foreign currency transactions, see Appendix A. For a
discussion on options and interest rate futures contracts, see Appendix B. For a
discussion on mortgage-backed securities, see Appendix C.
SECURITY TRANSACTIONS
Subject to policies set by the board, AEFC is authorized to determine,
consistent with the Fund's and Portfolio's investment goal and policies, which
securities will be purchased, held or sold. In determining where the buy and
sell orders are to be
<PAGE>
PAGE 43
placed, AEFC has been directed to use its best efforts to obtain the best
available price and most favorable execution except where otherwise authorized
by the board.
AEFC has a strict Code of Ethics that prohibits its affiliated personnel from
engaging in personal investment activities that compete with or attempt to take
advantage of planned portfolio transactions for any fund or trust for which it
acts as investment manager. AEFC carefully monitors compliance with its Code of
Ethics.
Normally, the Portfolio's securities are traded on a principal rather than an
agency basis. In other words, AEFC will trade directly with the issuer or with a
dealer who buys or sells for its own account, rather than acting on behalf of
another client. AEFC does not pay the dealer commissions. Instead, the dealer's
profit, if any, is the difference, or spread, between the dealer's purchase and
sale price for the security.
On occasion, it may be desirable to compensate a broker for research services or
for brokerage services by paying a commission that might not otherwise be
charged or a commission in excess of the amount another broker might charge. The
board has adopted a policy authorizing AEFC to do so to the extent authorized by
law, if AEFC determines, in good faith, that such commission is reasonable in
relation to the value of the brokerage or research services provided by a broker
or dealer, viewed either in the light of that transaction or AEFC's overall
responsibilities to the funds in the IDS MUTUAL FUND GROUP and other accounts
for which it acts as investment advisor.
Research provided by brokers supplements AEFC's own research activities. Such
services include economic data on, and analysis of, U.S. and foreign economies;
information on specific industries; information about specific companies,
including earnings estimates; purchase recommendations for stocks and bonds;
portfolio strategy services; political, economic, business and industry trend
assessments; historical statistical information; market data services providing
information on specific issues and prices; and technical analysis of various
aspects of the securities markets, including technical charts. Research services
may take the form of written reports, computer software or personal contact by
telephone or at seminars or other meetings. AEFC has obtained, and in the future
may obtain, computer hardware from brokers, including but not limited to
personal computers that will be used exclusively for investment decision-making
purposes, which include the research, portfolio management and trading functions
and other services to the extent permitted under an interpretation by the SEC.
When paying a commission that might not otherwise be charged or a commission in
excess of the amount another broker might charge, AEFC must follow procedures
authorized by the board. To date, three procedures have been authorized. One
procedure permits AEFC to direct an order to buy or sell a security traded on a
national securities exchange to a specific broker for research services it has
provided. The second procedure permits AEFC, in order to
<PAGE>
PAGE 44
obtain research, to direct an order on an agency basis to buy or sell a security
traded in the over-the-counter market to a firm that does not make a market in
that security. The commission paid generally includes compensation for research
services. The third procedure permits AEFC, in order to obtain research and
brokerage services, to cause the Portfolio to pay a commission in excess of the
amount another broker might have charged. AEFC has advised the Portfolio it is
necessary to do business with a number of brokerage firms on a continuing basis
to obtain such services as the handling of large orders, the willingness of a
broker to risk its own money by taking a position in a security, and the
specialized handling of a particular group of securities that only certain
brokers may be able to offer. As a result of this arrangement, some portfolio
transactions may not be effected at the lowest commission, but AEFC believes it
may obtain better overall execution. AEFC has assured the Fund that under all
three procedures the amount of commission paid will be reasonable and
competitive in relation to the value of the brokerage services performed or
research provided.
All other transactions shall be placed on the basis of obtaining the best
available price and the most favorable execution. In so doing, if in the
professional opinion of the person responsible for selecting the broker or
dealer, several firms can execute the transaction on the same basis,
consideration will be given by such person to those firms offering research
services. Such services may be used by AEFC in providing advice to all the funds
in the IDS MUTUAL FUND GROUP even though it is not possible to relate the
benefits to any particular fund or account.
Each investment decision made for the Portfolio is made independently from any
decision made for another portfolio, fund or other account advised by AEFC or
any of its subsidiaries. When the Portfolio buys or sells the same security as
another portfolio, fund or account, AEFC carries out the purchase or sale in a
way the Portfolio agrees in advance is fair. Although sharing in large
transactions may adversely affect the price or volume purchased or sold by the
Portfolio, the Portfolio hopes to gain an overall advantage in execution. AEFC
has assured the Fund it will continue to seek ways to reduce brokerage costs.
On a periodic basis, AEFC makes a comprehensive review of the broker-dealers and
the overall reasonableness of their commissions. The review evaluates execution,
operational efficiency and research services.
The Portfolio paid total brokerage commissions of $75,832 for the fiscal year
ended May 31, 1997, $6,800 for fiscal period ended May 31, 1996 and $8,745 for
fiscal year ended Nov. 30, 1995. Substantially all firms through whom
transactions were executed provide research services.
No transactions were directed to brokers because of research services they
provided to the Portfolio.
As of the fiscal year ended May 31, 1997, the Portfolio held securities of its
regular brokers or dealers or of the parent of
<PAGE>
PAGE 45
those brokers or dealers that derived more than 15% of gross revenue from
securities-related activities as presented below:
Value of Securities
Owned at End of
Name of Issuer Fiscal Year
Bank of America $27,933,462
First Chicago 16,446,728
JP Morgan 9,034,437
Salomon Brothers 14,108,050
The portfolio turnover rate was 31% in the fiscal year ended May 31, 1997, and
18% in fiscal period 1996.
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH AMERICAN
EXPRESS FINANCIAL CORPORATION
Affiliates of American Express Company (American Express) (of which AEFC is a
wholly-owned subsidiary) may engage in brokerage and other securities
transactions on behalf of the Portfolio according to procedures adopted by the
board and to the extent consistent with applicable provisions of the federal
securities laws. AEFC will use an American Express affiliate only if (i) AEFC
determines that the Portfolio will receive prices and executions at least as
favorable as those offered by qualified independent brokers performing similar
brokerage and other services for the Portfolio and (ii) the affiliate charges
the Portfolio commission rates consistent with those the affiliate charges
comparable unaffiliated customers in similar transactions and if such use is
consistent with terms of the Investment Management Services Agreement.
AEFC may direct brokerage to compensate an affiliate. AEFC will receive research
on South Africa from New Africa Advisors, a wholly-owned subsidiary of Sloan
Financial Group. AEFC owns 100% of IDS Capital Holdings Inc. which in turn owns
40% of Sloan Financial Group. New Africa Advisors will send research to AEFC and
in turn AEFC will direct trades to a particular broker. The broker will have an
agreement to pay New Africa Advisors. All transactions will be on a best
execution basis. Compensation received will be reasonable for the services
rendered.
No brokerage commissions were paid to brokers affiliated with AEFC for the three
most recent fiscal years.
PERFORMANCE INFORMATION
The Fund may quote various performance figures to illustrate past performance.
Average annual total return and current yield quotations used by the Fund are
based on standardized methods of computing performance as required by the SEC.
An explanation of the methods used by the Fund to compute performance follows
below.
Average annual total return
The Fund may calculate average annual total return for a class for certain
periods by finding the average annual compounded rates of
<PAGE>
PAGE 46
return over the period that would equate the initial amount invested to the
ending redeemable value, according to the following formula:
P(1+T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment, made
at the beginning of a period, at the end of the period (or
fractional portion thereof)
Aggregate total return
The Fund may calculate aggregate total return for a class for certain periods
representing the cumulative change in the value of an investment in the Fund
over a specified period of time according to the following formula:
ERV - P
P
where: P = a hypothetical initial payment of $1,000
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of a period, at the
end of the period (or fractional portion thereof)
Annualized yield
The Fund may calculate an annualized yield for a class by dividing the net
investment income per share deemed earned during a period by the net asset value
per share on the last day of the period and annualizing the results.
Yield is calculated according to the following formula:
Yield = 2[(a-b + 1) 6 - 1]
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of
reimbursements
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = the maximum offering price per share on the last
day of the period
The Fund's annualized yield was 6.07% for Class A, 5.63% for Class B and 6.49%
for Class Y for the 30-day period ended May 31, 1997.
The Fund's yield, calculated as described above according to the formula
prescribed by the SEC, is a hypothetical return based on market value yield to
maturity for the Portfolio's securities. It is not necessarily indicative of the
amount which was or may be
<PAGE>
PAGE 47
paid to the Fund's shareholders. Actual amounts paid to Fund
shareholders are reflected in the distribution yield.
Distribution yield
Distribution yield is calculated according to the following formula:
D divided by POP
F equals DY
30 30
where: D = sum of dividends for 30-day period
POP = sum of public offering price for 30-day period
F = annualizing factor
DY = distribution yield
The Fund's distribution yield was 6.19% for Class A, 5.74% for Class B and 6.61%
for Class Y for the 30-day period ended May 31, 1997.
In its sales material and other communications, the Fund may quote, compare or
refer to rankings, yields or returns as published by independent statistical
services or publishers and publications such as The Bank Rate Monitor National
Index, Barron's, Business Week, Donoghue's Money Market Fund Report, Financial
Services Week, Financial Times, Financial World, Forbes, Fortune, Global
Investor, Institutional Investor, Investor's Daily, Kiplinger's Personal
Finance, Lipper Analytical Services, Money, Morningstar, Mutual Fund Forecaster,
Newsweek, The New York Times, Personal Investor, Stanger Report, Sylvia Porter's
Personal Finance, USA Today, U.S. News and World Report, The Wall Street Journal
and Wiesenberger Investment Companies Service.
VALUING FUND SHARES
The value of an individual share for each class is determined by using the net
asset value before shareholder transactions for the day. On June 2, 1997, the
first business day following the end of the fiscal year, the computation looked
like this:
<TABLE>
<CAPTION>
Net assets before Shares outstanding Net asset value
shareholder transactions at end of previous day of one share
<S> <C> <C> <C>
Class A $1,286,162,649 divided by 142,906,961 equals $9.00
Class B 126,495,765 14,055,085 9.00
Class Y 201,837,060 22,426,340 9.00
</TABLE>
In determining net assets before shareholder transactions, the Portfolio's
securities are valued as follows as of the close of business of the New York
Stock Exchange (the Exchange):
'Securities, except bonds other than convertibles, traded on a securities
exchange for which a last-quoted sales price is readily available are valued at
the last-quoted sales price on the exchange where such security is primarily
traded.
'Securities traded on a securities exchange for which a last-quoted
sales price is not readily available are valued at the mean of the
<PAGE>
PAGE 48
closing bid and asked prices, looking first to the bid and asked prices on the
exchange where the security is primarily traded and, if none exist, to the
over-the-counter market.
'Securities included in the NASDAQ National Market System are valued at the
last-quoted sales price in this market.
'Securities included in the NASDAQ National Market System for which a
last-quoted sales price is not readily available, and other securities traded
over-the-counter but not included in the NASDAQ National Market System are
valued at the mean of the closing bid and asked prices.
'Futures and options traded on major exchanges are valued at the last-quoted
sales price on their primary exchange.
'Foreign securities traded outside the United States are generally valued as of
the time their trading is complete, which is usually different from the close of
the Exchange. Foreign securities quoted in foreign currencies are translated
into U.S. dollars at the current rate of exchange. Occasionally, events
affecting the value of such securities may occur between such times and the
close of the Exchange that will not be reflected in the computation of the
Portfolio's net asset value. If events materially affecting the value of such
securities occur during such period, these securities will be valued at their
fair value according to procedures decided upon in good faith by the board.
'Short-term securities maturing more than 60 days from the valuation date are
valued at the readily available market price or approximate market value based
on current interest rates. Short- term securities maturing in 60 days or less
that originally had maturities of more than 60 days at acquisition date are
valued at amortized cost using the market value on the 61st day before maturity.
Short-term securities maturing in 60 days or less at acquisition date are valued
at amortized cost. Amortized cost is an approximation of market value determined
by systematically increasing the carrying value of a security if acquired at a
discount, or reducing the carrying value if acquired at a premium, so that the
carrying value is equal to maturity value on the maturity date.
'Securities without a readily available market price, bonds other than
convertibles and other assets are valued at fair value as determined in good
faith by the board. The board is responsible for selecting methods it believes
provide fair value. When possible, bonds are valued by a pricing service
independent from the Portfolio. If a valuation of a bond is not available from a
pricing service, the bond will be valued by a dealer knowledgeable about the
bond if such a dealer is available.
The Exchange, AEFC and the Fund will be closed on the following
holidays: New Year's Day, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
<PAGE>
PAGE 49
INVESTING IN THE FUND
Sales Charge
Shares of the Fund are sold at the public offering price determined at the close
of business on the day an application is accepted. The public offering price is
the net asset value of one share plus a sales charge, if applicable. For Class B
and Class Y, there is no initial sales charge so the public offering price is
the same as the net asset value. For Class A, the public offering price for an
investment of less than $50,000, made June 2, 1997, was determined by dividing
the net asset value of one share, $9.00, by 0.95 (1.00- 0.05 for a maximum 5%
sales charge) for a public offering price of $9.47. The sales charge is paid to
American Express Financial Advisors by the person buying the shares.
Class A - Calculation of the Sales Charge
Sales charges are determined as follows:
Within each increment,
sales charge as a
percentage of:
Public Net
Amount of Investment Offering Price Amount Invested
First $ 50,000 5.0% 5.26%
Next 50,000 4.5 4.71
Next 400,000 3.8 3.95
Next 500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
Sales charges on an investment greater than $50,000 and less than $1,000,000 are
calculated for each increment separately and then totaled. The resulting total
sales charge, expressed as a percentage of the public offering price and of the
net amount invested, will vary depending on the proportion of the investment at
different sales charge levels.
For example, compare an investment of $60,000 with an investment of $85,000. The
$60,000 investment is composed of $50,000 that incurs a sales charge of $2,500
(5.0% x $50,000) and $10,000 that incurs a sales charge of $450 (4.5% x
$10,000). The total sales charge of $2,950 is 4.92% of the public offering price
and 5.17% of the net amount invested.
In the case of the $85,000 investment, the first $50,000 also incurs a sales
charge of $2,500 (5.0% x $50,000) and $35,000 incurs a sales charge of $1,575
(4.5% x $35,000). The total sales charge of $4,075 is 4.79% of the public
offering price and 5.04% of the net amount invested.
The following table shows the range of sales charges as a percentage of the
public offering price and of the net amount invested on total investments at
each applicable level.
<PAGE>
PAGE 50
On total investment, sales
charge as a percentage of
Public Net
Offering Price Amount Invested
Amount of Investment
ranges from:
First $ 50,000 5.00% 5.26%
More than 50,000 to 100,000 5.00-4.50 5.26-4.71
More than 100,000 to 500,000 4.50-3.80 4.71-3.95
More than 500,000 to 999,999 3.80-2.00 3.95-2.04
$1,000,000 or more 0.00 0.00
The initial sales charge is waived for certain qualified plans that meet the
requirements described in the prospectus. Participants in these qualified plans
may be subject to a deferred sales charge on certain redemptions. The deferred
sales charge on certain redemptions will be waived if the redemption is a result
of a participant's death, disability, retirement, attaining age 59 1/2, loans or
hardship withdrawals. The deferred sales charge varies depending on the number
of participants in the qualified plan and total plan assets as follows:
Deferred Sales Charge
Number of Participants
Total Plan Assets 1-99 100 or more
Less than $1 million 4% 0%
$1 million or more 0% 0%
- ---------------------------------------------------------
Class A - Reducing the Sales Charge
Sales charges are based on the total amount of your investments in the Fund. The
amount of all prior investments plus any new purchase is referred to as your
"total amount invested." For example, suppose you have made an investment of
$20,000 and later decide to invest $40,000 more. Your total amount invested
would be $60,000. As a result, $10,000 of your $40,000 investment qualifies for
the lower 4.5% sales charge that applies to investments of more than $50,000 and
up to $100,000.
The total amount invested includes any shares held in the Fund in the name of a
member of your primary household group. (The primary household group consists of
accounts in any ownership for spouses or domestic partners and their unmarried
children under 21. Domestic partners are individuals who maintain a shared
primary residence and have joint property or other insurable interests.) For
instance, if your spouse already has invested $20,000 and you want to invest
$40,000, your total amount invested will be $60,000 and therefore you will pay
the lower charge of 4.5% on $10,000 of the $40,000.
<PAGE>
PAGE 51
Until a spouse remarries, the sales charge is waived for spouses and unmarried
children under 21 of deceased board members, officers or employees of the Fund
or AEFC or its subsidiaries and deceased advisors.
The total amount invested also includes any investment you or your immediate
family already have in the other publicly offered funds in the IDS MUTUAL FUND
GROUP where the investment is subject to a sales charge. For example, suppose
you already have an investment of $30,000 in another IDS fund. If you invest
$40,000 more in this Fund, your total amount invested in the funds will be
$70,000 and therefore $20,000 of your $40,000 investment will incur a 4.5% sales
charge.
Finally, Individual Retirement Account (IRA) purchases, or other employee
benefit plan purchases made through a payroll deduction plan or through a plan
sponsored by an employer, association of employers, employee organization or
other similar entity, may be added together to reduce sales charges for shares
purchased through that plan.
Class A - Letter of Intent (LOI)
If you intend to invest $1 million over a period of 13 months, you can reduce
the sales charges in Class A by filing a LOI. The agreement can start at any
time and will remain in effect for 13 months. Your investment will be charged
normal sales charges until you have invested $1 million. At that time, your
account will be credited with the sales charges previously paid. Class A
investments made prior to signing an LOI may be used to reach the $1 million
total, excluding Cash Management Fund and Tax-Free Money Fund. However, we will
not adjust for sales charges on investments made prior to the signing of the
LOI. If you do not invest $1 million by the end of 13 months, there is no
penalty, you'll just miss out on the sales charge adjustment. A LOI is not an
option (absolute right) to buy shares.
Here's an example. You file a LOI to invest $1 million and make an investment of
$100,000 at that time. You pay the normal 5% sales charge on the first $50,000
and 4.5% sales charge on the next $50,000 of this investment. Let's say you make
a second investment of $900,000 (bringing the total up to $1 million) one month
before the 13-month period is up. On the date that you bring your total to $1
million, AEFC makes an adjustment to your account. The adjustment is made by
crediting your account with additional shares, in an amount equivalent to the
sales charge previously paid.
Systematic Investment Programs
After you make your initial investment of $2,000 or more, you can arrange to
make additional payments of $100 or more on a regular basis. These minimums do
not apply to all systematic investment programs. You decide how often to make
payments - monthly, quarterly, or semiannually. You are not obligated to make
any payments. You can omit payments or discontinue the investment
<PAGE>
PAGE 52
program altogether. The Fund also can change the program or end it at any time.
If there is no obligation, why do it? Putting money aside is an important part
of financial planning. With a systematic investment program, you have a goal to
work for.
How does this work? Your regular investment amount will purchase more shares
when the net asset value per share decreases, and fewer shares when the net
asset value per share increases. Each purchase is a separate transaction. After
each purchase your new shares will be added to your account. Shares bought
through these programs are exactly the same as any other fund shares. They can
be bought and sold at any time. A systematic investment program is not an option
or an absolute right to buy shares.
The systematic investment program itself cannot ensure a profit, nor can it
protect against a loss in a declining market. If you decide to discontinue the
program and redeem your shares when their net asset value is less than what you
paid for them, you will incur a loss.
For a discussion on dollar-cost averaging, see Appendix D.
Automatic Directed Dividends
Dividends, including capital gain distributions, paid by another fund in the IDS
MUTUAL FUND GROUP subject to a sales charge, may be used to automatically
purchase shares in the same class of this Fund without paying a sales charge.
Dividends may be directed to existing accounts only. Dividends declared by a
fund are exchanged to this Fund the following day. Dividends can be exchanged
into the same class of another fund in the IDS MUTUAL FUND GROUP but cannot be
split to make purchases in two or more funds. Automatic directed dividends are
available between accounts of any ownership except:
Between a non-custodial account and an IRA, or 401(k) plan account or other
qualified retirement account of which American Express Trust Company acts as
custodian;
Between two American Express Trust Company custodial accounts with different
owners (for example, you may not exchange dividends from your IRA to the IRA of
your spouse);
Between different kinds of custodial accounts with the same ownership (for
example, you may not exchange dividends from your IRA to your 401(k) plan
account, although you may exchange dividends from one IRA to another IRA).
Dividends may be directed from accounts established under the Uniform Gifts to
Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) only into other UGMA
or UTMA accounts with identical ownership.
The Fund's investment goals are described in its prospectus along
with other information, including fees and expense ratios. Before
<PAGE>
PAGE 53
exchanging dividends into another fund, you should read that fund's prospectus.
You will receive a confirmation that the automatic directed dividend service has
been set up for your account.
REDEEMING SHARES
You have a right to redeem your shares at any time. For an explanation of
redemption procedures, please see the prospectus.
During an emergency, the board can suspend the computation of net asset value,
stop accepting payments for purchase of shares or suspend the duty of the Fund
to redeem shares for more than seven days. Such emergency situations would occur
if:
'The Exchange closes for reasons other than the usual weekend and
holiday closings or trading on the Exchange is restricted, or
'Disposal of the Portfolio's securities is not reasonably
practicable or it is not reasonably practicable for the Portfolio
to determine the fair value of its net assets, or
'The SEC, under the provisions of the 1940 Act, as amended, declares a period of
emergency to exist.
Should the Fund stop selling shares, the board may make a deduction from the
value of the assets held by the Fund to cover the cost of future liquidations of
the assets so as to distribute fairly these costs among all shareholders.
The Fund has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates the Fund to redeem shares in cash, with respect to any one shareholder
during any 90-day period, up to the lesser of $250,000 or 1% of the net assets
of the Fund at the beginning of the period. Although redemptions in excess of
this limitation would normally be paid in cash, the Fund reserves the right to
make these payments in whole or in part in securities or other assets in case of
an emergency, or if the payment of a redemption in cash would be detrimental to
the existing shareholders of the Fund as determined by the board. In these
circumstances, the securities distributed would be valued as set forth in the
prospectus. Should the Fund distribute securities, a shareholder may incur
brokerage fees or other transaction costs in converting the securities to cash.
PAY-OUT PLANS
You can use any of several pay-out plans to redeem your investment in regular
installments. If you redeem Class B shares you may be subject to a contingent
deferred sales charge as discussed in the prospectus. While the plans differ on
how the pay-out is figured, they all are based on the redemption of your
investment. Net investment income dividends and any capital gain distributions
will automatically be reinvested, unless you elect to receive them in cash. If
you are redeeming a tax-qualified plan account for which American Express Trust
Company acts as custodian, you can elect to
<PAGE>
PAGE 54
receive your dividends and other distributions in cash when permitted by law. If
you redeem an IRA or a qualified retirement account, certain restrictions,
federal tax penalties and special federal income tax reporting requirements may
apply. You should consult your tax advisor about this complex area of the tax
law.
Applications for a systematic investment in a class of the Fund
subject to a sales charge normally will not be accepted while a
pay-out plan for any of those funds is in effect. Occasional
investments, however, may be accepted.
To start any of these plans, please write American Express Shareholder Service,
P.O. Box 534, Minneapolis, MN 55440-0534, or call American Express Financial
Advisors Telephone Transaction Service at 800-437-3133(National/Minnesota) or
612-671-3800 (Mpls./St. Paul). Your authorization must be received in the
Minneapolis headquarters at least five days before the date you want your
payments to begin. The initial payment must be at least $50. Payments will be
made on a monthly, bimonthly, quarterly, semiannual or annual basis. Your choice
is effective until you change or cancel it.
The following pay-out plans are designed to take care of the needs of most
shareholders in a way AEFC can handle efficiently and at a reasonable cost. If
you need a more irregular schedule of payments, it may be necessary for you to
make a series of individual redemptions, in which case you'll have to send in a
separate redemption request for each pay-out. The Fund reserves the right to
change or stop any pay-out plan and to stop making such plans available.
Plan #1: Pay-out for a fixed period of time
If you choose this plan, a varying number of shares will be redeemed at regular
intervals during the time period you choose. This plan is designed to end in
complete redemption of all shares in your account by the end of the fixed
period.
Plan #2: Redemption of a fixed number of shares
If you choose this plan, a fixed number of shares will be redeemed for each
payment and that amount will be sent to you. The length of time these payments
continue is based on the number of shares in your account.
Plan #3: Redemption of a fixed dollar amount
If you decide on a fixed dollar amount, whatever number of shares is necessary
to make the payment will be redeemed in regular installments until the account
is closed.
Plan #4: Redemption of a percentage of net asset value
Payments are made based on a fixed percentage of the net asset
value of the shares in the account computed on the day of each
<PAGE>
PAGE 55
payment. Percentages range from 0.25% to 0.75%. For example, if you are on this
plan and arrange to take 0.5% each month, you will get $50 if the value of your
account is $10,000 on the payment date.
TAXES
If you buy shares in the Fund and then exchange into another fund, it is
considered a sale and subsequent purchase of shares. Under the tax laws, if this
exchange is done within 91 days, any sales charge waived on Class A shares on a
subsequent purchase of shares applies to the new shares acquired in the
exchange. Therefore, you cannot create a tax loss or reduce a tax gain
attributable to the sales charge when exchanging shares within 91 days.
Retirement Accounts
If you have a nonqualified investment in the Fund and you wish to move part or
all of those shares to an IRA or qualified retirement account in the Fund, you
can do so without paying a sales charge. However, this type of exchange is
considered a sale of shares and may result in a gain or loss for tax purposes.
In addition, this type of exchange may result in an excess contribution under
IRA or qualified plan regulations if the amount exchanged plus the amount of the
initial sales charge applied to the amount exchanged exceeds annual contribution
limitations. For example: If you were to exchange $2,000 in Class A shares from
a nonqualified account to an IRA without considering the 5% ($100) initial sales
charge applicable to that $2,000, you may be deemed to have exceeded current IRA
annual contribution limitations. You should consult your tax advisor for further
details about this complex subject.
Net investment income dividends received should be treated as dividend income
for federal income tax purposes. Corporate shareholders are generally entitled
to a deduction equal to 70% of that portion of the Fund's dividend that is
attributable to dividends the Fund received from domestic (U.S.) securities. For
the fiscal year ended May 31, 1997, 0.51% of the Fund's net investment income
dividends qualified for the corporate deduction.
Capital gain distributions received by individual and corporate shareholders, if
any, should be treated as long-term capital gains regardless of how long they
owned their shares. Short-term capital gains earned by the Fund are paid to
shareholders as part of their ordinary income dividend and are taxable.
Under federal tax law and an election made by the Fund under federal tax
regulations, by the end of a calendar year the Fund must declare and pay
dividends representing 98% of ordinary income for that calendar year and 98% of
net capital gains (both long-term and short-term) for the 12-month period ending
Nov. 30 of that calendar year. The Fund is subject to an excise tax equal to 4%
of the excess, if any, of the amount required to be distributed over the amount
actually distributed. The Fund intends to comply with federal tax law and avoid
any excise tax.
<PAGE>
PAGE 56
The Fund may be subject to U.S. taxes resulting from holdings in a passive
foreign investment company (PFIC). A foreign corporation is a PFIC when 75% or
more of its gross income for the taxable year is passive income or if 50% or
more of the average value of its assets consists of assets that produce or could
produce passive income.
This is a brief summary that relates to federal income taxation only.
Shareholders should consult their tax advisor as to the application of federal,
state and local income tax laws to Fund distributions.
AGREEMENTS
Investment Management Services Agreement
The Trust, on behalf of the Portfolio, has an Investment Management Services
Agreement with AEFC. For its services, AEFC is paid a fee based on the following
schedule:
Assets Annual rate at
(billions) each asset level
First $1.0 0.520%
Next 1.0 0.495
Next 1.0 0.470
Next 3.0 0.445
Next 3.0 0.420
Over 9.0 0.395
On May 31, 1997, the daily rate applied to the Portfolio's net assets was equal
to 0.510% on an annual basis. The fee is calculated for each calendar day on the
basis of net assets as of the close of business two business days prior to the
day for which the calculation is made.
The management fee is paid monthly. Under the agreement, the total amount paid
was $8,563,732 for the fiscal year ended May 31, 1997, $4,416,446 for fiscal
period May 31, 1996, and $7,840,014 for fiscal year Nov. 30, 1995.
Under the agreement, the Portfolio also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees; audit and certain legal
fees; fidelity bond premiums; registration fees for shares; office expenses;
consultants' fees; compensation of board members, Portfolio officers and
employees; corporate filing fees; organizational expenses; expenses incurred in
connection with lending securities of the Portfolio; and expenses properly
payable by the Portfolio, approved by the board. Under the agreement, the
nonadvisory expenses paid by the Fund and Portfolio were $610,404 for the fiscal
year ended May 31, 1997, $437,197 for fiscal year 1996, and $731,046 for fiscal
year 1995.
In this section, prior to June 10, 1996, the fees and expenses described were
paid directly by the Fund. After that date, the management fees were paid by the
Portfolio.
<PAGE>
PAGE 57
Administrative Services Agreement
The Fund has an Administrative Services Agreement with AEFC. Under this
agreement, the Fund pays AEFC for providing administration and accounting
services. The fee is calculated as follows:
Assets Annual rate
(billions) each asset level
First $1.0 0.050%
Next 1.0 0.045
Next 1.0 0.040
Next 3.0 0.035
Next 3.0 0.030
Over 9.0 0.025
On May 31, 1997, the daily rate applied to the Fund's net assets was equal to
0.048% on an annual basis. The fee is calculated for each calendar day on the
basis of net assets as of the close of business two business days prior to the
day for which the calculation is made. Under the agreement, the Fund paid fees
of $804,841 for the fiscal year ended May 31, 1997.
Transfer Agency Agreement
The Fund has a Transfer Agency Agreement with AEFC. This agreement governs
AEFC's responsibility for administering and/or performing transfer agent
functions, for acting as service agent in connection with dividend and
distribution functions and for performing shareholder account administration
agent functions in connection with the issuance, exchange and redemption or
repurchase of the Fund's shares. Under the agreement, AEFC will earn a fee from
the Fund determined by multiplying the number of shareholder accounts at the end
of the day by a rate determined for each class per year and dividing by the
number of days in the year. The rate for Class A and Class Y is $15.50 per year
and for Class B is $16.50 per year. The fees paid to AEFC may be changed from
time to time upon agreement of the parties without shareholder approval. Under
the agreement, the Fund paid fees of $1,842,492 for the fiscal year ended May
31, 1997.
Distribution Agreement
Under a Distribution Agreement, sales charges deducted for distributing Fund
shares are paid to American Express Financial Advisors daily. These charges
amounted to $2,491,568 for the fiscal year ended May 31, 1997. After paying
commissions to personal financial advisors, and other expenses, the amount
retained was $84,633. The amounts were $2,280,804 and $(355,603) for fiscal
period May 31, 1996, and $3,880,191, and $776,038 for fiscal year Nov. 30, 1995.
<PAGE>
PAGE 58
Additional information about commissions and compensation for the fiscal year
ended May 31, 1997, is contained in the following table:
(1) (2) (3) (4) (5)
Net Compensation
Name of Underwriting on Redemption
Principal Discounts and and Brokerage Other
Underwriter Commissions Repurchases Commissions Compensation
AEFC None None None $900,588*
American
Express
Financial
Advisors $2,491,568 None None None
*Distribution fees paid pursuant to the Plan and Agreement of
Distribution.
Shareholder Service Agreement
The Fund pays a fee for service provided to shareholders by financial advisors
and other servicing agents. The fee is calculated at a rate of 0.175% of average
daily net assets for Class A and Class B shares and 0.10% for Class Y.
Plan and Agreement of Distribution
For Class B shares, to help American Express Financial Advisors defray the cost
of distribution and servicing, not covered by the sales charges received under
the Distribution Agreement, the Fund and American Express Financial Advisors
entered into a Plan and Agreement of Distribution (Plan). These costs cover
almost all aspects of distributing the Fund's shares except compensation to the
sales force. A substantial portion of the costs are not specifically identified
to any one fund in the IDS MUTUAL FUND GROUP. Under the Plan, American Express
Financial Advisors is paid a fee at an annual rate of 0.75% of the Fund's
average daily net assets attributable to Class B shares.
The Plan must be approved annually by the board, including a majority of the
disinterested board members, if it is to continue for more than a year. At least
quarterly, the board must review written reports concerning the amounts expended
under the Plan and the purposes for which such expenditures were made. The Plan
and any agreement related to it may be terminated at any time by vote of a
majority of board members who are not interested persons of the Fund and have no
direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan, or by vote of a majority of the outstanding
voting securities of the Fund's Class B shares or by American Express Financial
Advisors. The Plan (or any agreement related to it) will terminate in the event
of its assignment, as that term is defined in the 1940 Act, as amended. The Plan
may not be amended to increase the amount to be spent for distribution without
shareholder approval, and all
<PAGE>
PAGE 59
material amendments to the Plan must be approved by a majority of the board
members, including a majority of the board members who are not interested
persons of the Fund and who do not have a financial interest in the operation of
the Plan or any agreement related to it. The selection and nomination of
disinterested board members is the responsibility of the other disinterested
board members. No board member who is not an interested person, has any direct
or indirect financial interest in the operation of the Plan or any related
agreement. For the fiscal year ended May 31, 1997, under the agreement, the Fund
paid fees of $900,588.
Custodian Agreement
The Trust's securities and cash are held by First Bank National Association, 180
E. Fifth St., St. Paul, MN 55101-1631, through a custodian agreement. The Fund
also retains the custodian pursuant to a custodian agreement. The custodian is
permitted to deposit some or all of its securities in central depository systems
as allowed by federal law. For its services, the Portfolio pays the custodian a
maintenance charge and a charge per transaction in addition to reimbursing the
custodian's out-of-pocket expenses.
Total fees and expenses
The Fund paid total fees and nonadvisory expenses of $15,258,561 for the fiscal
year ended May 31, 1997.
ORGANIZATIONAL INFORMATION
The Fund is a diversified, open-end management investment company, as defined in
the Investment Company Act of 1940. Originally incorporated on Feb. 10, 1945 in
Nevada, the Fund changed its state of incorporation on June 13, 1986 by merging
into a Minnesota corporation incorporated on April 7, 1986. The Fund
headquarters are at 901 S. Marquette Ave., Suite 2810, Minneapolis, MN 55402-
3268.
BOARD MEMBERS AND OFFICERS
The following is a list of the Fund's board members. They serve 15 Master Trust
portfolios and 47 IDS and IDS Life funds (except for William H. Dudley, who does
not serve on the nine IDS Life fund boards.)
All shares have cumulative voting rights with respect to the election of board
members.
H. Brewster Atwater, Jr.
Born in 1931
4900 IDS Tower
Minneapolis, MN
Former chairman and chief executive officer, General Mills, Inc.
Director, Merck & Co., Inc. and Darden Restaurants, Inc.
<PAGE>
PAGE 60
Lynne V. Cheney'
Born in 1941
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W.
Washington, D.C.
Distinguished Fellow AEI. Former Chair of National Endowment of
the Humanities. Director, The Reader's Digest Association Inc.,
Lockheed-Martin, Union Pacific Resources, and FPL Group, Inc.
(holding company for Florida Power and Light).
William H. Dudley**
Born in 1932
2900 IDS Tower
Minneapolis, MN
Senior advisor to the chief exectutive officer, AEFC.
Robert F. Froehlke+
Born in 1922
1201 Yale Place
Minneapolis, MN
Former president of all funds in the IDS MUTUAL FUND GROUP.
Director, the ICI Mutual Insurance Co., Institute for Defense
Analyses, Marshall Erdman and Associates, Inc. (architectural
engineering) and Public Oversight Board of the American Institute
of Certified Public Accountants.
David R. Hubers+**
Born in 1943
2900 IDS Tower
Minneapolis, MN
President, chief executive officer and director of AEFC. Previously, senior vice
president, finance and chief financial officer of AEFC.
Heinz F. Hutter+'
Born in 1929
P.O. Box 2187
Minneapolis, MN
Former president and chief operating officer, Cargill, Incorporated (commodity
merchants and processors).
Anne P. Jones
Born in 1935
5716 Bent Branch Rd.
Bethesda, MD
Attorney and telecommunications consultant. Former partner, law
firm of Sutherland, Asbill & Brennan. Director, Motorola, Inc. and
C-Cor Electronics, Inc.
<PAGE>
PAGE 61
Melvin R. Laird
Born in 1922
Reader's Digest Association, Inc.
1730 Rhode Island Ave., N.W.
Washington, D.C.
Senior counsellor for national and international affairs, The Reader's Digest
Association, Inc. Former nine-term U.S. Congressman, U.S. Secretary of Defense
and Presidential Counsellor. Director, Metropolitan Life Insurance Co., The
Reader's Digest Association, Inc., Science Applications International Corp.,
Wallace Reader's Digest Funds and Public Oversight Board (SEC Practice Section,
American Institute of Certified Public Accountants).
William R. Pearce+*
Born in 1927
901 S. Marquette Ave.
Minneapolis, MN
Chairman of the board, Board Services Corporation (provides administrative
services to boards). Director, trustee and officer of registered investment
companies whose boards are served by the company. Former vice chairman of the
board, Cargill, Incorporated (commodity merchants and processors).
Alan K. Simpson
Born in 1931
1201 Sunshine Ave.
Cody, WY
Former three-term United States Senator for Wyoming. Former
Assistant Republican Leader, U.S. Senate. Director, PacifiCorp
(electric power).
Edson W. Spencer+
Born in 1926
4900 IDS Center
80 S. 8th St.
Minneapolis, MN
President, Spencer Associates Inc. (consulting). Former chairman
of the board and chief executive officer, Honeywell Inc. Director,
Boise Cascade Corporation (forest products). Member of
International Advisory Council of NEC (Japan).
John R. Thomas**
Born in 1937
2900 IDS Tower
Minneapolis, MN
Senior vice president and director of AEFC.
<PAGE>
PAGE 62
Wheelock Whitney+
Born in 1926
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN
Chairman, Whitney Management Company (manages family assets).
C. Angus Wurtele'
Born in 1934
Valspar Corporation
Suite 1700
Foshay Tower
Minneapolis, MN
Chairman of the board and retired chief executive officer, The Valspar
Corporation (paints). Director, Bemis Corporation (packaging), Donaldson Company
(air cleaners & mufflers) and
General Mills, Inc. (consumer foods).
+ Member of executive committee.
' Member of joint audit committee.
* Interested person by reason of being an officer and employee of the Fund.
**Interested person by reason of being an officer, board member, employee and/or
shareholder of AEFC or American Express.
The board also has appointed officers who are responsible for day-to-day
business decisions based on policies it has established.
In addition to Mr. Pearce, who is president, the Fund's other officers are:
Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN
President, treasurer and corporate secretary of Board Services Corporation. Vice
president, general counsel and secretary for the Fund.
Officers who also are officers and/or employees of AEFC
Peter J. Anderson
Born in 1942
IDS Tower 10
Minneapolis, MN
Director and senior vice president-investments of AEFC. Vice
president-investments for the Fund.
<PAGE>
PAGE 63
Melinda S. Urion
Born in 1953
IDS Tower 10
Minneapolis, MN
Director, senior vice president and chief financial officer of AEFC. Director,
executive vice president and controller of IDS Life Insurance Company. Treasurer
for the Fund.
COMPENSATION FOR FUND BOARD MEMBERS
Members of the board who are not officers of the Fund or AEFC receive an annual
fee of $300, and the chair of the Contracts Committee receives an additional
$86. Board members receive a $50 per day attendance fee for board meetings. The
attendance fee for meetings of the Contracts and Investment Review Committees is
$50; for meetings of the Audit Committee and Personnel Committee $25 and for
traveling from out-of-state $3. Expenses for attending meetings are reimbursed.
During the fiscal year ended May 31, 1997, the members of the board, for
attending up to 31 meetings, received the following compensation:
Compensation Table
<TABLE>
<CAPTION>
Pension or Estimated Total cash compensation
Aggregate Retirement annual from the IDS MUTUAL FUND
compensation benefits accrued benefit upon GROUP and the Preferred
Board member from the Fund as Fund expenses retirement Master Trust Group
<S> <C> <C> <C> <C>
H. Brewster Atwater, Jr. $ 728 $0 $0 $ 61,900
(part of year)
Lynne V. Cheney 1,143 0 0 92,800
Robert F. Froehlke 1,293 0 0 100,600
Heinz F. Hutter 1,246 0 0 97,800
Anne P. Jones 1,399 0 0 108,500
Melvin R. Laird 1,171 0 0 94,600
Alan K. Simpson 462 0 0 42,100
(part of year)
Edson W. Spencer 1,650 0 0 121,400
Wheelock Whitney 1,388 0 0 106,000
C. Angus Wurtele 1,331 0 0 102,700
</TABLE>
On May 31, 1997, the Fund's board members and officers as a group owned less
than 1% of the outstanding shares. During the fiscal year ended May 31, 1997, no
board member or officer earned more than $60,000 from this Fund. All board
members and officers as a group earned $17,313 from this Fund.
COMPENSATION FOR PORTFOLIO BOARD MEMBERS
Members of the board who are not officers of the Portfolio or of the Advisor
receive an annual fee of $900 for Quality Income Portfolio. They also receive
attendance and other fees. These fees include for each day in attendance at
meetings of the board, $50; for meetings of the Contracts and Investment Review
Committees, $50; meetings of the Audit and Personnel Committee, $25; for
traveling from out-of-state, $9; and as chair of Contracts Committee, $86.
Expenses for attending meetings are reimbursed.
<PAGE>
PAGE 64
During the fiscal year ended May 31, 1997 the members of the board, for
attending up to 31 meetings, received the following compensation:
Compensation Table
for Quality Income Portfolio
<TABLE>
<CAPTION>
Pension or Total cash
Retirement Estimated compensation from
Aggregate benefits annual from the PREFERRED
compensation accrued as benefit MASTER TRUST GROUP
from the Portfolio upon and IDS MUTUAL
Board member Portfolio expenses retirement FUND GROUP
<S> <C> <C> <C> <C>
H. Brewster Atwater, Jr. $1,084 $0 $0 $ 61,900
(part of year)
Lynne V. Cheney 1,567 0 0 92,800
Robert F. Froehlke 1,699 0 0 100,600
Heinz F. Hutter 1,652 0 0 97,800
Anne P. Jones 1,835 0 0 108,500
Melvin R. Laird 1,595 0 0 94,600
Alan K. Simpson 736 0 0 42,100
(part of year)
Edson W. Spencer 2,055 0 0 121,400
Wheelock Whitney 1,794 0 0 106,000
C. Angus Wurtele 1,737 0 0 102,700
</TABLE>
During the fiscal year ended May 31, 1997 no board member or officer earned more
than $60,000 from the Quality Income Portfolio. All board members and officers
as a group earned $18,503 from Quality Income Portfolio.
INDEPENDENT AUDITORS
The Fund's and corresponding Portfolio's financial statements contained in the
Annual Report to shareholders for the fiscal year ended May 31, 1997, were
audited by independent auditors, KPMG Peat Marwick LLP, 4200 Norwest Center, 90
S. Seventh St., Minneapolis, MN 55402-3900. The independent auditors also
provide other accounting and tax-related services as requested by the Fund.
FINANCIAL STATEMENTS
The Independent Auditors' Report and the Financial Statements, including Notes
to the Financial Statements and the Schedule of Investments in Securities,
contained in the Annual Report to shareholders for the fiscal year ended May 31,
1997 pursuant to Section 30(d) of the Investment Company Act of 1940, as
amended, are hereby incorporated in this SAI by reference. No other portion of
the Annual Report, however, is incorporated by reference.
PROSPECTUS
The prospectus for IDS Selective Fund, dated July 30, 1997, is hereby
incorporated in this SAI by reference.
<PAGE>
PAGE 65
APPENDIX A
FOREIGN CURRENCY TRANSACTIONS
Since investments in foreign countries usually involve currencies of foreign
countries, and since the Portfolio may hold cash and cash-equivalent investments
in foreign currencies, the value of the Portfolio's assets as measured in U.S.
dollars may be affected favorably or unfavorably by changes in currency exchange
rates and exchange control regulations. Also, the Portfolio may incur costs in
connection with conversions between various currencies.
Spot Rates and Forward Contracts. The Portfolio conducts its foreign currency
exchange transactions either at the spot (cash) rate prevailing in the foreign
currency exchange market or by entering into forward currency exchange contracts
(forward contracts) as a hedge against fluctuations in future foreign exchange
rates. A forward contract involves an obligation to buy or sell a specific
currency at a future date, which may be any fixed number of days from the
contract date, at a price set at the time of the contract. These contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirements. No commissions are charged at any stage
for trades.
The Portfolio may enter into forward contracts to settle a security transaction
or handle dividend and interest collection. When the Portfolio enters into a
contract for the purchase or sale of a security denominated in a foreign
currency or has been notified of a dividend or interest payment, it may desire
to lock in the price of the security or the amount of the payment in dollars. By
entering into a forward contract, the Portfolio will be able to protect itself
against a possible loss resulting from an adverse change in the relationship
between different currencies from the date the security is purchased or sold to
the date on which payment is made or received or when the dividend or interest
is actually received.
The Portfolio also may enter into forward contracts when management of the
Portfolio believes the currency of a particular foreign country may suffer a
substantial decline against another currency. It may enter into a forward
contract to sell, for a fixed amount of dollars, the amount of foreign currency
approximating the value of some or all of the Portfolio's securities denominated
in such foreign currency. The precise matching of forward contract amounts and
the value of securities involved generally will not be possible since the future
value of such securities in foreign currencies more than likely will change
between the date the forward contract is entered into and the date it matures.
The projection of short-term currency market movements is extremely difficult
and successful execution of a short-term hedging strategy is highly uncertain.
The Portfolio will not enter into such forward contracts or maintain a net
exposure to such contracts when consummating the contracts would obligate the
Portfolio to deliver
<PAGE>
PAGE 66
an amount of foreign currency in excess of the value of the Portfolio's
securities or other assets denominated in that currency.
The Portfolio will designate cash or securities in an amount equal to the value
of the Portfolio's total assets committed to consummating forward contracts
entered into under the second circumstance set forth above. If the value of the
securities declines, additional cash or securities will be designated on a daily
basis so that the value of the cash or securities will equal the amount of the
Portfolio's commitments on such contracts.
At maturity of a forward contract, the Portfolio may either sell the security
and make delivery of the foreign currency or retain the security and terminate
its contractual obligation to deliver the foreign currency by purchasing an
offsetting contract with the same currency trader obligating it to buy, on the
same maturity date, the same amount of foreign currency.
If the Portfolio retains the security and engages in an offsetting transaction,
the Portfolio will incur a gain or a loss (as described below) to the extent
there has been movement in forward contract prices. If the Portfolio engages in
an offsetting transaction, it may subsequently enter into a new forward contract
to sell the foreign currency. Should forward prices decline between the date the
Portfolio enters into a forward contract for selling foreign currency and the
date it enters into an offsetting contract for purchasing the foreign currency,
the Portfolio will realize a gain to the extent that the price of the currency
it has agreed to sell exceeds the price of the currency it has agreed to buy.
Should forward prices increase, the Portfolio will suffer a loss to the extent
the price of the currency it has agreed to buy exceeds the price of the currency
it has agreed to sell.
It is impossible to forecast what the market value of securities will be at the
expiration of a contract. Accordingly, it may be necessary for the Portfolio to
buy additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of foreign
currency the Portfolio is obligated to deliver and a decision is made to sell
the security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received on
the sale of the portfolio security if its market value exceeds the amount of
foreign currency the Portfolio is obligated to deliver.
The Portfolio's dealing in forward contracts will be limited to the transactions
described above. This method of protecting the value of the Portfolio's
securities against a decline in the value of a currency does not eliminate
fluctuations in the underlying prices of the securities. It simply establishes a
rate of exchange that can be achieved at some point in time. Although such
forward contracts tend to minimize the risk of loss due to a decline in value of
hedged currency, they tend to limit any potential gain that might result should
the value of such currency increase.
<PAGE>
PAGE 67
Although the Portfolio values its assets each business day in terms of U.S.
dollars, it does not intend to convert its foreign currencies into U.S. dollars
on a daily basis. It will do so from time to time, and shareholders should be
aware of currency conversion costs. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(spread) between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Portfolio
at one rate, while offering a lesser rate of exchange should the Portfolio
desire to resell that currency to the dealer.
Options on Foreign Currencies. The Portfolio may buy put and write covered call
options on foreign currencies for hedging purposes. For example, a decline in
the dollar value of a foreign currency in which securities are denominated will
reduce the dollar value of such securities, even if their value in the foreign
currency remains constant. In order to protect against such diminutions in the
value of securities, the Portfolio may buy put options on the foreign currency.
If the value of the currency does decline, the Portfolio will have the right to
sell such currency for a fixed amount in dollars and will thereby offset, in
whole or in part, the adverse effect on its portfolio which otherwise would have
resulted.
As in the case of other types of options, however, the benefit to the Portfolio
derived from purchases of foreign currency options will be reduced by the amount
of the premium and related transaction costs. In addition, where currency
exchange rates do not move in the direction or to the extent anticipated, the
Portfolio could sustain losses on transactions in foreign currency options which
would require it to forego a portion or all of the benefits of advantageous
changes in such rates.
The Portfolio may write options on foreign currencies for the same types of
hedging purposes. For example, when the Portfolio anticipates a decline in the
dollar value of foreign-denominated securities due to adverse fluctuations in
exchange rates it could, instead of purchasing a put option, write a call option
on the relevant currency. If the expected decline occurs, the option will most
likely not be exercised and the diminution in value of securities will be fully
or partially offset by the amount of the premium received.
As in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of the
premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Portfolio would be required to buy or
sell the underlying currency at a loss which may not be offset by the amount of
the premium. Through the writing of options on foreign currencies, the Portfolio
also may be required to forego all or a portion of the benefits which might
otherwise have been obtained from favorable movements on exchange rates.
<PAGE>
PAGE 68
All options written on foreign currencies will be covered. An option written on
foreign currencies is covered if the Portfolio holds currency sufficient to
cover the option or has an absolute and immediate right to acquire that currency
without additional cash consideration upon conversion of assets denominated in
that currency or exchange of other currency held in its portfolio. An option
writer could lose amounts substantially in excess of its initial investments,
due to the margin and collateral requirements associated with such positions.
Options on foreign currencies are traded through financial institutions acting
as market-makers, although foreign currency options also are traded on certain
national securities exchanges, such as the Philadelphia Stock Exchange and the
Chicago Board Options Exchange, subject to SEC regulation. In an
over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchaser of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost.
Foreign currency option positions entered into on a national securities exchange
are cleared and guaranteed by the Options Clearing Corporation (OCC), thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting the Portfolio to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in certain foreign countries
for the purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on OCC or
its clearing member, impose special procedures on exercise and settlement, such
as technical changes in the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions on exercise.
Foreign Currency Futures and Related Options. The Portfolio may
enter into currency futures contracts to sell currencies. It also
may buy put options and write covered call options on currency
<PAGE>
PAGE 69
futures. Currency futures contracts are similar to currency forward contracts,
except that they are traded on exchanges (and have margin requirements) and are
standardized as to contract size and delivery date. Most currency futures call
for payment of delivery in U.S. dollars. The Portfolio may use currency futures
for the same purposes as currency forward contracts, subject to Commodity
Futures Trading Commission (CFTC) limitations. All futures contracts are
aggregated for purposes of the percentage limitations.
Currency futures and options on futures values can be expected to correlate with
exchange rates, but will not reflect other factors that may affect the values of
the Portfolio's investments. A currency hedge, for example, should protect a
Yen-denominated bond against a decline in the Yen, but will not protect the
Portfolio against price decline if the issuer's creditworthiness deteriorates.
Because the value of the Portfolio's investments denominated in foreign currency
will change in response to many factors other than exchange rates, it may not be
possible to match the amount of a forward contract to the value of the
Portfolio's investments denominated in that currency over time.
The Portfolio will hold securities or other options or futures positions whose
values are expected to offset its obligations. The Portfolio will not enter into
an option or futures position that exposes the Portfolio to an obligation to
another party unless it owns either (i) an offsetting position in securities or
(ii) cash, receivables and short-term debt securities with a value sufficient to
cover its potential obligations.
<PAGE>
PAGE 70
APPENDIX B
OPTIONS AND INTEREST RATE FUTURES CONTRACTS
The Portfolio may buy or write options traded on any U.S. or foreign exchange or
in the over-the-counter market. The Portfolio may enter into interest rate
futures contracts traded on any U.S. or foreign exchange. The Portfolio also may
buy or write put and call options on these futures. Options in the
over-the-counter market will be purchased only when the investment manager
believes a liquid secondary market exists for the options and only from dealers
and institutions the investment manager believes present a minimal credit risk.
Some options are exercisable only on a specific date. In that case, or if a
liquid secondary market does not exist, the Portfolio could be required to buy
or sell securities at disadvantageous prices, thereby incurring losses.
OPTIONS. An option is a contract. A person who buys a call option for a security
has the right to buy the security at a set price for the length of the contract.
A person who sells a call option is called a writer. The writer of a call option
agrees to sell the security at the set price when the buyer wants to exercise
the option, no matter what the market price of the security is at that time. A
person who buys a put option has the right to sell a security at a set price for
the length of the contract. A person who writes a put option agrees to buy the
security at the set price if the purchaser wants to exercise the option, no
matter what the market price of the security is at that time. An option is
covered if the writer owns the security (in the case of a call) or sets aside
the cash (in the case of a put) that would be required upon exercise.
The price paid by the buyer for an option is called a premium. In addition the
buyer generally pays a broker a commission. The writer receives a premium, less
a commission, at the time the option is written. The cash received is retained
by the writer whether or not the option is exercised. A writer of a call option
may have to sell the security for a below-market price if the market price rises
above the exercise price. A writer of a put option may have to pay an
above-market price for the security if its market price decreases below the
exercise price.
Options can be used to produce incremental earnings, protect gains and
facilitate buying and selling securities for investment purposes. The use of
options and futures contracts may benefit the Portfolio and its shareholders by
improving the Portfolio's liquidity and by helping to stabilize the value of its
net assets.
Buying options. Put and call options may be used as a trading technique to
facilitate buying and selling securities for investment reasons. Options are
used as a trading technique to take advantage of any disparity between the price
of the underlying security in the securities market and its price on the options
market. It is anticipated the trading technique will be utilized only to effect
a transaction when the price of the security plus
<PAGE>
PAGE 71
the option price will be as good or better than the price at which the security
could be bought or sold directly. When the option is purchased, the Portfolio
pays a premium and a commission. It then pays a second commission on the
purchase or sale of the underlying security when the option is exercised. For
record-keeping and tax purposes, the price obtained on the purchase of the
underlying security will be the combination of the exercise price, the premium
and both commissions. When using options as a trading technique, commissions on
the option will be set as if only the underlying securities were traded.
Put and call options also may be held by the Portfolio for investment purposes.
Options permit the Portfolio to experience the change in the value of a security
with a relatively small initial cash investment. The risk the Portfolio assumes
when it buys an option is the loss of the premium. To be beneficial to the
Portfolio, the price of the underlying security must change within the time set
by the option contract. Furthermore, the change must be sufficient to cover the
premium paid, the commissions paid both in the acquisition of the option and in
a closing transaction or in the exercise of the option and subsequent sale (in
the case of a call) or purchase (in the case of a put) of the underlying
security. Even then the price change in the underlying security does not ensure
a profit since prices in the option market may not reflect such a change.
Writing covered options. The Portfolio will write covered options when it feels
it is appropriate and will follow these guidelines:
'Underlying securities will continue to be bought or sold solely on the basis of
investment considerations consistent with the Portfolio's goal.
'All options written by the Portfolio will be covered. For covered call options
if a decision is made to sell the security, the Portfolio will attempt to
terminate the option contract through a closing purchase transaction.
Net premiums on call options closed or premiums on expired call options are
treated as short-term capital gains. Since the Portfolio is taxed as a regulated
investment company under the Internal Revenue Code, any gains on options and
other securities held less than three months must be limited to less than 30% of
its annual gross income.
If a covered call option is exercised, the security is sold by the Portfolio.
The Portfolio will recognize a capital gain or loss based upon the difference
between the proceeds and the security's basis.
Options on many securities are listed on options exchanges. If the Portfolio
writes listed options, it will follow the rules of the options exchange. Options
are valued at the close of the New York Stock Exchange. An option listed on a
national exchange, Chicago Board Options Exchange (CBOE) or NASDAQ will be
valued at the last-
<PAGE>
PAGE 72
quoted sales price or, if such a price is not readily available, at the mean of
the last bid and asked prices.
FUTURES CONTRACTS. A futures contract is an agreement between two parties to buy
and sell a security for a set price on a future date. They have been established
by boards of trade which have been designated contracts markets by the Commodity
Futures Trading Commission (CFTC). Futures contracts trade on these markets in a
manner similar to the way a stock trades on a stock exchange, and the boards of
trade, through their clearing corporations, guarantee performance of the
contracts. Currently, there are futures contracts based on such debt securities
as long-term U.S. Treasury bonds, Treasury notes, GNMA modified pass-through
mortgage-backed securities, three-month U.S. Treasury bills and bank
certificates of deposit. While futures contracts based on debt securities do
provide for the delivery and acceptance of securities, such deliveries and
acceptances are very seldom made. Generally, the futures contract is terminated
by entering into an offsetting transaction. An offsetting transaction for a
futures contract sale is effected by the Portfolio entering into a futures
contract purchase for the same aggregate amount of the specific type of
financial instrument and same delivery date. If the price in the sale exceeds
the price in the offsetting purchase, the Portfolio immediately is paid the
difference and realizes a gain. If the offsetting purchase price exceeds the
sale price, the Portfolio pays the difference and realizes a loss. Similarly,
closing out a futures contract purchase is effected by the Portfolio entering
into a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Portfolio realizes a gain, and if the offsetting sale price is less
than the purchase price, the Portfolio realizes a loss. At the time a futures
contract is made, a good-faith deposit called initial margin is set up within a
segregated account at the Portfolio's custodian bank. The initial margin deposit
is approximately 1.5% of a contract's face value. Daily thereafter, the futures
contract is valued and the payment of variation margin is required so that each
day the Portfolio would pay out cash in an amount equal to any decline in the
contract's value or receive cash equal to any increase. At the time a futures
contract is closed out, a nominal commission is paid, which is generally lower
than the commission on a comparable transaction in the cash markets.
The purpose of a futures contract, in the case of a portfolio holding long-term
debt securities, is to gain the benefit of changes in interest rates without
actually buying or selling long-term debt securities. For example, if the
Portfolio owned long-term bonds and interest rates were expected to increase, it
might enter into futures contracts to sell securities which would have much the
same effect as selling some of the long-term bonds it owned.
Futures contracts are based on types of debt securities referred to above, which
have historically reacted to an increase or decline in interest rates in a
fashion similar to the debt securities the
<PAGE>
PAGE 73
Portfolio owns. If interest rates did increase, the value of the debt securities
in the portfolio would decline, but the value of the Portfolio's futures
contracts would increase at approximately the same rate, thereby keeping the net
asset value of the Portfolio from declining as much as it otherwise would have.
If, on the other hand, the Portfolio held cash reserves and interest rates were
expected to decline, the Portfolio might enter into interest rate futures
contracts for the purchase of securities. If short-term rates were higher than
long-term rates, the ability to continue holding these cash reserves would have
a very beneficial impact on the Portfolio's earnings. Even if short-term rates
were not higher, the Portfolio would still benefit from the income earned by
holding these short-term investments. At the same time, by entering into futures
contracts for the purchase of securities, the Portfolio could take advantage of
the anticipated rise in the value of long-term bonds without actually buying
them until the market had stabilized. At that time, the futures contracts could
be liquidated and the Portfolio's cash reserves could then be used to buy
long-term bonds on the cash market. The Portfolio could accomplish similar
results by selling bonds with long maturities and investing in bonds with short
maturities when interest rates are expected to increase or by buying bonds with
long maturities and selling bonds with short maturities when interest rates are
expected to decline. But by using futures contracts as an investment tool, given
the greater liquidity in the futures market than in the cash market, it might be
possible to accomplish the same result more easily and more quickly. Successful
use of futures contracts depends on the investment manager's ability to predict
the future direction of interest rates. If the investment manager's prediction
is incorrect, the Portfolio would have been better off had it not entered into
futures contracts.
OPTIONS ON FUTURES CONTRACTS. Options on futures contracts give the holder a
right to buy or sell futures contracts in the future. Unlike a futures contract,
which requires the parties to the contract to buy and sell a security on a set
date, an option on a futures contract merely entitles its holder to decide on or
before a future date (within nine months of the date of issue) whether to enter
into such a contract. If the holder decides not to enter into the contract, all
that is lost is the amount (premium) paid for the option. Furthermore, because
the value of the option is fixed at the point of sale, there are no daily
payments of cash to reflect the change in the value of the underlying contract.
However, since an option gives the buyer the right to enter into a contract at a
set price for a fixed period of time, its value does change daily and that
change is reflected in the net asset value of the Portfolio.
RISKS. There are risks in engaging in each of the management tools described
above. The risk the Portfolio assumes when it buys an option is the loss of the
premium paid for the option. Purchasing options also limits the use of monies
that might otherwise be available for long-term investments.
<PAGE>
PAGE 74
The risk involved in writing options on futures contracts the Portfolio owns, or
on securities held in its portfolio, is that there could be an increase in the
market value of such contracts or securities.
If that occurred, the option would be exercised and the asset sold at a lower
price than the cash market price. To some extent, the risk of not realizing a
gain could be reduced by entering into a closing transaction. The Portfolio
could enter into a closing transaction by purchasing an option with the same
terms as the one it had previously sold. The cost to close the option and
terminate the Portfolio's obligation, however, might be more or less than the
premium received when it originally wrote the option. Furthermore, the Portfolio
might not be able to close the option because of insufficient activity in the
options market.
A risk in employing futures contracts to protect against the price volatility of
portfolio securities is that the prices of securities subject to futures
contracts may not correlate perfectly with the behavior of the cash prices of
the Portfolio's securities. The correlation may be distorted because the futures
market is dominated by short-term traders seeking to profit from the difference
between a contract or security price and their cost of borrowed funds. Such
distortions are generally minor and would diminish as the contract approached
maturity.
Another risk is that the Portfolio's investment manager could be incorrect in
anticipating as to the direction or extent of various interest rate movements or
the time span within which the movements take place. For example, if the
Portfolio sold futures contracts for the sale of securities in anticipation of
an increase in interest rates, and interest rates declined instead, the
Portfolio would lose money on the sale.
TAX TREATMENT. As permitted under federal income tax laws, the Portfolio intends
to identify futures contracts as mixed straddles and not mark them to market,
that is, not treat them as having been sold at the end of the year at market
value. Such an election may result in the Portfolio being required to defer
recognizing losses incurred by entering into futures contracts and losses on
underlying securities identified as being hedged against.
Federal income tax treatment of gains or losses from transactions in options on
futures contracts and indexes will depend on whether such option is a section
1256 contract . If the option is a non-equity option, the Portfolio will either
make a 1256(d) election and treat the option as a mixed straddle or mark to
market the option at fiscal year end and treat the gain/loss as 40% short-term
and 60% long-term. Certain provisions of the Internal Revenue Code may also
limit the Portfolio's ability to engage in futures contracts and related options
transactions. For example, at the close of each quarter of the Portfolio's
taxable year, at least 50% of the value of its assets must consist of cash,
government
<PAGE>
PAGE 75
securities and other securities, subject to certain diversification
requirements. Less than 30% of its gross income must be derived from sales of
securities held less than three months.
The IRS has ruled publicly that an exchange-traded call option is a security for
purposes of the 50%-of-assets test and that its issuer is the issuer of the
underlying security, not the writer of the option, for purposes of the
diversification requirements. In order to avoid realizing a gain within the
three-month period, the Portfolio may be required to defer closing out a
contract beyond the time when it might otherwise be advantageous to do so. The
Portfolio also may be restricted in purchasing put options for the purpose of
hedging underlying securities because of applying the short sale holding period
rules with respect to such underlying securities.
Accounting for futures contracts will be according to generally accepted
accounting principles. Initial margin deposits will be recognized as assets due
from a broker (the Portfolio's agent in acquiring the futures position). During
the period the futures contract is open, changes in value of the contract will
be recognized as unrealized gains or losses by marking to market on a daily
basis to reflect the market value of the contract at the end of each day's
trading. Variation margin payments will be made or received depending upon
whether gains or losses are incurred. All contracts and options will be valued
at the last-quoted sales price on their primary exchange.
<PAGE>
PAGE 76
APPENDIX C
MORTGAGE-BACKED SECURITIES
A mortgage pass-through certificate is one that represents an interest in a
pool, or group, of mortgage loans assembled by the Government National Mortgage
Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), Federal
National Mortgage Association (FNMA) or non-governmental entities. In
pass-through certificates, both principal and interest payments, including
prepayments, are passed through to the holder of the certificate. Prepayments on
underlying mortgages result in a loss of anticipated interest, and the actual
yield (or total return) to the Portfolio, which is influenced by both stated
interest rates and market conditions, may be different than the quoted yield on
certificates. Some U.S. government securities may be purchased on a when-issued
basis, which means that it may take as long as 45 days after the purchase before
the securities are delivered to the Portfolio.
Stripped Mortgage-Backed Securities. The Portfolio may invest in stripped
mortgage-backed securities. Generally, there are two classes of stripped
mortgage-backed securities: Interest Only (IO) and Principal Only (PO). IOs
entitle the holder to receive distributions consisting of all or a portion of
the interest on the underlying pool of mortgage loans or mortgage-backed
securities. POs entitle the holder to receive distributions consisting of all or
a portion of the principal of the underlying pool of mortgage loans or
mortgage-backed securities. The cash flows and yields on IOs and POs are
extremely sensitive to the rate of principal payments (including prepayments) on
the underlying mortgage loans or mortgage-backed securities. A rapid rate of
principal payments may adversely affect the yield to maturity of IOs. A slow
rate of principal payments may adversely affect the yield to maturity of POs. On
an IO, if prepayments of principal are greater than anticipated, an investor may
incur substantial losses. If prepayments of principal are slower than
anticipated, the yield on a PO will be affected more severely than would be the
case with a traditional mortgage-backed security.
Mortgage-Backed Security Spread Options. The Portfolio may purchase
mortgage-backed security (MBS) put spread options and write covered MBS call
spread options. MBS spread options are based upon the changes in the price
spread between a specified mortgage-backed security and a like-duration Treasury
security. MBS spread options are traded in the OTC market and are of short
duration, typically one to two months. The Portfolio would buy or sell covered
MBS call spread options in situations where mortgage-backed securities are
expected to underperform like-duration Treasury securities.
<PAGE>
PAGE 77
APPENDIX D
DOLLAR-COST AVERAGING
A technique that works well for many investors is one that eliminates random buy
and sell decisions. One such system is dollar-cost averaging. Dollar-cost
averaging involves building a portfolio through the investment of fixed amounts
of money on a regular basis regardless of the price or market condition. This
may enable an investor to smooth out the effects of the volatility of the
financial markets. By using this strategy, more shares will be purchased when
the price is low and less when the price is high. As the accompanying chart
illustrates, dollar-cost averaging tends to keep the average price paid for the
shares lower than the average market price of shares purchased, although there
is no guarantee.
While this technique does not ensure a profit and does not protect against a
loss if the market declines, it is an effective way for many shareholders who
can continue investing on a regular basis through changing market conditions,
including times when the price of their shares falls or the market declines, to
accumulate shares in a fund to meet long-term goals.
Dollar-cost averaging
- -------------------------------------------------------------------
Regular Market Price Shares
Investment of a Share Acquired
$100 $6.00 16.7
100 4.00 25.0
100 4.00 25.0
100 6.00 16.7
100 5.00 20.0
---- ----- -----
$500 $25.00 103.4
Average market price of a share over 5 periods:
$5.00 ($25.00 divided by 5).
The average price you paid for each share:
$4.84 ($500 divided by 103.4).
<PAGE>
Independent auditors' report
The board and shareholders IDS Selective Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of
IDS Selective Fund, Inc. as of May 31, 1997, and the related statement of
operations for the year then ended and the statements of changes in net
assets for the year ended May 31, 1997 and the six months ended May 31,
1996, and the financial highlights for the year ended May 31, 1997, the
six months ended May 31, 1996 and each of the years in the nine-year
period ended Nov. 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. 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, 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
July 3, 1997
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
IDS Selective Fund, Inc.
May 31, 1997
Assets
<S> <C> <C>
Investment in Quality Income Portfolio (Note 1) $1,615,061,028
--------------
Total assets 1,615,061,028
-------------
Liabilities
Dividends payable to shareholders 599,570
Accrued distribution fee 2,589
Accrued service fee 7,282
Accrued transfer agency fee 4,940
Accrued administrative services fee 2,118
Other accrued expenses 241,972
-------
Total liabilities 858,471
-------
Net assets applicable to outstanding capital stock $1,614,202,557
==============
Represented by
Capital stock-- authorized 10,000,000,000 shares of $.01 par value $ 1,793,884
Additional paid-in capital 1,573,213,712
Undistributed net investment income 2,115,568
Accumulated net realized gain (Note 1) 8,623,089
Unrealized appreciation of investments 28,456,304
----------
Total-- representing net assets applicable to outstanding capital stock $1,614,202,557
==============
Net assets applicable to outstanding shares: Class A $1,285,926,129
Class B $ 126,468,734
Class Y $ 201,807,694
Net asset value per share of outstanding capital stock: Class A shares 142,906,961 $ 9.00
Class B shares 14,055,085 $ 9.00
Class Y shares 22,426,340 $ 9.00
See accompanying notes to financial statements.
<PAGE>
Statement of operations
IDS Selective Fund, Inc.
Year ended May 31, 1997
Investment income
June 1, 1996 June 10, 1996 Total
to June 9, 1996 to May 31, 1997
(Notes 1 and 4)
<S> <C> <C> <C>
Income:
Dividends $ -- $ 598,700 $ 598,700
Interest 2,463,528 120,218,714 122,682,242
--------- ----------- -----------
Total income 2,463,528 120,817,414 123,280,942
--------- ----------- -----------
Expenses (Note 2):
Investment management services fee 168,661 -- 168,661
Distribution fee-- Class B 15,568 885,020 900,588
Transfer agency fee 35,375 1,797,807 1,833,182
Incremental transfer agency fee -- Class B 162 9,148 9,310
Service fee
Class A 47,116 2,271,060 2,318,176
Class B 3,633 205,162 208,795
Class Y -- 12,098 12,098
Administrative services fees and expenses 15,854 788,987 804,841
Compensation of board members 4 10,354 10,358
Compensation of officers -- 6,955 6,955
Custodian fees 1,400 -- 1,400
Postage 690 196,697 197,387
Registration fees 1,427 155,877 157,304
Reports to shareholders -- 81,601 81,601
Audit fees 26 9,974 10,000
Other 9 26,208 26,217
- ------ ------
Total expenses 289,925 6,456,948 6,746,873
Earnings credits on cash balances (Notes 2 and 4) (84) (81,162) (81,246)
--- ------- -------
289,841 6,375,786 6,665,627
Expenses, including investment management
services fee, allocated from Quality Income Portfolio -- 8,592,934 8,592,934
----- --------- ---------
Total net expenses 289,841 14,968,720 15,258,561
------- ---------- ----------
Investment income-- net 2,173,687 105,848,694 108,022,381
--------- ----------- -----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on security and foreign
currency transactions (1,140,606)* 13,633,059 12,492,453
Net realized loss on financial futures contracts -- (6,337,814) (6,337,814)
Net realized gain on option contracts written -- 2,097,867 2,097,867
---------- --------- ---------
Net realized gain (loss) on investments and foreign currencies (1,140,606) 9,393,112 8,252,506
Net change in unrealized appreciation or depreciation of
investments and on translation of assets and liabilities in
foreign currencies (5,677,421) 20,424,830 14,747,409
---------- ---------- ----------
Net gain (loss) on investments and foreign currencies (6,818,027) 29,817,942 22,999,915
---------- ---------- ----------
Net increase (decrease) in net assets resulting from operations $(4,644,340) $135,666,636 $131,022,296
=========== ============ ============
*Includes gain of $115,748 from foreign currency transactions.
See accompanying notes to financial statements.
<PAGE>
<CAPTION>
Financial statements
Statements of changes in net assets
IDS Selective Fund, Inc.
Operations and distributions May 31, 1997 May 31, 1996
Year ended Six months ended
<S> <C> <C>
Investment income-- net $108,022,381 $ 54,403,714
Net realized gain on investments and foreign currencies 8,252,506 23,062,764
Net change in unrealized appreciation or depreciation of
investments and on translation of assets
and liabilities in foreign currencies 14,747,409 (113,687,462)
---------- ------------
Net increase (decrease) in net assets resulting from operations 131,022,296 (36,220,984)
----------- -----------
Distributions to shareholders from:
Net investment income
Class A (86,883,047) (48,380,959)
Class B (6,790,893) (2,717,675)
Class Y (13,088,145) (5,835,989)
Net realized gain
Class A (18,740,975) (4,513,331)
Class B (1,704,126) (242,090)
Class Y (2,683,689) (433,179)
Excess distribution of realized gain
Class A -- (763,230)
Class B -- (93,149)
Class Y -- (193,212)
------------ -----------
Total distributions (129,890,875) (63,172,814)
------------ -----------
Capital share transactions (Note 3)
Proceeds from sales
Class A shares (Note 2) 109,563,336 111,507,134
Class B shares 56,179,031 58,275,961
Class Y shares 62,930,942 111,069,550
Reinvestment of distributions at net asset value
Class A shares 80,162,783 40,178,831
Class B shares 7,801,079 2,823,107
Class Y shares 15,771,834 6,425,412
Payments for redemptions
Class A shares (313,351,499) (150,106,899)
Class B shares (Note 2) (45,413,567) (18,994,240)
Class Y shares (89,223,917) (36,979,985)
----------- -----------
Increase (decrease) in net assets from capital share transactions (115,579,978) 124,198,871
------------ -----------
Total increase (decrease) in net assets (114,448,557) 24,805,073
Net assets at beginning of period 1,728,651,114 1,703,846,041
------------- -------------
Net assets at end of period
(including undistributed net investment income
of $2,115,568 and $529,978) $1,614,202,557 $1,728,651,114
============== ==============
See accompanying notes to financial statements
</TABLE>
<PAGE>
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 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.
Investment in Quality Income Portfolio
Effective June 10, 1996, the Fund began investing all of its assets in the
Quality Income Portfolio (the Portfolio), a series of Income Trust, an
open-end investment company that has the same objectives as the Fund. This
was accomplished by transferring the Fund's assets to the Portfolio in
return for a proportionate ownership interest in the Portfolio. The
Portfolio invests primarily in investment-grade bonds.
The Fund records daily its share of the Portfolio's income, expenses and
realized and unrealized gains and losses. The financial statements of the
Portfolio are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The Fund records its investment in the Portfolio at value that is equal to
the Fund's proportionate ownership interest in the net assets of the
Portfolio. The percentage of the Portfolio owned by the Fund at May 31,
1997 was 99.96%. Valuation of securities held by the Portfolio is
discussed in Note 1 of the Portfolio's "Notes to financial statements,"
which are included elsewhere in this report.
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.
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 the shareholders, no provision for
income or excise taxes is required.
Net investment income (loss) and net realized gains (losses) allocated
from the Portfolio 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. 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 income has been increased by
$325,294 and accumulated net realized gain has been decreased by $325,294.
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.
2
Expenses and
sales charges
In addition to the expenses allocated from the Portfolio, the Fund accrues
its own expenses as follows:
Effective March 20, 1995, the Fund entered into agreements with American
Express Financial Corporation (AEFC) for providing administrative services
and serving as transfer agent.
Under its Administrative Services Agreement, the Fund pays AEFC a fee for
administration and accounting services at a percentage of the Fund's
average daily net assets in reducing percentages from 0.05% to 0.025%
annually. Additional administrative service expenses paid by the Fund are
office expenses, consultants' fees and compensation of officers and
employees. Under this agreement, the Fund also pays taxes, audit and
certain legal fees, registration fees for shares, compensation of board
members, corporate filing fees, and any other expenses properly payable by
the Fund and approved by the board.
Under a separate Transfer Agency Agreement, AEFC maintains shareholder
accounts and records. The Fund pays AEFC an annual fee per shareholder
account for this service as follows:
o Class A $15.50
o Class B $16.50
o Class Y $15.50
Also effective March 20, 1995, the Fund entered
into agreements with American Express Financial Advisors Inc. for
distribution and shareholder servicing-related services. Under a Plan and
Agreement of Distribution, the Fund pays a distribution fee at an annual
rate of 0.75% of the Fund's average daily net assets attributable to Class
B shares for distribution-related services.
Under a Shareholder Service Agreement, the Fund pays a fee for service
provided to shareholders by financial advisors and other servicing agents.
The fee is calculated at a rate of 0.175% of the Fund's average daily net
assets attributable to Class A and Class B shares and 0.10% of the Fund's
average daily net assets attributable to Class Y shares.
Sales charges received by American Express Financial Advisors Inc. for
distributing Fund shares were $2,382,416 for Class A and $109,152 for
Class B for the fiscal period ended May 31, 1997.
During the period from June 10, 1996 to May 31, 1997 the Fund's transfer
agency fees were reduced by $81,162 as a result of earnings credits from
overnight cash balances.
3
Capital share
transactions
Transactions in shares of capital stock for the periods indicated are as
follows:
Year ended May 31, 1997
Class A Class B Class Y
Sold 12,079,376 6,192,646 6,955,369
Issued for reinvested 8,846,036 861,304 1,745,311
distributions
Redeemed (34,561,749) (5,015,499) (9,855,527)
- --------------------------------------------------------------------------------
Net increase (decrease) (13,636,337) 2,038,451 (1,154,847)
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
4
Pre-conversion
to Master
Prior to transferring its securities to Quality Income Portfolio on June
10, 1996, various transactions took place as stated below.
Expenses and sales charges
Prior to the conversion on June 10, 1996, the
Fund paid an investment management fee to AEFC. Subsequent to the
conversion, the investment management fee is assessed at the Portfolio
level. (See the notes to the Portfolio financial statements for the terms
of the investment management agreement, which remain unchanged.)
During the period from June 1, 1996 to June 9, 1996, the Fund's custodian
fees were reduced by $84 as a result of earnings credits from overnight
cash balances.
Securities transactions
Cost of purchases and proceeds from sales of securities (other than
short-term obligations) aggregated $36,192,318 and $21,571,908,
respectively, for the period from June 1, 1996 to June 9, 1996. Realized
gains and losses were determined on an identified cost basis.
Income from securities lending amounted to $3,898 for the period from June
1, 1996 to June 9, 1996.
5
Change of Fund's
fiscal year
The By-laws of the Fund were amended on Jan. 10, 1996, changing its fiscal
year-end from Nov. 30 to May 31, effective 1996.
6
Financial
highlights
"Financial highlights" showing per share data and selected information is
presented on pages 7 and 8 of the prospectus.
<PAGE>
Independent auditors' report
The board of trustees and unitholders Income Trust:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments in securities, of Quality Income
Portfolio (a series of Income Trust) as of May 31, 1997, and the related
statements of operations and changes in net assets for the period from
June 10, 1996 (commencement of operations) to May 31, 1997. These
financial statements are the responsibility of portfolio management. Our
responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit 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 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 audit provides 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 Quality Income
Portfolio at May 31, 1997, and the results of its operations and the
changes in its net assets for the period from June 10, 1996 (commencement
of operations) to May 31, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
July 3, 1997
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
Quality Income Portfolio
May 31, 1997
Assets
<S> <C>
Investments in securities, at value (Note 1)
(identified cost $1,688,560,923) $1,718,321,998
Dividends and accrued interest receivable 21,866,316
Receivable for investment securities sold 5,712,652
U.S. government securities held as collateral (Note 4) 39,006,077
----------
Total assets 1,784,907,043
-------------
Liabilities
Disbursements in excess of cash on demand deposit 1,082,909
Payable for investment securities purchased 41,408,277
Payable upon return of securities loaned (Note 4) 126,654,827
Accrued investment management services fee 22,494
Other accrued expenses 84,467
------
Total liabilities 169,252,974
-----------
Net assets $1,615,654,069
==============
See accompany notes to financial statements.
<PAGE>
Financial statements
Statement of operations
Quality Income Portfolio
For the period from June 10, 1996
(commencement of operations) to May 31, 1997
Investment income
Income:
Dividends $ 598,893
Interest 120,249,224
-----------
Total income 120,848,117
-----------
Expenses (Note 2):
Investment management services fee 8,395,071
Compensation of board members 7,450
Compensation of officers 11,053
Custodian fees 138,497
Audit fees 29,500
Other 13,928
------
Total expenses 8,595,499
---------
Investment income -- net 112,252,618
-----------
Realized and unrealized gain (loss) -- net
Net realized gain on security and foreign currency transactions
(including gain of $1,093,741 from foreign currency
transactions) (Note 3) 13,637,267
Net realized loss on financial futures contracts (6,340,145)
Net realized gain on option contracts written (Note 5) 2,098,502
---------
Net realized gain on investments and foreign currencies 9,395,624
Net change in unrealized appreciation or
depreciation of investments and on translation
of assets and liabilities in foreign currencies 20,434,131
----------
Net gain on investments and foreign currencies 29,829,755
----------
Net increase in net assets resulting from operations $142,082,373
============
See accompanying notes to financial statements.
<PAGE>
Statement of changes in net assets
Quality Income Portfolio
For the period from June 10, 1996
(commencement of operations) to May 31, 1997
Operations
Investment income-- net $ 112,252,618
Net realized gain on investments and foreign currencies 9,395,624
Net change in unrealized appreciation or
depreciation of investments and on translation
of assets and liabilities in foreign currencies 20,434,131
----------
Net increase in net assets resulting from operations 142,082,373
Net contributions 1,473,541,696
-------------
Total increase in net assets 1,615,624,069
Net assets at beginning of period (Note 1) 30,000
------
Net assets at end of period $1,615,654,069
==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
Quality Income Portfolio
1
Summary of
significant
accounting policies
Quality Income Portfolio (the Portfolio) is a series of Income Trust (the
Trust) and is registered under the Investment Company Act of 1940 (as
amended) as a diversified, open-end management investment company. Quality
Income Portfolio invests primarily in investment-grade bonds. The
Declaration of Trust permits the Trustees to issue non-transferable
interests in the Portfolio. On April 15, 1996, American Express Financial
Corporation (AEFC) contributed $30,000 to the Portfolio. Operations did
not formally commence until June 10, 1996, at which time an existing fund
transferred its assets to the Portfolio in return for an ownership
percentage of the Portfolio.
Significant accounting polices followed by the Portfolio 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 Portfolio
may buy and write options traded on any U.S. or 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 Portfolio 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 Portfolio gives up the opportunity of
profit if the market price of the security increases. The risk in writing
a put option is that the Portfolio 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 Portfolio pays a premium whether or not the option is
exercised. The Portfolio 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
Portfolio will realize a gain or loss upon expiration or closing of the
option transaction. When options on debt securities or futures are
exercised, the Portfolio 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 Portfolio may buy and sell financial futures contracts traded on any
U.S. or foreign exchange. The Portfolio also may buy and 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 Portfolio 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 Portfolio 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 Portfolio 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 other translation gains or losses on dividends, interest
income and foreign withholding taxes.
The Portfolio 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 Portfolio and the resulting unrealized
appreciation or depreciation are determined using foreign currency
exchange rates from an independent pricing service. The Portfolio is
subject to the credit risk that the other party will not complete the
obligations of the contract.
Illiquid securities
At May 31, 1997, investments in securities included issues that are
illiquid. The Portfolio 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, 1997 was
$4,481,904 representing 0.3% of the net assets. Pursuant to guidelines
adopted by the board, certain unregistered securities are determined to be
liquid and are not included within the 10% limitation specified above.
Securities purchased on a when-issued basis
Delivery and payment for securities that have been purchased by the
Portfolio 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
Portfolio's gross assets the same as owned securities. The Portfolio
designates cash or liquid high-grade short-term debt securities at least
equal to the amount of its commitment. As of May 31, 1997, the Portfolio
had entered into outstanding when-issued or forward-commitments of
$19,850,000.
Federal taxes
For federal income tax purposes the Portfolio qualifies as a partnership
and each investor in the Portfolio is treated as the owner of its
proportionate share of the net assets, income, expenses and realized and
unrealized gains and losses of the Portfolio. Accordingly, as a
"pass-through" entity, the Portfolio does not pay any income dividends or
capital gain distributions.
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 Portfolio does not amortize premium and
discount. Interest income, including level-yield amortization of premium
and discount, is accrued daily.
2
Fees and
expenses
The Trust, on behalf of the Portfolio, has entered into an Investment
Management Services Agreement with AEFC for managing its portfolio. Under
this agreement, AEFC determines which securities will be purchased, held
or sold. The management fee is a percentage of the Portfolio's average
daily net assets in reducing percentages from 0.52% to 0.395% annually.
Under the agreement, the Trust also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees, audit and certain
legal fees, fidelity bond premiums, registration fees for units, office
expenses, consultants' fees, compensation of trustees, corporate filing
fees, expenses incurred in connection with lending securities of the
Portfolio, and any other expenses properly payable by the Trust or
Portfolio and approved by the board.
Pursuant to a Placement Agency Agreement, American Express Financial
Advisors Inc. acts as placement agent of the units of the Trust.
3
Securities
transactions
Cost of purchases and proceeds from sales of securities (other than
short-term obligations) aggregated $433,654,306 and $524,514,884,
respectively, for the period from June 10, 1996 to May 31, 1997. For the
same period, the portfolio turnover rate was 31%. Realized gains and
losses are determined on an identified cost basis.
4
Lending of
portfolio securities
At May 31, 1997, securities valued at $122,850,988 were on loan to
brokers. For collateral, the Portfolio received $87,648,750 in cash and
U.S. government securities valued at $39,006,077. Income from securities
lending amounted to $99,979 for the period from June 10, 1996 to May 31,
1997. The risks to the Portfolio of securities lending are that the
borrower may not provide additional collateral when required or return the
securities when due.
5
Option contracts
written
The number of contracts and premium amounts associated with option
contracts written (see Summary of significant accounting policies) is as
follows:
Period ended May 31, 1997
Calls Puts
- --------------------------------------------------------------------------------
Contracts Premium Contracts Premium
- --------------------------------------------------------------------------------
Balance June 10, 1996 -- $ -- -- $ --
Opened 1,250 2,207,036 400 451,126
Closed (750) (1,330,628) (400) (451,126)
Exercised (311) (655,867) -- --
Expired (189) (220,541) -- --
- --------------------------------------------------------------------------------
Balance May 31, 1997 -- $ -- -- $ --
- --------------------------------------------------------------------------------
6
Interest rate
futures contracts
At May 31, 1997, investments in securities included securities valued at
$11,149,700 that were pledged as collateral to cover initial margin
deposits on 1,200 open sales contracts. The market value of the open
contracts at May 31, 1997, was $131,941,625 with a net unrealized loss of
$1,295,469. See Summary of significant accounting policies.
<PAGE>
<TABLE>
<CAPTION>
Investments in securities
Quality Income Portfolio
May 31, 1997
(Percentages represent value of
investments compared to net assets)
<S> <C> <C> <C> <C> <C>
Bonds (92.7%)
Issuer Coupon Maturity Principal Value(a)
rate year amount
U.S. government obligations (31.0%)
U.S. Treasury 5.875% 2000-04 $33,000,000(b) $ 32,415,780
6.875 1999 60,000,000 60,765,000
7.25 2004 51,800,000 53,687,658
7.50 2001 99,000,000 102,808,530
7.50 2016 80,000,000(b) 84,386,400
8.00 2021 15,000,000(k) 16,724,550
8.625 1997 50,745,000(b) 51,099,708
Resolution Funding Corp
Zero Coupon 7.61 2017 39,000,000(c) 9,329,190
7.98 2016 47,000,000(b,c) 12,104,380
8.19 2014 48,000,000(c) 14,767,200
8.27 2014 10,000,000(c) 2,969,300
8.94 2006 25,000,000(c) 13,978,000
8.95 2006 68,000,000(c) 36,112,080
Overseas Private Investment 6.99 2009 10,000,000 9,812,500
Total 500,960,276
Mortgage-backed securities (15.6%)
Federal Home Loan Mtge Corp 7.50 2024 16,648,575 16,677,044
8.00 2016-25 10,569,627 10,795,089
8.50 2017-26 23,155,242 24,061,366
9.00 2020-21 5,553,606 5,881,578
Collateralized Mtge Obligation 8.50 2019 390,904 390,806
Federal Housing Admin 7.43 2024 9,089,707 8,550,279
Federal Natl Mtge Assn 6.50 2023 12,044,089 11,510,295
7.50 2025 20,000,000(l) 19,900,000
7.50 2027 14,920,921 14,869,593
8.00 2026 14,236,093 14,487,360
10.00 2002 124 130
Principal Only 9.50 2018 1,170,264(e) 895,938
Collateralized Mtge Obligation
8.00 2021 11,794,373 11,958,394
8.50 2019 1,448,659 1,562,344
Principal Only 9.89 2020 2,194,500(e) 1,935,487
Trust Series Z 6.00 2024 20,650,251(d) 15,209,529
Govt Natl Mtge Assn 7.50 2026 20,282,237 20,254,451
Collateralized Mtge Obligation Trust 7.75 2012 870,282 879,327
8.00 2022-26 41,512,792 42,451,220
8.50 2026 18,999,763 19,704,464
9.00 2024-25 5,942,163 6,304,255
Prudential Bache
Collateralized Mtge Obligation 7.965 2019 3,510,938 3,570,408
Total 251,849,357
Automotive & related (2.8%)
Daimler-Benz North America
Medium-term Nts 7.375 2006 14,000,000 14,189,840
General Motors 8.875 2003 7,050,000 7,690,704
General Motors Acceptance
Medium-term Nts 5.95 1998 8,000,000 8,002,720
7.00 2000 14,300,000 14,432,132
Total 44,315,396
Banks and savings & loans (4.4%)
BankAmerica
Sub Nts 7.70 2026 5,000,000(g) 4,776,150
BankBoston Capital Trust 8.25 2026 5,000,000 5,016,300
Boatmen's Bancshares
Sub Nts 9.25 2001 8,950,000 9,722,653
First Bank System 6.875 2007 8,550,000 8,289,054
First Chicago
Sr Nts 9.00 1999 7,900,000 8,268,219
Firstar Capital Trust 8.32 2026 10,000,000 10,021,400
Morgan (JP) 6.50 2012 9,350,000(i) 9,034,437
NCNB
Sub Nts 9.125 2001 10,000,000 10,805,200
Washington Mutual Capital 8.375 2027 5,800,000(g) 5,789,328
Total 71,722,741
Building materials & construction (0.6%)
Georgia-Pacific
Credit Sensitive Nt 9.85 1997 10,000,000 10,010,600
Chemicals (0.7%)
Dow Chemical 8.85 2021 10,000,000 11,264,900
Communications equipment & services (1.3%)
AT&T 8.35 2025 5,000,000 5,204,350
BellSouth Telecommunications 7.00 2095 10,000,000 9,346,100
GTE 10.25 2020 6,050,00 6,809,941
Total 21,360,391
Electronics (0.3%)
Harris 10.375 2018 3,900,000 4,267,185
Energy (2.4%)
PDV America 7.875 2003 16,500,000 16,493,235
Texaco Capital
Gtd Deb 7.50 2043 12,000,000 11,622,600
USX 9.375 2022 9,200,000 10,491,128
Total 38,606,963
Energy equipment & services (0.4%)
Foster Wheeler 6.75 2005 5,850,000 5,613,894
Financial services (2.2%)
Aristar
Sr Deb 8.875 1998 10,520,000 10,836,968
Beneficial 9.125 1998 10,000,000 10,222,400
Greyhound Financial
Medium-term Nts 7.95 1999 9,600,000 9,861,888
Salomon 7.75 2000 5,000,000 5,119,300
Total 36,040,556
Health care (0.8%)
Lilly (Eli) 6.77 2036 13,300,000 12,034,106
Industrial equipment & services (1.2%)
Browning-Ferris Inds 9.25 2021 7,000,000 8,133,930
Deere & Co 8.95 2019 10,000,000 11,053,800
Total 19,187,730
Insurance (3.3%)
American United Life 7.75 2026 4,800,000(g, m) 4,481,904
Arkwright Trust 9.625 2026 4,000,000(g) 4,375,240
Berkley (WR) 8.70 2022 10,000,000 10,634,300
Conseco Financing Trust 8.70 2026 6,600,000 6,634,386
Equitable Life Assurance 7.70 2015 5,000,000(g) 4,951,400
Nationwide Trust 9.875 2025 11,500,000(g) 12,504,870
SunAmerica 9.95 2012 8,000,000 9,643,120
Total 53,225,220
Media (0.7%)
Time Warner Entertainment 8.375 2033 12,000,000 11,991,360
Retail (1.8%)
Dayton Hudson 7.875 2023 18,850,000 17,866,218
Wal-Mart Stores 7.00 2006 11,653,588(g) 11,642,401
Total 29,508,619
Transportation (1.3%)
Burlington Northern Santa Fe 7.00 2025 10,000,000 8,974,900
Railcar Leasing 7.125 2013 12,150,000(g) 12,048,548
Total 21,023,448
Utilities -- electric (6.8%)
Arizona Public Service
1st Mtge
Sale Lease-Backed Obligation 8.00 2015 9,000,000 9,158,940
Cajun Electric Power Cooperation
Mtge Trust 8.92 2019 4,960,000 5,372,722
Commonwealth Edison 6.50 2000 9,000,000 8,945,910
Long Island Lighting 8.625 2004 3,000,000 3,106,650
9.625 2024 7,000,000 7,337,400
RGS Funding
Sale Lease-Backed Obligation 9.82 2022 9,939,219 11,771,117
Salton Sea Cl C 7.84 2010 10,000,000(g) 10,032,100
San Diego Gas & Electric 9.625 2020 9,950,000 11,038,629
1st Mtge
Southern California Edison 8.875 2023 21,000,000 21,816,690
1st Mtge
Texas Utilities Electric 9.75 2021 13,000,000 14,692,210
1st Mtge
Wisconsin Electric Power 6.875 2095 8,000,000 7,265,920
Total 110,538,288
Utilities -- telephone (1.4%)
New York Telephone 9.375 2031 7,000,000 7,711,060
Pacific Bell 8.50 2031 15,000,000 15,353,250
Total 23,064,310
Foreign (13.7%)(h)
ABN Amro Bank
(U.S. Dollar) 7.75 2023 12,000,000 11,971,200
Alcan Aluminum
(U.S. Dollar) 8.875 2022 9,600,000 10,240,992
BAA PLC
(British Pound) 9.363 2006 1,500,000 2,613,582
Bank of China
(U.S. Dollar) 8.25 2014 7,100,000 7,084,451
Bayerische Landesbank
(U.S. Dollar) 5.625 2001 13,750,000 13,293,637
Dao Heng Bank
(U.S. Dollar) 7.75 2007 7,000,000(g) 6,915,090
Deutsche Bank Finance
(U.S. Dollar) Zero Coupon 4.50 2017 6,510,000(c,g) 2,880,675
Guangdong Enterprises
(U.S. Dollar) 8.875 2007 5,800,000(g) 5,843,384
Hyundai Semiconductor
(U.S. Dollar) 8.625 2007 10,800,000(g) 10,767,060
Israel Electric
(U.S. Dollar) 7.875 2026 9,000,000(g) 8,865,000
Japan Finance
(U.S. Dollar) 9.25 1998 25,950,000 26,973,468
KFW Intl Finance
(U.S. Dollar)
Medium-term Nts 8.50 1999 10,000,000 10,487,600
Korea Electric Power
(U.S. Dollar) 8.00 2002 9,000,000 9,320,040
Korea Electric Power
(U.S. Dollar) Zero Coupon 10.07 2016 35,000,000(f) 6,303,850
People's Republic of China
(U.S. Dollar) 9.00 2096 10,000,000 10,711,100
Petronas
(U.S. Dollar) 7.75 2015 10,000,000(g) 10,134,900
Ras Laffan Gas
(U.S. Dollar) 8.294 2014 10,000,000 10,341,900
Republic of Austria Euro
(U.S. Dollar) 10.00 1998 5,000,000 5,187,500
Republic of Italy
(U.S. Dollar) 6.875 2023 23,200,000 21,541,664
Rodamco NV
(U.S. Dollar) 7.30 2005 10,000,000 10,107,200
State of Israel
(U.S. Dollar) 6.375 2005 10,800,000 10,179,324
Telekom Malaysia
(U.S. Dollar) 7.875 2025 10,000,000(g) 10,151,000
Total 221,914,617
Total bonds
(Cost: $1,469,226,517) $1,498,499,957
Preferred stock (0.6%)
Issuer Shares Value(a)
Salomon Income Financing Trust
9.50% 340,000 $8,988,750
Total preferred stock
(Cost: $8,500,000) $8,988,750
Short-term securities (13.0%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agencies (2.9%)
Federal Home Loan Bank Disc Nt
06-12-97 5.43% $45,500,000 $45,417,948
Federal Home Loan Mtge Corp Disc Nt
06-09-97 5.44 1,100,000 1,098,509
Total 46,516,457
Bankers acceptance (0.5%)
First Bank Minneapolis
06-05-97 5.54 8,000,000 7,993,867
Commercial paper (8.2%)
Ameritech Capital Funding
06-11-97 5.54 6,000,000 5,989,898
07-18-97 5.58 2,300,000(j) 2,283,041
AT&T
06-02-97 5.54 10,000,000 9,996,944
Bell Atlantic
06-06-97 5.54 5,200,000 5,195,216
BOC Group
06-05-97 5.53 4,600,000(j) 4,596,480
Ciesco LP
06-11-97 5.56 7,700,000 7,686,966
06-19-97 5.55 4,500,000 4,486,890
06-25-97 5.52 9,600,000 9,563,333
Clorox
06-10-97 5.54 5,600,000 5,591,413
First Chicago NBD
06-17-97 5.57 8,200,000 8,178,509
Fleet Funding
06-11-97 5.55 10,000,000(j) 9,983,103
Harris Trust & Savings
06-27-97 5.55 7,500,000 7,500,000
Lincoln Natl
06-18-97 5.56 4,000,000(j) 3,988,940
Mobil Australia Funding (Delaware)
06-20-97 5.59 12,000,000(j) 11,963,000
07-28-97 5.58 7,500,000(j) 7,432,065
Novartis Finance
06-16-97 5.57 13,300,000 13,267,193
Paccar Financial
07-01-97 5.54 1,000,000 995,247
SBC Communications Capital
06-13-97 5.55 8,500,000(j) 8,483,057
06-17-97 5.56 6,000,000(j) 5,984,360
Total 133,165,655
Letter of credit (1.4%)
Bank of America-
AES Barbers Point
06-12-97 5.52 23,200,000 23,157,312
Total short-term securities
(Cost: $210,834,406) $ 210,833,291
Total investment in securities
(Cost: $1,688,560,923)(n) $1,718,321,998
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
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 4 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 represents 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.
(h) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated.
(i) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on May 31, 1997.
(j) 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.
(k) Partially pledged as initial margin deposit on the following open interest
rate futures contracts (see Note 6 to the financial statements):
Type of security Notional amount
Sales contracts
U.S Treasury Bonds June 97 $96,400,000
U.S Treasury Bonds Sept. 97 $23,600,000
(l) At May 31, 1997, the cost of securities purchased on a when-issued basis was
$19,850,000.
(m) Identifies issues considered to be illiquid as to their marketability (see
Note 1 to the financial statements). Information concerning such security
holdings at May 31, 1997, is as follows:
Security Aquisition Cost
date
American United Life*
7.75% 2026 02-13-96 $4,800,000
*Represents a security sold under Rule 144A, which is exempt from registration
under the securities Act of 1933, as amended.
(n) At May 31, 1997, the cost of securities for federal income tax purposes was
$1,688,560,923 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation........................................$ 45,542,614
Unrealized depreciation.........................................(15,781,539)
- --------------------------------------------------------------------------------
Net unrealized appreciation....................................$ 29,761,075
- --------------------------------------------------------------------------------
<PAGE>
PAGE 78
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) FINANCIAL STATEMENTS:
List of financial statements filed as part of this Post- Effective
Amendment to the Registration Statement:
For IDS Selective Fund
o Independent auditors' report dated July 3, 1997
o Statement of assets and liabilities, May 31, 1997
o Statement of operations, year ended May 31, 1997
o Statement of changes in net assets, for the year ended
May 31, 1997 and period ended May 31, 1996
o Notes to financial statements
o Investments in securities, May 31, 1997
o Notes to investments in securities
For Quality Income Portfolio
o Independent auditors' report dated, July 3, 1997
o Statement of assets and liabilities, May 31, 1997
o Statement of operations, for the period from June 10,
1996 (commencement of operations) to May 31, 1997
o Statement of changes in net assets, for the period from
June 10, 1996 (commencement of operations) to May 31,
1997
o Notes to the financial statements
o Investments in securities, May 31, 1997
o Notes to investments in securities
(b) EXHIBITS:
1. Articles of Incorporation, as amended October 17, 1988, filed
electronically as Exhibit 1 to Registrant's Post-Effective
Amendment No. 69 to Registration Statement No. 2-10700, is
incorporated herein by reference.
2. By-laws, as amended January 10, 1996, filed electronically as
Exhibit 2 to Registrant's Post-Effective Amendment No. 84 to
Registration Statement No. 2-10700, is incorporated herein by
reference.
3. Not Applicable.
4. Stock certificate, filed as Exhibit 3 to Registrant's Form N- 1Q for the
calendar quarter ended September 30, 1979, is incorporated herein by
reference.
5. Copy of Investment Management Services Agreement between Registrant and
American Express Financial Corporation, dated March 20, 1995, is filed
electronically herewith. The agreement was assumed by the Portfolio when
the Fund adopted the master/feeder structure.
6. Copy of Distribution Agreement between Registrant and American
Express Financial Advisors Inc., dated March 20, 1995, is
filed electronically herewith.
<PAGE>
PAGE 79
7. All employees are eligible to participate in a profit sharing plan.
Entry into the plan is Jan. 1 or July 1. The Registrant contributes each
year an amount up to 15 percent of their annual salaries, the maximum
deductible amount permitted under Section 404(a) of the Internal Revenue
Code.
8(a). Copy of Custodian Agreement between Registrant and First
National Bank of Minneapolis, dated July 23, 1986, is
filed electronically herewith.
8(b). Copy of Addendum to the Custodian Agreement between IDS
Selective Fund, Inc., First Bank National Association and
American Express Financial Corporation dated June 10,
1996, filed electronically as Exhibit 8(b) to
Registrant's Post-Effective Amendment No. 84 to
Registration Statement No. 2-10700 is incorporated herein
by reference.
9(a). Plan and Agreement of Merger dated April 10, 1986, filed
as Exhibit 9 to Registrant's Post-Effective Amendment No.
62 to Registration Statement No. 2-10700, is incorporated
herein by reference.
9(b). Copy of Transfer Agency Agreement between the Registrant and
American Express Financial Corporation, dated March 20, 1995 is
filed electronically herewith.
9(c). Copy of License Agreement, dated January 25, 1988,
between IDS Financial Corporation and Registrant, filed
electronically as Exhibit 9(c) to Registrant's Post
Effective Amendment No. 69 to Registration Statement No.
2-10700, is incorporated herein by reference.
9(d). Copy of Shareholder Service Agreement between Registrant
and American Express Financial Advisors Inc., dated March
20, 1995, is filed electronically herewith.
9(e). Copy of Administrative Services Agreement between Registrant and
American Express Financial Corporation, dated March 20, 1995 is
filed electronically herewith.
9(f). Copy of Agreement and Declaration of Unitholders between
IDS Selective Fund, Inc. and Strategist Income Fund, Inc.
dated June 10, 1996, filed electronically as Exhibit 9(f)
to Registrant's Post-Effective Amendment No. 84 to
Registration Statement No. 2-10700 is incorporated herein
by reference.
9(g) Copy of Class Y Shareholder Service Agreement between IDS
Precious Metals Fund, Inc. and American Express Financial
Advisors Inc., dated May 9, 1997 filed electronically on or
about May 27, as Exhibit 9(e) to IDS Precious Metals Fund,
Inc.'s Amendment No. 30 to Registration Statement No. 2-93745,
is incorporated herein by reference. Registrant's Class Y
shareholder Service Agreement differs from the one
incorporated by reference only by the fact that Registrant is
one executing party.
<PAGE>
PAGE 80
10. Opinion and consent of counsel as to the legality of the
securities being registered is filed with Registrant's most
recent 24f-2 Notice.
11. Independent Auditors' Consent is filed electronically
herewith.
12. None.
13. Not Applicable.
14. Forms of Keogh, IRA and other retirement plans, filed as
Exhibits 14(a) through 14(n) to IDS Growth Fund, Inc., Post
Effective Amendment No. 34 to Registration Statement No. 2-
38355, are incorporated herein by reference.
15. Copy of Plan and Agreement of Distribution between Registrant
and American Express Financial Advisors Inc., dated March 20,
1995 is filed electronically herewith.
16. Copy of Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item
22(b), filed as Exhibit 16 to Post-Effective Amendment No. 75
to Registrant's Registration Statement No. 2-10700, is
incorporated herein by reference.
17. Financial Data Schedule is filed electronically herewith.
18. Copy of Plan pursuant to Rule 18f-3 under the 1940 Act, filed
electronically as Exhibit 18 to Registrant's Post-Effective
Amendment No. 82 to Registration Statement No. 2-10700, is
incorporated herein by reference.
19(a). Directors' Power of Attorney to sign Amendments to this
Registration Statement, dated January 8, 1997 is filed
electronically herewith.
19(b). Officers' Power of Attorney to sign Amendments to this
Registration Statement, dated November 1, 1995, filed
electronically as Exhibit 19(b) to Registrant's Post-
Effective Amendment No. 83, is incorporated herein by
reference.
19(c). Trustees Power of Attorney dated January 8, 1997 is filed
electronically herewith.
19(d). Officers' Power of Attorney dated April 11, 1996 is filed
electronically herewith.
Item 25. Persons Controlled by or Under Common Control with
Registrant
None.
<PAGE>
PAGE 81
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Holders as of
Title of Class July 14, 1997
Class A 72,592
Class B 9,842
Class Y 32,630
Item 27. Indemnification
The Articles of Incorporation of the registrant provide that the Fund shall
indemnify any person who was or is a party or is threatened to be made a party,
by reason of the fact that she or he is or was a director, officer, employee or
agent of the Fund, or is or was serving at the request of the Fund as a
director, officer, employee or agent of another company, partnership, joint
venture, trust or other enterprise, to any threatened, pending or completed
action, suit or proceeding, wherever brought, and the Fund may purchase
liability insurance and advance legal expenses, all to the fullest extent
permitted by the laws of the State of Minnesota, as now existing or hereafter
amended. The By-laws of the registrant provide that present or former directors
or officers of the Fund made or threatened to be made a party to or involved
(including as a witness) in an actual or threatened action, suit or proceeding
shall be indemnified by the Fund to the full extent authorized by the Minnesota
Business Corporation Act, all as more fully set forth in the By-laws filed as an
exhibit to this registration statement.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Any indemnification hereunder shall not be exclusive of any other rights of
indemnification to which the directors, officers, employees or agents might
otherwise be entitled. No indemnification shall be made in violation of the
Investment Company Act of 1940.
<PAGE>
<PAGE>
PAGE 1
<PAGE>
Item 29(c). Not applicable.
Item 30. Location of Accounts and Records
American Express Financial Corporation
IDS Tower 10
Minneapolis, MN 55440
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) Not Applicable.
(b) Not Applicable.
(c) The Registrant undertakes to furnish each person
to whom a prospectus is delivered with a copy of
the Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE>
PAGE 82
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, IDS Selective Fund, Inc. certifies that it
meets the requirements for the effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933,
and has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis and State of Minnesota on the 28th day of July, 1997.
IDS SELECTIVE FUND
by /s/William R. Pearce**
William R. Pearce, President
by /s/Melinda S. Urion
Melinda S. Urion, Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in the
capacities indicated on the 28th day of July, 1997.
Signatures Capacity
/s/ William R. Pearce** President, Principal
William R. Pearce Executive Officer and
Director
/s/ H. Brewster Atwater, Jr.* Director
H. Brewster Atwater, Jr.
/s/ Lynne V. Cheney*
Lynne V. Cheney Director
/s/ William H. Dudley* Director
William H. Dudley
/s/ Robert F. Froehlke* Director
Robert F. Froehlke
/s/ David R. Hubers* Director
David R. Hubers
/s/ Heinz F. Hutter* Director
Heinz F. Hutter
/s/ Anne P. Jones* Director
Anne P. Jones
<PAGE>
PAGE 83
Signatures Capacity
/s/ Melvin R. Laird* Director
Melvin R. Laird
/s/ Alan K. Simpson* Director
Alan K. Simpson
/s/ Edson W. Spencer* Director
Edson W. Spencer
/s/ John R. Thomas* Director
John R. Thomas
/s/ Wheelock Whitney* Director
Wheelock Whitney
/s/ C. Angus Wurtele*
C. Angus Wurtele Director
*Signed pursuant to Directors' Power of Attorney dated January 8, 1997 is filed
electronically herewith.
Leslie L. Ogg
**Signed pursuant to Officers' Power of Attorney dated November 1,
1995, filed electronically as Exhibit 19(b) to Registrant's Post-
Effective Amendment No. 83 to Registration Statement No. 2-10700
by:
Leslie L. Ogg
<PAGE>
PAGE 84
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, INCOME TRUST consents to the filing of this Amendment to
the Registration Statement of IDS Selective Fund, Inc. signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Minneapolis and State
of Minnesota on the 28th day of July, 1997.
INCOME TRUST
By /s/ William R. Pearce**
William R. Pearce
President
By /s/ Melinda S. Urion
Melinda S. Urion
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in the
capacities indicated on the 28th day of July, 1997.
Signatures Capacity
/s/ William R. Pearce** Trustee
William R. Pearce
/s/ H. Brewster Atwater, Jr.* Trustee
H. Brewster Atwater, Jr.
/s/ Lynne V. Cheney* Trustee
Lynne V. Cheney
/s/ William H. Dudley* Trustee
William H. Dudley
/s/ Robert F. Froehlke* Trustee
Robert F. Froehlke
/s/ David R. Hubers* Trustee
David R. Hubers
/s/ Heinz F. Hutter* Trustee
Heinz F. Hutter
/s/ Anne P. Jones* Trustee
Anne P. Jones
<PAGE>
PAGE 85
Signatures Capacity
/s/ Melvin R. Laird* Trustee
Melvin R. Laird
/s/ Edson W. Spencer Trustee
Edson W. Spencer
/s/ Alan K. Simpson Trustee
Alan K. Simpson
/s/ John R. Thomas* Trustee
John R. Thomas
/s/ Trustee
Wheelock Whitney
/s/ C. Angus Wurtele* Trustee
C. Angus Wurtele
* Signed pursuant to Trustees Power of Attorney dated January 8, 1997, filed
electronically as Exhibit 19(c) by:
Leslie L. Ogg
** Signed pursuant to Officers' Power of Attorney dated January 8, 1997, filed
herewith as Exhibit 19(d) to Registrant's Post- Effective Amendment No. 8 by:
Leslie L. Ogg
<PAGE>
PAGE 86
CONTENTS OF THIS
POST-EFFECTIVE AMENDMENT NO. 85
TO REGISTRATION STATEMENT NO. 2-10700
This Post-Effective Amendment comprises the following papers and documents:
The facing sheet.
The cross-reference page.
Part A.
The prospectus.
Part B.
Statement of Additional Information.
Financial Statements.
Part C.
Other information.
Exhibits.
The signatures.
<PAGE>
PAGE 1
IDS Selective Fund, Inc.
File No. 2-10700/811-499
EXHIBIT INDEX
Exhibit 5: Copy of Investment Management Services Agreement
between Registrant and American Express Financial
Corporation, dated March 20, 1995.
Exhibit 6: Copy of Distribution Agreement between Registrant
and American Express Financial Advisors Inc., dated
March 20, 1995.
Exhibit 8(a): Copy of Custodian Agreement between Registrant and
First National Bank of Minneapolis, dated July 23,
1986.
Exhibit 9(b): Copy of Transfer Agency Agreement between the
Registrant and American Express Financial
Corporation, dated March 20, 1995.
Exhibit 9(d): Copy of Shareholder Service Agreement between the
Registrant and American Express Financial Advisors
Inc., dated March 20, 1995.
Exhibit 9(e): Copy of Administrative Services Agreement between
Registrant and American Express Financial
Corporation, dated March 20, 1995.
Exhibit 11: Independent Auditors' Consent
Exhibit 15: Copy of Plan and Agreement of Distribution between
Registrant and American Express Financial Advisors
Inc., dated March 20, 1995.
Exhibit 17: Fiancial Data Schedule
Exhibit 19(a): Directors' Power of Attorney, dated January 8, 1997.
Exhibit 19(c): Trustees' Power of Attorney, dated January 8, 1997.
Exhibit 19(d): Officers' Power of Attorney, dated April 11, 1996.
<PAGE>
PAGE 1
INVESTMENT MANAGEMENT SERVICES AGREEMENT
AGREEMENT made the 20th day of March, 1995, by and between IDS
Selective Fund, Inc. (the "Fund"), a Minnesota corporation, and
American Express Financial Corporation, a Delaware corporation.
Part One: INVESTMENT MANAGEMENT AND OTHER SERVICES
(1) The Fund hereby retains American Express Financial Corporation, and
American Express Financial Corporation hereby agrees, for the period of this
Agreement and under the terms and conditions hereinafter set forth, to furnish
the Fund continuously with suggested investment planning; to determine,
consistent with the Fund's investment objectives and policies, which securities
in American Express Financial Corporation's discretion shall be purchased, held
or sold and to execute or cause the execution of purchase or sell orders; to
prepare and make available to the Fund all necessary research and statistical
data in connection therewith; to furnish all services of whatever nature
required in connection with the management of the Fund as provided under this
Agreement; and to pay such expenses as may be provided for in Part Three;
subject always to the direction and control of the Board of Directors (the
"Board"), the Executive Committee and the authorized officers of the Fund.
American Express Financial Corporation agrees to maintain an adequate
organization of competent persons to provide the services and to perform the
functions herein mentioned. American Express Financial Corporation agrees to
meet with any persons at such times as the Board deems appropriate for the
purpose of reviewing American Express Financial Corporation's performance under
this Agreement.
(2) American Express Financial Corporation agrees that the investment
planning and investment decisions will be in accordance with general investment
policies of the Fund as disclosed to American Express Financial Corporation from
time to time by the Fund and as set forth in its prospectuses and registration
statements filed with the United States Securities and Exchange Commission (the
"SEC").
(3) American Express Financial Corporation agrees that it will maintain
all required records, memoranda, instructions or authorizations relating to the
acquisition or disposition of securities for the Fund.
(4) The Fund agrees that it will furnish to American Express Financial
Corporation any information that the latter may reasonably request with respect
to the services performed or to be performed by American Express Financial
Corporation under this Agreement.
(5) American Express Financial Corporation is authorized to select the
brokers or dealers that will execute the purchases and sales of portfolio
securities for the Fund and is directed to use its best efforts to obtain the
best available price and most favorable execution, except as prescribed herein.
Subject to prior authorization by the Fund's Board of appropriate policies and
procedures, and subject to termination at any time by the Board,
<PAGE>
PAGE 2
American Express Financial Corporation may also be authorized to effect
individual securities transactions at commission rates in excess of the minimum
commission rates available, to the extent authorized by law, if American Express
Financial Corporation determines in good faith that such amount of commission
was reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer, viewed in terms of either that particular
transaction or American Express Financial Corporation's overall responsibilities
with respect to the Fund and other funds for which it acts as investment
adviser.
(6) It is understood and agreed that in furnishing the Fund with the
services as herein provided, neither American Express Financial Corporation, nor
any officer, director or agent thereof shall be held liable to the Fund or its
creditors or shareholders for errors of judgment or for anything except willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
reckless disregard of its obligations and duties under the terms of this
Agreement. It is further understood and agreed that American Express Financial
Corporation may rely upon information furnished to it reasonably believed to be
accurate and reliable.
Part Two: COMPENSATION TO INVESTMENT MANAGER
(1) The Fund agrees to pay to American Express Financial Corporation,
and American Express Financial Corporation covenants and agrees to accept from
the Fund in full payment for the services furnished, a fee for each calendar day
of each year equal to the total of 1/365th (1/366th in each leap year) of the
amount computed as shown below. The computation shall be made for each day on
the basis of net assets as of the close of business of the full business day two
(2) business days prior to the day for which the computation is being made. In
the case of the suspension of the computation of net asset value, the asset
charge for each day during such suspension shall be computed as of the close of
business on the last full business day on which the net assets were computed.
Net assets as of the close of a full business day shall include all transactions
in shares of the Fund recorded on the books of the Fund for that day.
The asset charge shall be based on the net assets of the Fund as set
forth in the following table.
Asset Charge
Assets Annual Rate at
(Billions) Each Asset Level
First $1 0.520%
Next $1 0.495
Next $1 0.470
Next $3 0.445
Next $3 0.420
Over $9 0.395
<PAGE>
PAGE 3
(2) The fee shall be paid on a monthly basis and, in the event of the
termination of this Agreement, the fee accrued shall be prorated on the basis of
the number of days that this Agreement is in effect during the month with
respect to which such payment is made.
(3) The fee provided for hereunder shall be paid in cash by the Fund to
American Express Financial Corporation within five business days after the last
day of each month.
Part Three: ALLOCATION OF EXPENSES
(1) The Fund agrees to pay:
(a) Fees payable to American Express Financial Corporation
for its services under the terms of this Agreement.
(b) Taxes.
(c) Brokerage commissions and charges in connection with
the purchase and sale of assets.
(d) Custodian fees and charges.
(e) Fees and charges of its independent certified public
accountants for services the Fund requests.
(f) Premium on the bond required by Rule 17g-1 under the
Investment Company Act of 1940.
(g) Fees and expenses of attorneys (i) it employs in matters not
involving the assertion of a claim by a third party against the Fund, its
directors and officers, (ii) it employs in conjunction with a claim asserted by
the Board against American Express Financial Corporation, except that American
Express Financial Corporation shall reimburse the Fund for such fees and
expenses if it is ultimately determined by a court of competent jurisdiction, or
American Express Financial Corporation agrees, that it is liable in whole or in
part to the Fund, and (iii) it employs to assert a claim against a third party.
(h) Fees paid for the qualification and registration for public sale of
the securities of the Fund under the laws of the United States and of the
several states in which such securities shall be offered for sale.
(i) Fees of consultants employed by the Fund.
(j) Directors, officers and employees expenses which shall include
fees, salaries, memberships, dues, travel, seminars, pension, profit sharing,
and all other benefits paid to or provided for directors, officers and
employees, directors and officers liability insurance, errors and omissions
liability insurance, worker's compensation insurance and other expenses
applicable to the directors, officers and employees, except the Fund will not
pay any fees or expenses of any person who is an officer or employee of American
Express Financial Corporation or its affiliates.
<PAGE>
PAGE 4
(k) Filing fees and charges incurred by the Fund in connection with
filing any amendment to its articles of incorporation, or incurred in filing any
other document with the State of Minnesota or its political subdivisions.
(l) Organizational expenses of the Fund.
(m) Expenses incurred in connection with lending portfolio
securities of the Fund.
(n) Expenses properly payable by the Fund, approved by the
Board.
(2) American Express Financial Corporation agrees to pay all expenses
associated with the services it provides under the terms of this Agreement.
Further, American Express Financial Corporation agrees that if, at the end of
any month, the expenses of the Fund under this Agreement and any other agreement
between the Fund and American Express Financial Corporation, but excluding those
expenses set forth in (1)(b) and (1)(c) of this Part Three, exceed the most
restrictive applicable state expenses limitation, the Fund shall not pay those
expenses set forth in (1)(a) and (d) through (n) of this Part Three to the
extent necessary to keep the Fund's expenses from exceeding the limitation, it
being understood that American Express Financial Corporation will assume all
unpaid expenses and bill the Fund for them in subsequent months but in no event
can the accumulation of unpaid expenses or billing be carried past the end of
the Fund's fiscal year.
Part Four: MISCELLANEOUS
(1) American Express Financial Corporation shall be deemed to be an
independent contractor and, except as expressly provided or authorized in this
Agreement, shall have no authority to act for or represent the Fund.
(2) A "full business day" shall be as defined in the
By-laws.
(3) The Fund recognizes that American Express Financial Corporation now
renders and may continue to render investment advice and other services to other
investment companies and persons which may or may not have investment policies
and investments similar to those of the Fund and that American Express Financial
Corporation manages its own investments and/or those of its subsidiaries.
American Express Financial Corporation shall be free to render such investment
advice and other services and the Fund hereby consents thereto.
(4) Neither this Agreement nor any transaction had pursuant hereto
shall be invalidated or in any way affected by the fact that directors,
officers, agents and/or shareholders of the Fund are or may be interested in
American Express Financial Corporation or any successor or assignee thereof, as
directors, officers, stockholders or otherwise; that directors, officers,
stockholders or agents of American Express Financial Corporation are or may be
interested in the Fund as directors, officers, shareholders, or otherwise; or
<PAGE>
PAGE 5
that American Express Financial Corporation or any successor or assignee, is or
may be interested in the Fund as shareholder or otherwise, provided, however,
that neither American Express Financial Corporation, nor any officer, director
or employee thereof or of the Fund, shall sell to or buy from the Fund any
property or security other than shares issued by the Fund, except in accordance
with applicable regulations or orders of the SEC.
(5) Any notice under this Agreement shall be given in writing,
addressed, and delivered, or mailed postpaid, to the party to this Agreement
entitled to receive such, at such party's principal place of business in
Minneapolis, Minnesota, or to such other address as either party may designate
in writing mailed to the other.
(6) American Express Financial Corporation agrees that no officer,
director or employee of American Express Financial Corporation will deal for or
on behalf of the Fund with himself as principal or agent, or with any
corporation or partnership in which he may have a financial interest, except
that this shall not prohibit:
(a) Officers, directors or employees of American Express Financial
Corporation from having a financial interest in the Fund or in American Express
Financial Corporation.
(b) The purchase of securities for the Fund, or the sale of securities
owned by the Fund, through a security broker or dealer, one or more of whose
partners, officers, directors or employees is an officer, director or employee
of American Express Financial Corporation, provided such transactions are
handled in the capacity of broker only and provided commissions charged do not
exceed customary brokerage charges for such services.
(c) Transactions with the Fund by a broker-dealer affiliate of American
Express Financial Corporation as may be allowed by rule or order of the SEC, and
if made pursuant to procedures adopted by the Fund's Board.
(7) American Express Financial Corporation agrees that, except as
herein otherwise expressly provided or as may be permitted consistent with the
use of a broker-dealer affiliate of American Express Financial Corporation under
applicable provisions of the federal securities laws, neither it nor any of its
officers, directors or employees shall at any time during the period of this
Agreement, make, accept or receive, directly or indirectly, any fees, profits or
emoluments of any character in connection with the purchase or sale of
securities (except shares issued by the Fund) or other assets by or for the
Fund.
Part Five: RENEWAL AND TERMINATION
(1) This Agreement shall continue in effect until March 19, 1997, or
until a new agreement is approved by a vote of the majority of the outstanding
shares of the Fund and by vote of the Fund's Board, including the vote required
by (b) of this paragraph, and if no new agreement is so approved, this Agreement
shall PAGE
<PAGE>
PAGE 6
continue from year to year thereafter unless and until terminated by either
party as hereinafter provided, except that such continuance shall be
specifically approved at least annually (a) by the Board of the Fund or by a
vote of the majority of the outstanding shares of the Fund and (b) by the vote
of a majority of the directors who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval. As used in this paragraph, the term
"interested person" shall have the same meaning as set forth in the Investment
Company Act of 1940, as amended (the "1940 Act").
(2) This Agreement may be terminated by either the Fund or American
Express Financial Corporation at any time by giving the other party 60 days'
written notice of such intention to terminate, provided that any termination
shall be made without the payment of any penalty, and provided further that
termination may be effected either by the Board of the Fund or by a vote of the
majority of the outstanding voting shares of the Fund. The vote of the majority
of the outstanding voting shares of the Fund for the purpose of this Part Five
shall be the vote at a shareholders' regular meeting, or a special meeting duly
called for the purpose, of 67% or more of the Fund's shares present at such
meeting if the holders of more than 50% of the outstanding voting shares are
present or represented by proxy, or more than 50% of the outstanding voting
shares of the Fund, whichever is less.
(3) This Agreement shall terminate in the event of its assignment, the
term "assignment" for this purpose having the same meaning as set forth in the
1940 Act.
IN WITNESS THEREOF, the parties hereto have executed the foregoing
Agreement as of the day and year first above written.
IDS SELECTIVE FUND, INC.
By /s/ Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL CORPORATION
By /s/ Janis E. Miller
Janie E. Miller
Vice President
<PAGE>
PAGE 1
DISTRIBUTION AGREEMENT
Agreement made as of the 20th day of March, 1995, by and between IDS Selective
Fund, Inc. (the "Fund"), a Minnesota corporation, for and on behalf of each
class of the Fund and American Express Financial Advisors Inc., a Delaware
corporation.
Part One: DISTRIBUTION OF SECURITIES
(1) The Fund covenants and agrees that, during the term of this agreement and
any renewal or extension, American Express Financial Advisors shall have the
exclusive right to act as principal underwriter for the Fund and to offer for
sale and to distribute either directly or through any affiliate any and all
shares of each class of capital stock issued or to be issued by the Fund.
(2) American Express Financial Advisors hereby covenants and agrees to act as
the principal underwriter of each class of capital shares issued and to be
issued by the Fund during the period of this agreement and agrees during such
period to offer for sale such shares as long as such shares remain available for
sale, unless American Express Financial Advisors is unable or unwilling to make
such offer for sale or sales or solicitations therefor legally because of any
federal, state, provincial or governmental law, rule or agency or for any
financial reason.
(3) With respect to the offering for sale and sale of shares of each class to be
issued by the Fund, it is mutually understood and agreed that such shares are to
be sold on the following terms:
(a) All sales shall be made by means of an application, and every application
shall be subject to acceptance or rejection by the Fund at its principal place
of business. Shares are to be sold for cash, payable at the time the application
and payment for such shares are received at the principal place of business of
the Fund.
(b) No shares shall be sold at less than the asset value (computed in the
manner provided by the currently effective prospectus or Statement of Additional
Information and the Investment Company Act of 1940, and rules thereunder). The
number of shares or fractional shares to be acquired by each applicant shall be
determined by dividing the amount of each accepted application by the public
offering price of one share of the capital stock of the appropriate class as of
the close of business on the day when the application, together with payment, is
received by the Fund at its principal place of business. The computation as to
the number of shares and fractional shares shall be carried to three decimal
points of one share with the computation being carried to the nearest 1/lOOOth
of a share. If the day of receipt of the application and payment is not a full
business day, then the asset value of the share for use in such computation
shall be determined as of the close of business on the next succeeding full
business day. In the event of a period of emergency, the computation of the
asset value for the purpose of determining the number of shares or fractional
shares to be acquired by the applicant may be deferred until the close of
business on the first full business day following the termination of the period
of
<PAGE>
PAGE 2
emergency. A period of emergency shall have the definition given thereto in the
Investment Company Act of 1940, and rules thereunder.
(4) The Fund agrees to make prompt and reasonable effort to do any and all
things necessary, in the opinion of American Express Financial Advisors, to have
and to keep the Fund and the shares properly registered or qualified in all
appropriate jurisdictions and, as to shares, in such amounts as American Express
Financial Advisors may from time to time designate in order that the Fund's
shares may be offered or sold in such jurisdictions.
(5) The Fund agrees that it will furnish American Express Financial Advisors
with information with respect to the affairs and accounts of the Fund, and in
such form, as American Express Financial Advisors may from time to time
reasonably require and further agrees that American Express Financial Advisors,
at all reasonable times, shall be permitted to inspect the books and records of
the Fund.
(6) American Express Financial Advisors or its agents may prepare or cause to be
prepared from time to time circulars, sales literature, broadcast material,
publicity data and other advertising material to be used in the sales of shares
issued by the Fund, including material which may be deemed to be a prospectus
under rules promulgated by the Securities and Exchange Commission (each separate
promotional piece is referred to as an "Item of Soliciting Material"). At its
option, American Express Financial Advisors may submit any Item of Soliciting
Material to the Fund for its prior approval. Unless a particular Item of
Soliciting Material is approved in writing by the Fund prior to its use,
American Express Financial Advisors agrees to indemnify the Fund and its
directors and officers against any and all claims, demands, liabilities and
expenses which the Fund or such persons may incur arising out of or based upon
the use of any Item of Soliciting Material. The term "expenses" includes amounts
paid in satisfaction of judgments or in settlements. The foregoing right of
indemnification shall be in addition to any other rights to which the Fund or
any director or officer may be entitled as a matter of law. Notwithstanding the
foregoing, such indemnification shall not be deemed to abrogate or diminish in
any way any right or claim American Express Financial Advisors may have against
the Fund or its officers or directors in connection with the Fund's registration
statement, prospectus, Statement of Additional Information or other information
furnished by or caused to be furnished by the Fund.
(7) American Express Financial Advisors agrees to submit to the Fund each
application for shares immediately after the receipt of such application and
payment therefor by American Express Financial Advisors at its principal place
or business.
(8) American Express Financial Advisors agrees to cause to be delivered to each
person submitting an application a prospectus or circular to be furnished by the
Fund in the form required by the applicable federal laws or by the acts or
statutes of any applicable state, province or country.
<PAGE>
PAGE 3
(9) The Fund shall have the right to extend to shareholders of each class the
right to use the proceeds of any cash dividend paid by the Fund to that
shareholder to purchase shares of the same class at the net asset value at the
close of business upon the day of purchase, to the extent set forth in the
currently effective prospectus or Statement of Additional Information.
(10) Shares of each class issued by the Fund may be offered and sold at their
asset value to the shareholders of the same class of other funds in the IDS
MUTUAL FUND GROUP who wish to exchange their investments in shares of the other
funds in the IDS MUTUAL FUND GROUP to investments in shares of the Fund, to the
extent set forth in the currently effective prospectus or Statement of
Additional Information, such asset value to be computed as of the close of
business on the day of sale of such shares of the Fund.
(11) American Express Financial Advisors and the Fund agree to use their best
efforts to conform with all applicable state and federal laws and regulations
relating to any rights or obligations under the term of this agreement.
Part Two: ALLOCATION OF EXPENSES
Except as provided by any other agreements between the parties, American Express
Financial Advisors covenants and agrees that during the period of this agreement
it will pay or cause or be paid all expenses incurred by American Express
Financial Advisors, or any of its affiliates, in the offering for sale or sale
of each class of the Fund's shares.
Part Three: COMPENSATION
(1) It is covenanted and agreed that American Express Financial Advisors shall
be paid:
(i) for a class of shares imposing a front-end sales charge, by the
purchasers of Fund shares in an amount equal to the difference between the total
amount received upon each sale of shares issued by the Fund and the asset value
of such shares at the time of such sale; and
(ii) for a class of shares imposing a deferred sales charge, by owners of
Fund shares at the time the sales charge is imposed in an amount equal to any
deferred sales charge, as described in the Fund's prospectus.
Such sums as are received by the Fund shall be received as Agent for American
Express Financial Advisors and shall be remitted to American Express Financial
Advisors daily as soon as practicable after receipt.
(2) The asset value of any share of each class of the Fund shall be determined
in the manner provided by the classes currently effective prospectus and
Statement of Additional Information and the Investment Company Act of 1940, and
rules thereunder.
<PAGE>
PAGE 4
Part Four: MISCELLANEOUS
(1) American Express Financial Advisors shall be deemed to be an independent
contractor and, except as expressly provided or authorized in this agreement,
shall have no authority to act for or represent the Fund.
(2) American Express Financial Advisors shall be free to render to others
services similar to those rendered under this agreement.
(3) Neither this agreement nor any transaction had pursuant hereto shall be
invalidated or in any way affected by the fact that directors, officers, agents
and/or shareholders of the Fund are or may be interested in American Express
Financial Advisors as directors, officers, shareholders or otherwise; that
directors, officers, shareholders or agents of American Express Financial
Advisors are or may be interested in the Fund as directors, officers,
shareholders or otherwise; or that American Express Financial Advisors is or may
be interested in the Fund as shareholder or otherwise, provided, however, that
neither American Express Financial Advisors nor any officer or director of
American Express Financial Advisors or any officers or directors of the Fund
shall sell to or buy from the Fund any property or security other than a
security issued by the Fund, except in accordance with a rule, regulation or
order of the federal Securities and Exchange Commission.
(4) For the purposes of this agreement, a "business day" shall have the same
meaning as is given to the term in the By-laws of the Fund.
(5) Any notice under this agreement shall be given in writing, addressed and
delivered, or mailed postpaid, to the parties to this agreement at each
company's principal place of business in Minneapolis, Minnesota, or to such
other address as either party may designate in writing mailed to the other.
(6) American Express Financial Advisors agrees that no officer, director or
employee of American Express Financial Advisors will deal for or on behalf of
the Fund with himself as principal or agent, or with any corporation or
partnership in which he may have a financial interest, except that this shall
not prohibit:
(a) Officers, directors and employees of American Express Financial Advisors
from having a financial interest in the Fund or in American Express Financial
Advisors.
(b) The purchase of securities for the Fund, or the sale of securities owned
by the Fund, through a security broker or dealer, one or more of whose partners,
officers, directors or employees is an officer, director or employee of American
Express Financial Advisors, provided such transactions are handled in the
capacity of broker only and provided commissions charged do not exceed customary
brokerage charges for such services.
<PAGE>
PAGE 5
(c) Transactions with the Fund by a broker-dealer affiliate of American
Express Financial Advisors if allowed by rule or order of the Securities and
Exchange Commission and if made pursuant to procedures adopted by the Fund's
Board of Directors.
(7) American Express Financial Advisors agrees that, except as otherwise
provided in this agreement, or as may be permitted consistent with the use of a
broker-dealer affiliate of American Express Financial Advisors under applicable
provisions of the federal securities laws, neither it nor any of its officers,
directors or employees shall at any time during the period of this agreement
make, accept or receive, directly or indirectly, any fees, profits or emoluments
of any character in connection with the purchase or sale of securities (except
securities issued by the Fund) or other assets by or for the Fund.
Part Five: TERMINATION
(1) This agreement shall continue from year to year unless and until terminated
by American Express Financial Advisors or the Fund, except that such continuance
shall be specifically approved at least annually by a vote of a majority of the
Board of Directors who are not parties to this agreement or interested persons
of any such party, cast in person at a meeting called for the purpose of voting
on such approval, and by a majority of the Board of Directors or by vote of a
majority of the outstanding voting securities of the Fund. As used in this
paragraph, the term "interested person" shall have the meaning as set forth in
the Investment Company Act of 1940, as amended.
(2) This agreement may be terminated by American Express Financial Advisors or
the Fund at any time by giving the other party sixty (60) days written notice of
such intention to terminate.
(3) This agreement shall terminate in the event of its assignment, the term
"assignment" for this purpose having the same meaning as set forth in the
Investment Company Act of 1940, as amended.
IN WITNESS WHEREOF, The parties hereto have executed the foregoing agreement on
the date and year first above written.
IDS SELECTIVE FUND, INC.
By /s/ Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
By /s/ Janis E. Miller
Janis E. Miller
Vice President
<PAGE>
PAGE 1
CUSTODIAN AGREEMENT
THIS CUSTODIAN AGREEMENT dated July 23, 1986, between IDS Selective Fund, Inc.,
a Minnesota Corporation (hereinafter also called the "Corporation") and First
National Bank of Minneapolis, a corporation organized under the laws of the
United States of America with its principal place of business at Minneapolis,
Minnesota (hereinafter also called the "Custodian").
WHEREAS, the Corporation desires that its securities and cash be hereafter held
and administered by Custodian pursuant to the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Corporation and the Custodian agree as follows:
Section l. Definitions
The word "securities" as used herein shall be construed to include, without
being limited to, shares, stocks, treasury stocks, including any stocks of this
Corporation, notes, bonds, debentures, evidences of indebtedness, options to buy
or sell stocks or stock indexes, certificates of interest or participation in
any profit-sharing agreements, collateral trust certificates, preorganization
certificates or subscriptions, transferable shares, investment contracts, voting
trust certificates, certificates of deposit for a security, fractional or
undivided interests in oil, gas or other mineral rights, or any certificates of
interest or participation in, temporary or interim certificates for, receipts
for, guarantees of, or warrants or rights to subscribe to or purchase any of the
foregoing, acceptances and other obligations and any evidence of any right or
interest in or to any cash, property or assets and any interest or instrument
commonly known as a security. In addition, for the purpose of this Agreement,
the word "securities" also shall include other instruments in which the
Corporation may invest including currency forward contracts and commodities such
as interest rate or index futures contracts, margin deposits on such contracts
or options on such contracts.
The words "custodian order" shall mean a request or direction, including a
computer printout, directed to the Custodian and signed in the name of the
Corporation by any two individuals designated in the current certified list
referred to in Section 2.
The word "facsimile" shall mean an exact copy or likeness which is
electronically transmitted for instant reproduction.
Section 2. Names, Titles and Signatures of Authorized Persons
The Corporation will certify to the Custodian the names and signatures of its
present officers and other designated persons authorized on behalf of the
Corporation to direct the Custodian by custodian order as hereinbefore defined.
The Corporation agrees that whenever any change occurs in this list it will file
with the Custodian a copy of a resolution certified by the Secretary or an
<PAGE>
PAGE 2
Assistant Secretary of the Corporation as having been duly adopted by the Board
of Directors or the Executive Committee of the Board of Directors of the
Corporation designating those persons currently authorized on behalf of the
Corporation to direct the Custodian by custodian order, as hereinbefore defined,
and upon such filing (to be accompanied by the filing of specimen signatures of
the designated persons) the persons so designated in said resolution shall
constitute the current certified list. The Custodian is authorized to rely and
act upon the names and signatures of the individuals as they appear in the most
recent certified list from the Corporation which has been delivered to the
Custodian as hereinabove provided.
Section 3. Use of Subcustodians
The Custodian may make arrangements, where appropriate, with other banks having
not less than two million dollars aggregate capital, surplus and undivided
profits for the custody of securities and cash.
The Custodian also may enter into arrangements for the custody of "Foreign
Securities" and cash entrusted to its care through "Eligible Foreign Custodian,"
as those terms are defined by Rule 17f-5 under the Investment Company Act of
1940 (the "Act"), or such other entity as permitted by the Securities and
Exchange Commission (the "SEC") (such Eligible Foreign Custodians, collectively,
"Foreign Custodial Agents") provided, if required by the SEC, that the Board has
given its prior approval to the use of, and Custodian's contract with, each
Foreign Custodial Agent by resolution, and a certified copy of such resolution
has been provided to the Custodian. To the extent the provisions of this
Agreement are consistent with the requirements of the Act, rules, orders or
no-action letters of the SEC, they shall apply to all such foreign
custodianships. To the extent such provisions are inconsistent with or
additional requirements are established by the Act or such rules, orders or
no-action letters, the requirements of the Act or such rules, orders or
no-action letters will prevail and the parties will adhere to such requirements;
provided, however, in the absence of notification from the Corporation of any
changes or additions to such requirements, the Custodian shall have no duty or
responsibility to inquire as to any such changes or additions.
All subcustodians of the Custodian (such subcustodians, collectively, the
"Subcustodians"), including all Foreign Custodial Agents, shall be subject to
the instructions of the Custodian and not to those of the Corporation and shall
act solely as agent of the Custodian.
Section 4. Receipt and Disbursement of Money
(1) The Custodian shall open and maintain a separate account or accounts in the
name of the Corporation and cause any Subcustodians to open and maintain such
account or accounts, subject only to checks, drafts or directives by the
Custodian or such Subcustodian pursuant to the terms of this Agreement. The
Custodian or such Subcustodian shall hold in such account or accounts, subject
to the
<PAGE>
PAGE 3
provisions hereof, all cash received by it from or for the account of the
Corporation. The Custodian or such Subcustodian shall make payments of cash to
or for the account of the Corporation from such cash only:
(a) for the purchase of securities for the portfolio of the
Corporation upon the receipt of such securities by the
Custodian or such Subcustodian;
(b) for the purchase or redemption of shares of capital stock
of the Corporation;
(c) for the payment of interest, dividends, taxes, management fees, or
operating expenses (including, without limitation thereto, fees for
legal, accounting and auditing services);
(d) for payment of distribution fees, commissions, or
redemption fees, if any;
(e) for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the
Corporation held by or to be delivered to the Custodian;
(f) for payments in connection with the return of securities loaned by the
Corporation upon receipt of such securities or the reduction of
collateral upon receipt of proper notice;
(g) for payments for other proper corporate purposes; or
(h) upon the termination of this Agreement.
Before making any such payment for the purposes permitted under the terms of
items (a), (b), (c), (d), (e), (f) or (g) of paragraph (1) of this section, the
Custodian shall receive and may rely upon a custodian order directing such
payment and stating that the payment is for such a purpose permitted under these
items (a), (b), (c), (d), (e), (f) or (g) and that in respect to item (g), a
copy of a resolution of the Board of Directors or of the Executive Committee of
the Board of Directors of the Corporation signed by an officer of the
Corporation and certified by its Secretary or an Assistant Secretary, specifying
the amount of such payment, setting forth the purpose to be a proper corporate
purpose, and naming the person or persons to whom such payment is made.
Notwithstanding the above, for the purposes permitted under items (a) or (f) of
paragraph (1) of this section, the Custodian may rely upon a facsimile order.
(2) The Custodian is hereby appointed the attorney-in-fact of the Corporation to
endorse and collect all checks, drafts or other orders for the payment of money
received by the Custodian for the account of the Corporation and drawn on or to
the order of the Corporation and to deposit same to the account of the
Corporation pursuant to this Agreement.
<PAGE>
PAGE 4
(3) Subject to the prior authorization provisions of Section 3 of this
Agreement, the Corporation authorizes the Custodian to establish and maintain in
each country or other jurisdiction in which the principal trading market for any
Foreign Securities is located, or in which any Foreign Securities are to be
presented for payment, an account or accounts which may include nostro accounts
with Custodian branches and omnibus accounts of Custodian at Foreign Custodial
Agents for receipt of cash in such currencies as directed by custodian order.
For purposes of this Agreement, cash so held in any such account shall be
evidenced by separate book entries maintained by Custodian and shall be deemed
to be cash held by Custodian. Cash received or credited by Custodian or any
Custodian branch or any Foreign Custodial Agent in a currency other than United
States dollars shall be maintained in such currency and shall not be converted
or remitted except in accordance with the custodian order, except as permitted
by Section 7.
Section 5. Receipt of Securities
Except as permitted by the second paragraph of this section, the Custodian
shall, and shall cause any Subcustodians to, hold in a separate account or
accounts, and physically segregated at all times from those of any other
persons, firms or corporations, pursuant to the provisions hereof, all
securities and cash received for the account of the Corporation. The Custodian
shall, and shall cause any Subcustodians to, record and maintain a record of all
certificate numbers. Securities so received shall be held in the name of the
Corporation, in the name of an exclusive nominee duly appointed by the Custodian
or such Subcustodian, or in bearer form, as appropriate.
Subject to such rules, regulations or guidelines as the SEC may adopt, the
Custodian may deposit all or any part of the securities owned by the Corporation
in a securities depository which includes any system for the central handling of
securities established by a national securities exchange or a national
securities association registered with the SEC under the Securities Exchange Act
of 1934, or such other person as may be permitted by the SEC, pursuant to which
system all securities of any particular class or series of any issuer deposited
within the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities.
All securities are to be held or disposed of by the Custodian for, and subject
at all times to the instructions of, the Corporation pursuant to the terms of
this Agreement. The Custodian shall have no power or authority to assign,
hypothecate, pledge or otherwise dispose of any such securities, except pursuant
to the directive of the Corporation and only for the account of the Corporation
as set forth in Section 6 of this Agreement.
<PAGE>
PAGE 5
Section 6. Transfer Exchange, Delivery, etc. of Securities
The Custodian shall have sole power to release or deliver any securities of the
Corporation held by it pursuant to this Agreement. The Custodian agrees to
transfer, exchange or deliver securities held by it or any Subcustodian only:
(a) for sales of such securities for the account of the
Corporation, upon receipt of payment therefor;
(b) when such securities are called, redeemed, retired or
otherwise become payable;
(c) for examination upon the sale of any such securities in accordance with
"street delivery" custom which would include delivery against interim
receipts or other proper delivery receipts;
(d) in exchange for or upon conversion into other securities alone or other
securities and cash whether pursuant to any plan of merger,
consolidation, reorganization, recapitalization or readjustment, or
otherwise;
(e) for the purpose of exchanging interim receipts or temporary
certificates for permanent certificates;
(f) upon conversion of such securities pursuant to their terms
into other securities;
(g) upon exercise of subscription, purchase or other similar
rights represented by such securities;
(h) for loans of such securities by the Corporation upon receipt
of collateral; or
(i) for other proper corporate purposes.
As to any deliveries made by the Custodian pursuant to items (a), (b), (c), (d),
(e), (f), (g) and (h), securities or cash received in exchange therefore shall
be delivered to the Custodian, a Subcustodian, or to a securities depository.
Before making any such transfer, exchange or delivery, the Custodian shall
receive a custodian order or a facsimile from the Corporation requesting such
transfer, exchange or delivery and stating that it is for a purpose permitted
under this section (whenever a facsimile is utilized, the Corporation will also
deliver an original signed custodian order) and, in respect to item (i), a copy
of a resolution of the Board of Directors or of the Executive Committee of the
Board of Directors of the Corporation signed by an officer of the Corporation
and certified by its Secretary or an Assistant Secretary, specifying the
securities, setting forth the purpose for which such payment, transfer, exchange
or delivery is to be made, declaring such
<PAGE>
PAGE 6
purpose to be a proper corporate purpose, and naming the person or persons to
whom such transfer, exchange or delivery of such securities shall be made.
Section 7. Custodian's Acts Without Instructions
Unless and until the Custodian receives a contrary custodian order from the
Corporation, the Custodian shall or shall cause a Subcustodian to:
(a) present for payment all coupons and other income items held by the
Custodian or such Subcustodian for the account of the Corporation which
call for payment upon presentation and hold all cash received by it upon
such payment for the account of the Corporation;
(b) present for payment all securities held by it or such
Subcustodian which mature or when called, redeemed, retired or
otherwise become payable;
(c) ascertain all stock dividends, rights and similar securities
to be issued with respect to any securities other than Foreign
Securities;
(d) collect and hold for the account of the Corporation all stock
dividends, rights and similar securities issued with respect
to any securities;
(e) ascertain all interest and cash dividends to be paid to
security holders with respect to any securities other than
Foreign Securities;
(f) collect and hold all interest and cash dividends for the
account of the Corporation;
(g) present for exchange securities converted pursuant to their
terms into other securities;
(h) exchange interim receipts or temporary securities for
definitive securities;
(i) execute in the name of the Corporation such ownership and other
certificates as may be required to obtain payments in respect thereto,
provided that the Corporation shall have furnished to the Custodian or
such Subcustodian any information necessary in connection with such
certificates; and
(j) convert interest and dividends received with respect to Foreign
Securities into United States dollars whenever it is practicable to do
so through customary banking channels, including the Custodian's own
banking facilities.
<PAGE>
PAGE 7
Section 8. Settlement Procedures
Settlement procedures for transactions in Foreign Securities, including receipts
and payments of cash held in any nostro account or omnibus account, shall be
carried out in accordance with instructions in the operational manual provided
by the Custodian (the "Operational Manual"). It is understood that such
settlement procedures may vary, as provided in the Operational Manual, from
securities market to securities market, to reflect particular settlement
practices in such markets.
With respect to any transaction involving Foreign Securities, the Custodian or
any Subcustodian in its discretion may cause the Corporation to be credited on
the contractual settlement date with proceeds of any sale or exchange of Foreign
Securities and to be debited on the contractual settlement date for the cost of
Foreign Securities purchased or acquired. The Custodian may reverse any such
credit or debit if the transaction with respect to which such credit or debit
was made fails to settle within a reasonable period, determined by the Custodian
in its discretion, after the contractual settlement date except that if any
Foreign Securities delivered pursuant to this section are returned by the
recipient thereof, the Custodian may cause any such credits and debits to be
reversed at any time. With respect to any transactions as to which the Custodian
does not determine so to credit or debit the Corporation, the proceeds from the
sale or exchange of Foreign Securities will be credited and the cost of such
Foreign Securities purchased or acquired will be debited on the date such
proceeds or Foreign Securities are received by the Custodian.
Notwithstanding the preceding paragraph, settlement, payment and delivery for
Foreign Securities may be effected in accordance with the customary or
established securities trading or securities processing practices and procedures
in the jurisdiction or market in which the transaction occurs, including,
without limitation, delivering Foreign Securities to the purchaser thereof or to
a dealer therefor against a receipt with the exception of receiving later
payment for such Foreign Securities from such purchaser or dealer.
Section 9. Records
The Custodian hereby agrees that it shall create, maintain, and retain all
records relating to its activities and obligations under this Agreement in such
manner as will meet their obligations under this Agreement and the obligations
of the Corporation under the Act, particularly Section 31 thereof and Rules
31a-1 and 31a-2 thereunder and Section 17(f) thereof and the rules thereunder,
and applicable federal, state and foreign tax laws and other laws or
administrative rules or procedures, in each case as currently in effect, which
may be applicable to the Corporation. All records so maintained in connection
with the performance of its duties under this Agreement shall remain the
property of the Corporation and, in
<PAGE>
PAGE 8
the event of termination of this Agreement, shall be delivered in accordance
with the provisions of this Agreement.
(a) With respect to securities and cash held by the Custodian's branches,
such securities and cash may be placed in an omnibus account for the
customers of the Custodian, and the Custodian shall maintain separate
book entry records for each such omnibus account.
(b) With respect to securities and cash deposited by the Custodian with a
Foreign Custodial Agent, the Custodian shall indemnify on its books as
belonging to the Corporation the securities and cash shown on the
Custodian's account on the books of such Foreign Custodial Agent.
(c) With respect to securities and cash deposited with a
securities depository or clearing agency, incorporated or
organized under the laws of a country other than the United
States, which operates the central system for handling of
securities or equivalent book-entries in that country or which
operates a transnational system for the central handling or
securities or equivalent book-entries (on "Eligible Foreign
Securities Depository"), the Custodian shall cause the
securities and cash shown on the account on the books of the
Eligible Foreign Securities Depository to be identified as
belonging to the Custodian as agent for the Corporation.
The Custodian hereby agrees that the books and records of the Custodian
(including any Custodian branch) pertaining to its actions under this Agreement
shall be open to the physical, on- premises inspection and audit by the
independent accountant (the "Accountant") employed by, or other representatives
of, the Corporation, and, upon the request of the Accountant, confirmation of
the contents of those records shall be provided by the Custodian. The Custodian
shall use its best efforts to cause any Foreign Custodial Agent to afford access
to the Accountant to the books and records of such Foreign Custodial Agent with
respect to securities and cash held by such Foreign Custodial Agent for the
Corporation. the Custodian also agrees to furnish the Accountant with such
reports of the Custodian's (including any Custodian branches') auditors as they
relate to the services provided under this Agreement and as are necessary for
the Accountant to conduct its examination of the books and records pertaining to
affairs of the Corporation, and the Custodian shall use its best efforts to
obtain and furnish similar reports of any Foreign Custodial Agent holding
securities and cash for the Corporation.
Section 10. Registration of Securities
Securities which are ordinarily held in registered form may be
registered in the name of the Custodian's nominee or, as to any
securities in the physical possession of an entity other than the
Custodian, in the name of such entity's nominee. The Corporation
<PAGE>
PAGE 9
agrees to hold any such nominee harmless from any liability as a holder of
record of such securities. The Custodian may without notice to the Corporation
cause any such securities to cease to be registered in the name of any such
nominee and to be registered in the name of the Corporation. In the event that
any security registered in the name of the Custodian's nominee or held by any
Subcustodians and registered in the name of such Subcustodian's nominee is
called for partial redemption by the issuer of such security, the Custodian may
allot, or cause to be allotted, the called portion to the respective beneficial
holders of such class of security in any manner the Custodian deems to be fair
and equitable.
Section 11. Transfer Taxes
The Corporation shall pay or reimburse the Custodian and any Subcustodian for
any transfer taxes payable upon transfers of securities made hereunder,
including transfers resulting from the termination of this Agreement. The
Custodian shall, and shall use its best efforts to cause any Subcustodian to,
execute such certificates in connection with securities delivered to it under
this Agreement as may be required, under any applicable law or regulation, to
exempt from taxation any transfers and/or deliveries of any such securities
which may be entitled to such exemption.
Section 12. Voting and Other Action
Neither the Custodian or any Subcustodian nor any nominee of the Custodian or
such Subcustodian shall vote any of the securities held hereunder by or for the
account of the Corporation. The Custodian shall, and shall use its best efforts
to cause any Subcustodian to, promptly deliver to the Corporation all notices,
proxies and proxy soliciting materials with relation to such securities, such
proxies to be executed by the registered holder of such securities (if
registered otherwise than in the name of the Corporation), but without
indicating the manner in which such proxies are to be voted.
The Custodian shall, and shall use its best efforts to cause any Subcustodian
to, transmit promptly to the Corporation all written information (including,
without limitation, pendency of calls and maturities of securities and
expirations of rights in connection therewith) received by the Custodian or such
Subcustodian from issuers of the securities being held for the Corporation. With
respect to tender or exchange offers, the Custodian shall, and shall use its
best efforts to cause any Subcustodian to, transmit promptly to the Corporation
all written information received by the Custodian or such Subcustodian from
issuers of the securities whose tender or exchange is sought and from the party
(or his agents) making the tender or exchange offer.
<PAGE>
PAGE 10
Section 13. Custodian's Reports
The Custodian shall furnish the Corporation as of the close of business each day
a statement showing all transactions and entries for the account of the
Corporation. The books and records of the Custodian pertaining to its actions as
Custodian under this Agreement and securities held hereunder by the Custodian
shall be open to inspection and audit by officers of the Corporation, internal
auditors employed by the Corporation's investment adviser, and independent
auditors employed by the Corporation. The Custodian shall furnish the
Corporation in such form as may reasonably be requested by the Corporation a
report, including a list of the securities held by it in custody for the account
of the Corporation, identification of any subcustodian, and identification of
such securities held by such subcustodian, as of the close of business of the
last business day of each month, which shall be certified by a duly authorized
officer of the Custodian. It is further understood that additional reports may
from time to time be requested by the Corporation. Should any report ever be
filed with any governmental authority pertaining to lost or stolen securities,
the Custodian will concurrently provide the Corporation with a copy of that
report.
The Custodian also shall furnish such reports on its systems of internal
accounting control as the Corporation may reasonably request from time to time.
Section 14. Security Interest, Liens and Transfers of Beneficial
Ownership
The securities and cash held by the Custodian hereunder shall not be subject to
any right, change, security interest, lien or claim of any kind in favor of the
Custodian or its creditors, except a claim of payment for their safe custody or
administration, and beneficial ownership of such securities and cash shall be
freely transferable without the payment of money or value other than for safe
custody or administration. Any agreement the Custodian shall enter into with any
Subcustodian, including any Foreign Custodial Agent, shall contain a provision
which is substantially identical to the foregoing.
In the event that there shall be asserted any attachment or lien on or against
any securities or cash held in any omnibus account or nostro account referred to
in this Agreement which results from any claim against the Custodian (including
any branch) or any such account, which is not directly related to transactions
in securities or cash for the Corporation, the Custodian will use its best
efforts promptly to discharge such attachment or lien. If the Custodian shall
not have discharged such attachment or lien within five business days, it shall
notify the Corporation of the existence of the attachment or lien. If the
attachment or lien is not discharged on the date required for delivery or
payment with respect to any securities or cash in accordance with the provisions
of the Operation Manual:
<PAGE>
PAGE 11
(a) in the case of such securities, at the option of the
Corporation, the Custodian shall either immediately transfer
to the Corporation a like amount of such securities (provided
the same shall be reasonably available) or immediately
transfer an amount in United States dollars equal to the
market value of such securities, valued in accordance with
such procedures as may be mutually agreed to by the parties
thereto;
(b) in the case of cash, the Custodian shall immediately transfer to the
Corporation an equal amount of cash in United States dollars.
Section 15. Compensation
For its services hereunder the Custodian shall be paid such compensation and
out-of-pocket or incidental expenses at such times as may from time to time be
agreed on in writing by the parties hereto in a Custodian Fee Agreement.
Section 16. Standard of Care
The Custodian shall not be liable for any action taken in good faith upon any
custodian order or facsimile herein described or certified copy of any
resolution of the Board of Directors or of the Executive Committee of the Board
of Directors of the Corporation, and may rely on the genuineness of any such
document which it may in good faith believe to have been validly executed.
The Corporation agrees to indemnify and hold harmless the Custodian, any
Subcustodian, or any nominee thereof from all taxes, charges, expenses,
assessments, claims and liabilities (including counsel fees) incurred or
assessed against any such entity in connection with the performance of this
Agreement, except such as may arise from such entity's own negligent action,
negligent failure to act or willful misconduct. The Custodian is authorized to
charge any account of the Corporation for such items. In the event of any
advance of cash for any purpose made by the Custodian resulting from orders or
instructions of the Corporation, or in the event that the Custodian or any
nominee thereof shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of this
Agreement, except such as may arise from such entity's own negligent action,
negligent failure to act or willful misconduct, any property at any time held
for the account of the Corporation shall be security therefor.
The Custodian shall maintain a standard of care equivalent to that which would
be required of a bailee for hire and shall not be liable for any loss or damage
to the Corporation resulting from participation in a securities depository
unless such loss or damage arises by reason of any negligence, misfeasance, or
willful misconduct of officers or employees of the Custodian, or from its
<PAGE>
PAGE 12
failure to enforce effectively such rights as it may have against any securities
depository or from use of a Subcustodian, unless such loss or damage arises by
reason of any negligence, mis- feasance, or willful misconduct of officers or
employees of the Custodian, or from its failure to enforce effectively such
rights as it may have against such Subcustodian. Anything in the foregoing to
the contrary notwithstanding, the Custodian shall exercise, in the performance
of its obligations undertaken or reasonably assumed with respect to this
Agreement, including the recommendation to the Board of Foreign Custodial
Agents, reasonable care, for which the Custodian shall be responsible to the
same extent as if it were performing such duties directly and holding such
securities and cash in Minnesota, United States of America. The Custodian shall
be indemnified and held harmless by the Corporation from and against any loss or
liability for any action taken or omitted to be taken hereunder in good faith
upon custodian order and may rely on the genuineness of all such orders and
documents as it in good faith believes to have been validly executed. The
Custodian shall be responsible for the securities and cash held by or deposited
with any Subcustodian to the same extent as if such securities and cash were
directly held by or deposited with the Custodian. The Custodian hereby agrees
that it shall indemnify and hold the Corporation harmless from and against any
loss which shall occur as a result of the failure of a foreign Custodial Agent
holding the securities and cash to exercise reasonable care with respect to the
safekeeping of such securities and cash to the extent that the Custodian would
be required to indemnify and hold the Corporation harmless if the Custodian were
itself holding such securities and cash in Minnesota. It is also understood that
the Custodian shall not have liability for loss except by reason of the
Custodian's negligence, fraud or willful misconduct, or by reason of negligence,
fraud or willful misconduct of any Subcustodian holding such securities or cash
for the Corporation.
The Custodian warrants that the established procedures to be followed by any
Subcustodian, in the opinion of the Custodian after due inquiry, afford
protection for such securities and cash at least equal to that afforded by the
Custodian's established procedures with respect to similar securities and cash
held by the Custodian (including its securities depositories) in Minnesota.
However, the Custodian shall have no liability for any loss or liability
occasioned by delay in the actual receipt by it or any Subcustodian of notice of
any payment, redemption, or other transaction regarding securities unless such
delay is a result of its own negligence, fraud, or willful misconduct.
The Custodian shall not be responsible for any loss of the Corporation, or to
take any action with respect to any attachment or lien on any omnibus account or
nostro account, except as provided in Section 14 of this Agreement, in such
loss, attachment or lien arises by reason of any cause or circumstances beyond
the control of the Custodian, including acts of civil or military
<PAGE>
PAGE 13
authority, expropriation, national emergency, acts of God, insurrection, war,
riots, or failure of transportation, communication or power supply, or the
failure of any person, firm or corporation (other than the Custodian or any
Subcustodian acting on behalf of the Custodian) to perform any obligation if
such failure results in any such loss.
Section 17. Insurance
The Custodian represents and warrants that it presently maintains and shall
maintain for the duration of this Agreement a bankers' blanket bond (the "Bond")
which provides standard fidelity and non- negligent loss coverage with respect
to securities and cash which may be held by the Custodian and securities and
cash which may be held by any Subcustodian which may be utilized by the
Custodian pursuant to this Agreement. The Custodian agrees that, if at any time
the Custodian for any reason discontinues such coverage, it shall immediately
notify the Corporation in writing. The Custodian represents that only the named
insured on the Bond, which includes the Custodian but not any of its customers,
is directly protected against loss. The Custodian represents that while it might
resist a claim of one of its customers to recover for a loss not covered by the
Bond, as a practical matter, where a claim is brought and a loss is possibly
covered by the Bond, the Custodian would give notice of the claim to its
insurer, and the insurer would normally determine whether to defend the claim
against the Custodian or to pay the claim on behalf of the Custodian.
The Custodian also represents that it does not intend to obtain any insurance
for the benefit of the Corporation which protects against the imposition of the
proceeds of sale of any securities or against confiscation, expropriation or
nationalization of any securities or the assets of the issuer of such securities
by a government or any foreign country in which the issuer of such securities is
organized or in which securities are held for safekeeping either by the
Custodian or any Subcustodian in such country. The Custodian represents that it
has discussed the availability of expropriation insurance with the Corporation.
The Custodian also represents that it has advised the Corporation as to its
understanding of the position of the Staff of the SEC that any investment
company investing in securities of foreign issuers has the responsibility for
reviewing the possibility of the imposition of exchange control restrictions
which would affect the liquidity of such investment company's assets and the
possibility of exposure to political risk, including the appropriateness of
insuring against such risk. The Custodian represents that the Corporation has
acknowledged that it has the responsibility to review the possibility of such
risks and what, if any, action should be taken.
<PAGE>
PAGE 14
Section 18. Termination and Amendment of Agreement
The Corporation and the Custodian mutually may agree from time to time in
writing to amend, to add to, or to delete from any provision of this Agreement.
The Custodian may terminate this Agreement by giving the Corporation ninety
days' written notice of such termination by registered mail addressed to the
Corporation at its principal place of business.
The Corporation may terminate this Agreement at any time by written notice
thereof delivered, together with a copy of the resolution of the Board of
Directors authorizing such termination and certified by the Secretary of the
Corporation, by registered mail to the Custodian.
Upon such termination of this Agreement, assets of the Corporation held by the
Custodian shall be delivered by the Custodian to a successor custodian, if one
has been appointed by the Corporation, upon receipt by the Custodian of a copy
of the resolution of the Board of Directors of the Corporation certified by the
Secretary, showing appointment of the successor custodian, and provided that
such successor custodian is a bank or trust company, organized under the laws of
the United States or of any State of the United States, having not less than two
million dollars aggregate capital, surplus and undivided profits. Upon the
termination of this Agreement as a part of the transfer of assets, either to a
successor custodian or otherwise, the Custodian will deliver securities held by
it hereunder, when so authorized and directed by resolution of the Board of
Directors of the Corporation, to a duly appointed agent of the successor
custodian or to the appropriate transfer agents for transfer of registration and
delivery as directed. Delivery of assets on termination of this Agreement shall
be effected in a reasonable, expeditious and orderly manner; and in order to
accomplish an orderly transition from the Custodian to the successor custodian,
the Custodian shall continue to act as such under this Agreement as to assets in
its possession or control. Termination as to each security shall become
effective upon delivery to the successor custodian, its agent, or to a transfer
agent for a specific security for the account of the successor custodian, and
such delivery shall constitute effective delivery by the Custodian to the
successor under this Agreement.
In addition to the means of termination hereinbefore authorized, this Agreement
may be terminated at any time by the vote of a majority of the outstanding
shares of the Corporation and after written notice of such action to the
Custodian.
Section 19. General
Nothing expressed or mentioned in or to be implied from any provision of this
Agreement is intended to, or shall be construed to give any person or
corporation other than the parties hereto, any legal or equitable right, remedy
or claim under or in respect of this Agreement, or any covenant, condition or
provision herein contained, this Agreement and all of the covenants, conditions
and
<PAGE>
PAGE 15
provisions hereof being intended to be and being for the sole and exclusive
benefit of the parties hereto and their respective successors and assigns.
This Agreement shall be governed by the laws of the State of Minnesota.
Attest: IDS SELECTIVE FUND, INC.
By /s/ William C. Herber By /s/ Leslie L. Ogg
William C. Herber Leslie L. Ogg
Secretary Vice President
FIRST NATIONAL BANK OF MINNEAPOLIS
By /s/ Robert Spies
Robert Spies
By ________________________________
<PAGE>
PAGE 1
TRANSFER AGENCY AGREEMENT
AGREEMENT dated as of March 20, 1995, between IDS Selective Fund, Inc. (the
"Fund"), a Minnesota corporation, and American Express Financial Corporation
(the "Transfer Agent"), a Delaware corporation.
In consideration of the mutual promises set forth below, the Fund and the
Transfer Agent agree as follows:
1. Appointment of the Transfer Agent. The Fund hereby appoints the Transfer
Agent, as transfer agent for its shares and as shareholder servicing agent for
the Fund, and the Transfer Agent accepts such appointment and agrees to perform
the duties set forth below.
2. Compensation. The Fund will compensate the Transfer Agent for
the performance of its obligations as set forth in Schedule A.
Schedule A does not include out-of-pocket disbursements of the
Transfer Agent for which the Transfer Agent shall be entitled to
bill the Fund separately.
The Transfer Agent will bill the Fund monthly. The fee provided for hereunder
shall be paid in cash by the Fund to American Express Financial Corporation
within five (5) business days after the last day of each month.
Out-of-pocket disbursements shall include, but shall not be limited to, the
items specified in Schedule B. Reimbursement by the Fund for expenses incurred
by the Transfer Agent in any month shall be made as soon as practicable after
the receipt of an itemized bill from the Transfer Agent.
Any compensation jointly agreed to hereunder may be adjusted from time to time
by attaching to this Agreement a revised Schedule A, dated and signed by an
officer of each party.
3. Documents. The Fund will furnish from time to time such
certificates, documents or opinions as the Transfer Agent deems to
be appropriate or necessary for the proper performance of its
duties.
4. Representations of the Fund and the Transfer Agent.
(a) The Fund represents to the Transfer Agent that all outstanding shares are
validly issued, fully paid and non-assessable by the Fund. When shares are
hereafter issued in accordance with the terms of the Fund's Articles of
Incorporation and its prospectus, such shares shall be validly issued, fully
paid and non-assessable by the Fund.
(b) The Transfer Agent represents that it is registered under Section 17A(c) of
the Securities Exchange Act of 1934. The Transfer Agent agrees to maintain the
necessary facilities, equipment and personnel to perform its duties and
obligations under this agreement and to comply with all applicable laws.
<PAGE>
PAGE 2
5. Duties of the Transfer Agent. The Transfer Agent shall be
responsible, separately and through its subsidiaries or affiliates,
for the following functions:
(a) Sale of Fund Shares.
(1) On receipt of an application and payment, wired instructions and payment, or
payment identified as being for the account of a shareholder, the Transfer Agent
will deposit the payment, prepare and present the necessary report to the
Custodian and record the purchase of shares in a timely fashion in accordance
with the terms of the prospectus. All shares shall be held in book entry form
and no certificate shall be issued unless the Fund is permitted to do so by the
prospectus and the purchaser so requests.
(2) On receipt of notice that payment was dishonored, the Transfer Agent shall
stop redemptions of all shares owned by the purchaser related to that payment,
place a stop payment on any checks that have been issued to redeem shares of the
purchaser and take such other action as it deems appropriate.
(b) Redemption of Fund Shares. On receipt of instructions to redeem shares in
accordance with the terms of the Fund's prospectus, the Transfer Agent will
record the redemption of shares of the Fund, prepare and present the necessary
report to the Custodian and pay the proceeds of the redemption to the
shareholder, an authorized agent or legal representative upon the receipt of the
monies from the Custodian.
(c) Transfer or Other Change Pertaining to Fund Shares. On receipt of
instructions or forms acceptable to the Transfer Agent to transfer the shares to
the name of a new owner, change the name or address of the present owner or take
other legal action, the Transfer Agent will take such action as is requested.
(d) Exchange of Fund Shares. On receipt of instructions to exchange the shares
of the Fund for the shares of another fund in the IDS MUTUAL FUND GROUP or other
American Express Financial Corporation product in accordance with the terms of
the prospectus, the Transfer Agent will process the exchange in the same manner
as a redemption and sale of shares.
(e) Right to Seek Assurance. The Transfer Agent may refuse to transfer, exchange
or redeem shares of the Fund or take any action requested by a shareholder until
it is satisfied that the requested transaction or action is legally authorized
or until it is satisfied there is no basis for any claims adverse to the
transaction or action. It may rely on the provisions of the Uniform Act for the
Simplification of Fiduciary Security Transfers or the Uniform Commercial Code.
The Fund shall indemnify the Transfer Agent for any act done or omitted to be
done in reliance on such laws or for refusing to transfer, exchange or redeem
shares or taking any requested action if it acts on a good faith belief that the
transaction or action is illegal or unauthorized.
(f) Shareholder Records, Reports and Services.
<PAGE>
PAGE 3
(1) The Transfer Agent shall maintain all shareholder accounts, which shall
contain all required tax, legally imposed and regulatory information; shall
provide shareholders, and file with federal and state agencies, all required tax
and other reports pertaining to shareholder accounts; shall prepare shareholder
mailing lists; shall cause to be printed and mailed all required prospectuses,
annual reports, semiannual reports, statements of additional information (upon
request), proxies and other mailings to shareholders; and shall cause proxies to
be tabulated.
(2) The Transfer Agent shall respond to all valid inquiries related to its
duties under this Agreement.
(3) The Transfer Agent shall create and maintain all records in accordance with
all applicable laws, rules and regulations, including, but not limited to, the
records required by Section 31(a) of the Investment Company Act of 1940.
(g) Dividends and Distributions. The Transfer Agent shall prepare and present
the necessary report to the Custodian and shall cause to be prepared and
transmitted the payment of income dividends and capital gains distributions or
cause to be recorded the investment of such dividends and distributions in
additional shares of the Fund or as directed by instructions or forms acceptable
to the Transfer Agent.
(h) Confirmations and Statements. The Transfer Agent shall confirm each
transaction either at the time of the transaction or through periodic reports as
may be legally permitted.
(i) Lost or Stolen Checks. The Transfer Agent will replace lost or stolen checks
issued to shareholders upon receipt of proper notification and will maintain any
stop payment orders against the lost or stolen checks as it is economically
desirable to do.
(j) Reports to Fund. The Transfer Agent will provide reports pertaining to the
services provided under this Agreement as the Fund may request to ascertain the
quality and level of services being provided or as required by law.
(k) Other Duties. The Transfer Agent may perform other duties for
additional compensation if agreed to in writing by the parties to
this Agreement.
6. Ownership and Confidentiality of Records. The Transfer Agent agrees that all
records prepared or maintained by it relating to the services to be performed by
it under the terms of this Agreement are the property of the Fund and may be
inspected by the Fund or any person retained by the Fund at reasonable times.
The Fund and Transfer Agent agree to protect the confidentiality of those
records.
7. Action by Board and Opinion of Fund's Counsel. The Transfer
Agent may rely on resolutions of the Board of Directors or the
Executive Committee of the Board of Directors and on opinion of
counsel for the Fund.
<PAGE>
PAGE 4
8. Duty of Care. It is understood and agreed that, in furnishing the Fund with
the services as herein provided, neither the Transfer Agent, nor any officer,
director or agent thereof shall be held liable for any loss arising out of or in
connection with their actions under this Agreement so long as they act in good
faith and with due diligence, and are not negligent or guilty of any willful
misconduct. It is further understood and agreed that the Transfer Agent may rely
upon information furnished to it reasonably believed to be accurate and
reliable. In the event the Transfer Agent is unable to perform its obligations
under the terms of this Agreement because of an act of God, strike or equipment
or transmission failure reasonably beyond its control, the Transfer Agent shall
not be liable for any damages resulting from such failure.
9. Term and Termination. This Agreement shall become effective on the date first
set forth above (the "Effective Date") and shall continue in effect from year to
year thereafter as the parties may mutually agree; provided that either party
may terminate this Agreement by giving the other party notice in writing
specifying the date of such termination, which shall be not less than 60 days
after the date of receipt of such notice. In the event such notice is given by
the Fund, it shall be accompanied by a vote of the Board of Directors, certified
by the Secretary, electing to terminate this Agreement and designating a
successor transfer agent or transfer agents. Upon such termination and at the
expense of the Fund, the Transfer Agent will deliver to such successor a
certified list of shareholders of the Fund (with name, address and taxpayer
identification or Social Security number), a historical record of the account of
each shareholder and the status thereof, and all other relevant books, records,
correspondence, and other data established or maintained by the Transfer Agent
under this Agreement in the form reasonably acceptable to the Fund, and will
cooperate in the transfer of such duties and responsibilities, including
provisions for assistance from the Transfer Agent's personnel in the
establishment of books, records and other data by such successor or successors.
10. Amendment. This Agreement may not be amended or modified in any
manner except by a written agreement executed by both parties.
11. Subcontracting. The Fund agrees that the Transfer Agent may subcontract for
certain of the services described under this Agreement with the understanding
that there shall be no diminution in the quality or level of the services and
that the Transfer Agent remains fully responsible for the services. Except for
out-of-pocket expenses identified in Schedule B, the Transfer Agent shall bear
the cost of subcontracting such services, unless otherwise agreed by the
parties.
12. Miscellaneous.
(a) This Agreement shall extend to and shall be binding upon the parties hereto,
and their respective successors and assigns; provided, however, that this
Agreement shall not be assignable without the written consent of the other
party.
<PAGE>
PAGE 5
(b) This Agreement shall be governed by the laws of the State of
Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers as of the day and year written above.
IDS SELECTIVE FUND, INC.
By: /s/ Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL CORPORATION
By: /s/ Janis E. Miller
Janis E. Miller
Vice President
<PAGE>
PAGE 6
Schedule A
IDS SELECTIVE FUND, INC.
TRANSFER AGENT FEE
Effective the 20th day of March, 1995, the Annual Per Account Fee
accrued daily and payable monthly is revised as follows:
CLASS FEE
A $ 15.50
B 16.50
Y 15.50
<PAGE>
PAGE 7
Schedule B
OUT-OF-POCKET EXPENSES
The Fund shall reimburse the Transfer Agent monthly for the following
out-of-pocket expenses:
o typesetting, printing, paper, envelopes, postage and return
postage for proxy soliciting material, and proxy tabulation costs
o printing, paper, envelopes and postage for dividend notices, dividend checks,
records of account, purchase confirmations, exchange confirmations and exchange
prospectuses, redemption confirmations, redemption checks, confirmations on
changes of address and any other communication required to be sent to
shareholders
o typesetting, printing, paper, envelopes and postage for prospectuses, annual
and semiannual reports, statements of additional information, supplements for
prospectuses and statements of additional information and other required
mailings to shareholders
o stop orders
o outgoing wire charges
o other expenses incurred at the request or with the consent of the
Fund
<PAGE>
PAGE 1
Shareholder Service Agreement
This agreement is between IDS Selective Fund, Inc. (the "Fund") and American
Express Financial Advisors Inc., the principal underwriter of the Fund, for
services to be provided to shareholders by personal financial advisors and other
servicing agents. It is effective on the first day the Fund offers multiple
classes of shares.
American Express Financial Advisors represents that shareholders consider their
financial advisor or servicing agent a significant factor in their satisfaction
with their investment and, to help retain financial advisors or servicing
agents, it is necessary for the Fund to pay annual servicing fees to financial
advisors and other servicing agents.
American Express Financial Advisors represents that fees paid to financial
advisors will be used by financial advisors to help shareholders thoughtfully
consider their investment goals and objectively monitor how well the goals are
being achieved. As principal underwriter, American Express Financial Advisors
will use its best efforts to assure that other distributors provide comparable
services to shareholders for the servicing fees received.
American Express Financial Advisors agrees to monitor the services provided by
financial advisors and servicing agents, to measure the level and quality of
services provided, to provide training and support to financial advisors and
servicing agents and to devise methods for rewarding financial advisors and
servicing agents who achieve an exemplary level and quality of services.
The Fund agrees to pay American Express financial advisors and other servicing
agents 0.15 percent of the net asset value for each shareholder account assigned
to a financial advisor or servicing agent that holds either Class A or Class B
shares. In addition, the Fund agrees to pay American Express Financial Advisors'
costs to monitor, measure, train and support services provided by financial
advisors or servicing agents up to 0.025 percent of the net asset value for each
shareholder account assigned to a financial advisor or servicing agent that
holds either Class A or Class B shares. The Fund agrees to pay American Express
Financial Advisors in cash within five (5) business days after the last day of
each month.
American Express Financial Advisors agrees to provide the Fund, prior to the
beginning of the calendar year, a budget covering its expected costs to monitor,
measure, train and support services and a quarterly report of its actual
expenditures. American Express Financial Advisors agrees to meet with
representatives of the Fund at their request to provide information as may be
reasonably necessary to evaluate its performance under the terms of this
agreement.
American Express Financial Advisors agrees that if, at the end of any month, the
expenses of the Fund, including fees under this agreement and any other
agreement between the Fund and American
<PAGE>
PAGE 2
Express Financial Advisors or American Express Financial Corporation, but
excluding taxes, brokerage commissions and charges in connection with the
purchase and sale of assets exceed the most restrictive applicable state expense
limitation for the Fund's current fiscal year, the Fund shall not pay fees and
expenses under this agreement to the extent necessary to keep the Fund's
expenses from exceeding the limitation, it being understood that American
Express Financial Advisors will assume all unpaid expenses and bill the Fund for
them in subsequent months but in no event can the accumulation of unpaid
expenses or billing be carried past the end of the Fund's fiscal year.
This agreement shall continue in effect for a period of more than one year so
long as it is reapproved at least annually at a meeting called for the purpose
of voting on the agreement by a vote, in person, of the members of the Board who
are not interested persons of the Fund and have no financial interest in the
operation of the agreement, and of all the members of the Board.
This agreement may be terminated at any time without payment of any penalty by a
vote of a majority of the members of the Board who are not interested persons of
the Fund and have no financial interest in the operation of the agreement or by
American Express Financial Advisors. The agreement will terminate automatically
in the event of its assignment as that term is defined in the Investment Company
Act of 1940. This agreement may be amended at any time provided the amendment is
approved in the same manner the agreement was initially approved and the
amendment is agreed to by American Express Financial Advisors.
Approved this 20th day of March, 1995.
IDS SELECTIVE FUND, INC.
By /s/ Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
By /s/ Janis E. Miller
Janis E. Miller
Vice President
<PAGE>
PAGE 1
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT made the 20th day of March, 1995, by and between IDS Selective Fund,
Inc. (the "Fund"), a Minnesota corporation, and American Express Financial
Corporation, a Delaware corporation.
Part One: SERVICES
(1) The Fund hereby retains American Express Financial Corporation, and American
Express Financial Corporation hereby agrees, for the period of this Agreement
and under the terms and conditions hereinafter set forth, to furnish the Fund
continuously with all administrative, accounting, clerical, statistical,
correspondence, corporate and all other services of whatever nature required in
connection with the administration of the Fund as provided under this Agreement;
and to pay such expenses as may be provided for in Part Three hereof; subject
always to the direction and control of the Board of Directors, the Executive
Committee and the authorized officers of the Fund. American Express Financial
Corporation agrees to maintain an adequate organization of competent persons to
provide the services and to perform the functions herein mentioned. American
Express Financial Corporation agrees to meet with any persons at such times as
the Board of Directors deems appropriate for the purpose of reviewing American
Express Financial Corporation's performance under this Agreement.
(2) The Fund agrees that it will furnish to American Express Financial
Corporation any information that the latter may reasonably request with respect
to the services performed or to be performed by American Express Financial
Corporation under this Agreement.
(3) It is understood and agreed that in furnishing the Fund with the services as
herein provided, neither American Express Financial Corporation, nor any
officer, director or agent thereof shall be held liable to the Fund or its
creditors or shareholders for errors of judgment or for anything except willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
reckless disregard of its obligations and duties under the terms of this
Agreement. It is further understood and agreed that American Express Financial
Corporation may rely upon information furnished to it reasonably believed to be
accurate and reliable.
Part Two: COMPENSATION FOR SERVICES
(1) The Fund agrees to pay to American Express Financial Corporation, and
American Express Financial Corporation covenants and agrees to accept from the
Fund in full payment for the services furnished, based on the net assets of the
Fund as set forth in the following table:
<PAGE>
PAGE 2
Assets Annual Rate At
(Billions) Each Asset Level
-------------- ----------------
First $1 0.050%
Next 1 0.045
Next 1 0.040
Next 3 0.035
Next 3 0.030
Over 9 0.025
The administrative fee for each calendar day of each year shall be equal to
1/365th (1/366th in each leap year) of the total amount computed. The
computation shall be made for each such day on the basis of net assets as of the
close of business of the full business day two (2) business days prior to the
day for which the computation is being made. In the case of the suspension of
the computation of net asset value, the administrative fee for each day during
such suspension shall be computed as of the close of business on the last full
business day on which the net assets were computed. As used herein, "net assets"
as of the close of a full business day shall include all transactions in shares
of the Fund recorded on the books of the Fund for that day.
(2) The administrative fee shall be paid on a monthly basis and, in the event of
the termination of this Agreement, the administrative fee accrued shall be
prorated on the basis of the number of days that this Agreement is in effect
during the month with respect to which such payment is made.
(3) The administrative fee provided for hereunder shall be paid in cash by the
Fund to American Express Financial Corporation within five (5) business days
after the last day of each month.
Part Three: ALLOCATION OF EXPENSES
(1) The Fund agrees to pay:
(a) Administrative fees payable to American Express Financial Corporation for
its services under the terms of this Agreement.
(b) Taxes.
(c) Fees and charges of its independent certified public
accountants for services the Fund requests.
(d) Fees and expenses of attorneys
(i) it employs in matters not involving the assertion of a claim by
a third party against the Fund, its directors and officers,
(ii) it employs in conjunction with a claim asserted by the Board of
Directors against American Express Financial Corporation, except
that American Express Financial Corporation shall reimburse the
Fund for such fees and expenses if it is ultimately determined by
a court of competent jurisdiction, or American Express Financial
Corporation agrees, that it is liable in whole or in part to the
Fund, and
(iii) it employs to assert a claim against a third party.
<PAGE>
PAGE 3
(e) Fees paid for the qualification and registration for public sale of the
securities of the Fund under the laws of the United States and of the several
states in which such securities shall be offered for sale.
(f) Office expenses which shall include a charge for occupancy, insurance on the
premises, furniture and equipment, telephone, telegraph, electronic information
services, books, periodicals, published services, and office supplies used by
the Fund, equal to the cost of such incurred by American Express Financial
Corporation.
(g) Fees of consultants employed by the Fund.
(h) Directors, officers and employees expenses which shall include fees,
salaries, memberships, dues, travel, seminars, pension, profit sharing, and all
other benefits paid to or provided for directors, officers and employees,
directors and officers liability insurance, errors and omissions liability
insurance, worker's compensation insurance and other expenses applicable to the
directors, officers and employees, except the Fund will not pay any fees or
expenses of any person who is an officer or employee of American Express
Financial Corporation or its affiliates.
(i) Filing fees and charges incurred by the Fund in connection with filing any
amendment to its articles of incorporation, or incurred in filing any other
document with the State of Minnesota or its political subdivisions.
(j) Organizational expenses of the Fund.
(k) One-half of the Investment Company Institute membership dues charged jointly
to the IDS MUTUAL FUND GROUP and American Express Financial Corporation.
(l) Expenses properly payable by the Fund, approved by the Board of
Directors.
(2) American Express Financial Corporation agrees to pay all expenses associated
with the services it provides under the terms of this Agreement. Further,
American Express Financial Corporation agrees that if, at the end of any month,
the expenses of the Fund under this Agreement and any other agreement between
the Fund and American Express Financial Corporation, but excluding those
expenses set forth in (1)(b) of this Part Three, exceed the most restrictive
applicable state expenses limitation, the Fund shall not pay those expenses set
forth in (1)(a) and (c) through (m) of this Part Three to the extent necessary
to keep the Fund's expenses from exceeding the limitation, it being understood
that American Express Financial Corporation will assume all unpaid expenses and
bill the Fund for them in subsequent months but in no event can the accumulation
of unpaid expenses or billing be carried past the end of the Fund's fiscal year.
<PAGE>
PAGE 4
Part Four: MISCELLANEOUS
(1) American Express Financial Corporation shall be deemed to be an independent
contractor and, except as expressly provided or authorized in this Agreement,
shall have no authority to act for or represent the Fund.
(2) A "full business day" shall be as defined in the By-laws.
(3) The Fund recognizes that American Express Financial Corporation now renders
and may continue to render investment advice and other services to other
investment companies and persons which may or may not have investment policies
and investments similar to those of the Fund and that American Express Financial
Corporation manages its own investments and/or those of its subsidiaries.
American Express Financial Corporation shall be free to render such investment
advice and other services and the Fund hereby consents thereto.
(4) Neither this Agreement nor any transaction had pursuant hereto shall be
invalidated or in anyway affected by the fact that directors, officers, agents
and/or shareholders of the Fund are or may be interested in American Express
Financial Corporation or any successor or assignee thereof, as directors,
officers, stockholders or otherwise; that directors, officers, stockholders or
agents of American Express Financial Corporation are or may be interested in the
Fund as directors, officers, shareholders, or otherwise; or that American
Express Financial Corporation or any successor or assignee, is or may be
interested in the Fund as shareholder or otherwise, provided, however, that
neither American Express Financial Corporation, nor any officer, director or
employee thereof or of the Fund, shall sell to or buy from the Fund any property
or security other than shares issued by the Fund, except in accordance with
applicable regulations or orders of the United States Securities and Exchange
Commission.
(5) Any notice under this Agreement shall be given in writing, addressed, and
delivered, or mailed postpaid, to the party to this Agreement entitled to
receive such, at such party's principal place of business in Minneapolis,
Minnesota, or to such other address as either party may designate in writing
mailed to the other.
(6) American Express Financial Corporation agrees that no officer, director or
employee of American Express Financial Corporation will deal for or on behalf of
the Fund with himself as principal or agent, or with any corporation or
partnership in which he may have a financial interest, except that this shall
not prohibit officers, directors or employees of American Express Financial
Corporation from having a financial interest in the Fund or in American Express
Financial Corporation.
(7) The Fund agrees that American Express Financial Corporation may subcontract
for certain of the services described under this Agreement with the
understanding that there shall be no diminution in the quality or level of the
services and that American Express Financial Corporation remains fully
responsible for the services.
<PAGE>
PAGE 5
(8) This Agreement shall extend to and shall be binding upon the parties hereto,
and their respective successors and assigns; provided, however, that this
Agreement shall not be assignable without the written consent of the other
party. This Agreement shall be governed by the laws of the State of Minnesota.
Part Five: RENEWAL AND TERMINATION
(1) This Agreement shall become effective on the date first set forth above (the
"Effective Date") and shall continue in effect from year to year thereafter as
the parties may mutually agree; provided that either party may terminate this
Agreement by giving the other party notice in writing specifying the date of
such termination, which shall be not less than 60 days after the date of receipt
of such notice.
(2) This Agreement may not be amended or modified in any manner except by a
written agreement executed by both parties.
IN WITNESS THEREOF, the parties hereto have executed the foregoing Agreement as
of the day and year first above written.
IDS SELECTIVE FUND, INC.
By: /s/ Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL CORPORATION
By: /s/ Janis E. Miller
Janis E. Miller
Vice President
<PAGE>
PAGE 1
Independent auditors' consent
- -------------------------------------------------------------------
The board and shareholders IDS Selective Fund, Inc.:
We consent to the use of our report incorporated herein by reference and to the
reference to our Firm under the headings "Financial highlights" in Part A and
"INDEPENDENT AUDITORS" in Part B of the Registration Statement.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
July 28, 1997
<PAGE>
PAGE 1
Plan and Agreement of Distribution
This plan and agreement is between IDS Selective Fund, Inc. (the "Fund") and
American Express Financial Advisors Inc., the principal underwriter of the Fund,
for distribution services to the Fund. It is effective on the first day the Fund
offers multiple classes of shares.
The plan and agreement has been approved by members of the Board of Directors
(the "Board") of the Fund who are not interested persons of the Fund and have no
direct or indirect financial interest in the operation of the plan or any
related agreement, and all of the members of the Board, in person, at a meeting
called for the purpose of voting on the plan and agreement.
The plan and agreement provides that:
1. The Fund will reimburse American Express Financial Advisors for all sales and
promotional expenses attributable to the sale of Class B shares, including sales
commissions, business and employee expenses charged to distribution of Class B
shares, and corporate overhead appropriately allocated to the sale of Class B
shares.
2. The amount of the reimbursement shall be equal on an annual basis to 0.75% of
the average daily net assets of the Fund attributable to Class B shares. The
amount so determined shall be paid to American Express Financial Advisors in
cash within five (5) business days after the last day of each month. American
Express Financial Advisors agrees that if, at the end of any month, the expenses
of the Fund, including fees under this agreement and any other agreement between
the Fund and American Express Financial Advisors or American Express Financial
Corporation, but excluding taxes, brokerage commissions and charges in
connection with the purchase and sale of assets exceed the most restrictive
applicable state expense limitation for the Fund's current fiscal year, the Fund
shall not pay fees and expenses under this agreement to the extent necessary to
keep the Fund's expenses from exceeding the limitation, it being understood that
American Express Financial Advisors will assume all unpaid expenses and bill the
Fund for them in subsequent months, but in no event can the accumulation of
unpaid expenses or billing be carried past the end of the Fund's fiscal year.
3. For each purchase of Class B shares, after eight years the Class B shares
will be converted to Class A shares and those assets will no longer be included
in determining the reimbursement amount.
4. The Fund understands that if a shareholder redeems Class B shares before they
are converted to Class A shares, American Express Financial Advisors will impose
a sales charge directly on the redemption proceeds to cover those expenses it
has previously incurred on the sale of those shares.
5. American Express Financial Advisors agrees to provide at least quarterly an
analysis of distribution expenses and to meet with representatives of the Fund
as reasonably requested to provide additional information.
<PAGE>
PAGE 2
6. The plan and agreement shall continue in effect for a period of more than one
year provided it is reapproved at least annually in the same manner in which it
was initially approved.
7. The plan and agreement may not be amended to increase materially the amount
that may be paid by the Fund without the approval of a least a majority of the
outstanding shares of Class B. Any other amendment must be approved in the
manner in which the plan and agreement was initially approved.
8. This agreement may be terminated at any time without payment of any penalty
by a vote of a majority of the members of the Board who are not interested
persons of the Fund and have no financial interest in the operation of the plan
and agreement, or by vote of a majority of the outstanding Class B shares, or by
American Express Financial Advisors. The plan and agreement will terminate
automatically in the event of its assignment as that term is defined in the
Investment Company Act of 1940.
Approved this 20th day of March, 1995.
IDS SELECTIVE FUND, INC.
By /s/ Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
By /s/ Janis E. Miller
Janis E. Miller
Vice President
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> IDS SELECTIVE FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 1615061028
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1615061028
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 858471
<TOTAL-LIABILITIES> 858471
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1575007596
<SHARES-COMMON-STOCK> 14055085
<SHARES-COMMON-PRIOR> 12016634
<ACCUMULATED-NII-CURRENT> 2115568
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8623089
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 28456304
<NET-ASSETS> 126468734
<DIVIDEND-INCOME> 598700
<INTEREST-INCOME> 122682242
<OTHER-INCOME> 0
<EXPENSES-NET> 15258561
<NET-INVESTMENT-INCOME> 108022381
<REALIZED-GAINS-CURRENT> 8252506
<APPREC-INCREASE-CURRENT> 14747409
<NET-CHANGE-FROM-OPS> 131022296
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6790893
<DISTRIBUTIONS-OF-GAINS> 1704126
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6192646
<NUMBER-OF-SHARES-REDEEMED> 5015499
<SHARES-REINVESTED> 861304
<NET-CHANGE-IN-ASSETS> (114448557)
<ACCUMULATED-NII-PRIOR> 529978
<ACCUMULATED-GAINS-PRIOR> 23824667
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8761595
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6746873
<AVERAGE-NET-ASSETS> 120597616
<PER-SHARE-NAV-BEGIN> 9.00
<PER-SHARE-NII> .52
<PER-SHARE-GAIN-APPREC> .12
<PER-SHARE-DIVIDEND> .51
<PER-SHARE-DISTRIBUTIONS> .13
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.00
<EXPENSE-RATIO> 1.64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> IDS SELECTIVE FUND CLASS Y
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 1615061028
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1615061028
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 858471
<TOTAL-LIABILITIES> 858471
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1575007596
<SHARES-COMMON-STOCK> 22426340
<SHARES-COMMON-PRIOR> 23581187
<ACCUMULATED-NII-CURRENT> 2115568
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8623089
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 28456304
<NET-ASSETS> 201807694
<DIVIDEND-INCOME> 598700
<INTEREST-INCOME> 122682242
<OTHER-INCOME> 0
<EXPENSES-NET> 15258561
<NET-INVESTMENT-INCOME> 108022381
<REALIZED-GAINS-CURRENT> 8252506
<APPREC-INCREASE-CURRENT> 14747409
<NET-CHANGE-FROM-OPS> 131022296
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 13088145
<DISTRIBUTIONS-OF-GAINS> 2683689
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6955369
<NUMBER-OF-SHARES-REDEEMED> 9855527
<SHARES-REINVESTED> 1745311
<NET-CHANGE-IN-ASSETS> (114448557)
<ACCUMULATED-NII-PRIOR> 529978
<ACCUMULATED-GAINS-PRIOR> 23824667
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8761595
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6746873
<AVERAGE-NET-ASSETS> 199809759
<PER-SHARE-NAV-BEGIN> 9.00
<PER-SHARE-NII> .60
<PER-SHARE-GAIN-APPREC> .12
<PER-SHARE-DIVIDEND> .59
<PER-SHARE-DISTRIBUTIONS> .13
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.00
<EXPENSE-RATIO> .72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> QUALITY INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-30-1997
<PERIOD-START> JUN-10-1996
<PERIOD-END> MAY-30-1997
<INVESTMENTS-AT-COST> 1688560923
<INVESTMENTS-AT-VALUE> 1718321998
<RECEIVABLES> 5712652
<ASSETS-OTHER> 39006077
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1784904043
<PAYABLE-FOR-SECURITIES> 41408277
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 127844697
<TOTAL-LIABILITIES> 169252974
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1615654069
<DIVIDEND-INCOME> 598893
<INTEREST-INCOME> 120249224
<OTHER-INCOME> 0
<EXPENSES-NET> 8595499
<NET-INVESTMENT-INCOME> 112252618
<REALIZED-GAINS-CURRENT> 9395624
<APPREC-INCREASE-CURRENT> 20434131
<NET-CHANGE-FROM-OPS> 142082373
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1615624069
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8395071
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8595499
<AVERAGE-NET-ASSETS> 1418379346
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
PAGE 1
DIRECTORS/TRUSTEES POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as directors and trustees of the below listed
open-end, diversified investment companies that previously have filed
registration statements and amendments thereto pursuant to the requirements of
the Securities Act of 1933 and the Investment Company Act of 1940 with the
Securities and Exchange Commission:
1933 Act 1940 Act
Reg. Number Reg. Number
IDS Bond Fund, Inc. 2-51586 811-2503
IDS California Tax-Exempt Trust 33-5103 811-4646
IDS Discovery Fund, Inc. 2-72174 811-3178
IDS Equity Select Fund, Inc. 2-13188 811-772
IDS Extra Income Fund, Inc. 2-86637 811-3848
IDS Federal Income Fund, Inc. 2-96512 811-4260
IDS Global Series, Inc. 33-25824 811-5696
IDS Growth Fund, Inc. 2-38355 811-2111
IDS High Yield Tax-Exempt Fund, Inc. 2-63552 811-2901
IDS International Fund, Inc. 2-92309 811-4075
IDS Investment Series, Inc. 2-11328 811-54
IDS Managed Retirement Fund, Inc. 2-93801 811-4133
IDS Market Advantage Series, Inc. 33-30770 811-5897
IDS Money Market Series, Inc. 2-54516 811-2591
IDS New Dimensions Fund, Inc. 2-28529 811-1629
IDS Precious Metals Fund, Inc. 2-93745 811-4132
IDS Progressive Fund, Inc. 2-30059 811-1714
IDS Selective Fund, Inc. 2-10700 811-499
IDS Special Tax-Exempt Series Trust 33-5102 811-4647
IDS Stock Fund, Inc. 2-11358 811-498
IDS Strategy Fund, Inc. 2-89288 811-3956
IDS Tax-Exempt Bond Fund, Inc. 2-57328 811-2686
IDS Tax-Free Money Fund, Inc. 2-66868 811-3003
IDS Utilities Income Fund, Inc. 33-20872 811-5522
hereby constitutes and appoints William R. Pearce and Leslie L. Ogg or either
one of them, as her or his attorney-in-fact and agent, to sign for her or him in
her or his name, place and stead any and all further amendments to said
registration statements filed pursuant to said Acts and any rules and
regulations thereunder, and to file such amendments with all exhibits thereto
and other documents in
<PAGE>
PAGE 2
connection therewith with the Securities and Exchange Commission, granting to
either of them the full power and authority to do and perform each and every act
required and necessary to be done in connection therewith.
Dated the 8th day of January, 1997.
/s/ H. Brewster Atwater, Jr. /s/ Melvin R. Laird
H. Brewster Atwater, Jr. Melvin R. Laird
/s/ Lynne V. Cheney /s/ William R. Pearce
Lynne V. Cheney William R. Pearce
/s/ William H. Dudley /s/ Alan K. Simpson
William H. Dudley Alan K. Simpson
/s/ Robert F. Froehlke /s/ Edson W. Spencer
Robert F. Froehlke Edson W. Spencer
/s/ David R. Hubers /s/ John R. Thomas
David R. Hubers John R. Thomas
/s/ Heinz F. Hutter /s/ Wheelock Whitney
Heinz F. Hutter Wheelock Whitney
/s/ Anne P. Jones /s/ C. Angus Wurtele
Anne P. Jones C. Angus Wurtele
<PAGE>
PAGE 1
TRUSTEES POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as trustees of the below listed open-end,
diversified investment companies that previously have filed registration
statements and amendments thereto pursuant to the requirements of the Investment
Company Act of 1940 with the Securities and Exchange Commission:
1940 Act
Reg. Number
Growth Trust 811-07395
Growth and Income Trust 811-07393
Income Trust 811-07307
Tax-Free Income Trust 811-07397
World Trust 811-07399
hereby constitutes and appoints William R. Pearce and Leslie L. Ogg or either
one of them, as her or his attorney-in-fact and agent, to sign for her or him in
her or his name, place and stead any and all further amendments to said
registration statements filed pursuant to said Act and any rules and regulations
thereunder, and to file such amendments with all exhibits thereto and other
documents in connection therewith with the Securities and Exchange Commission,
granting to either of them the full power and authority to do and perform each
and every act required and necessary to be done in connection therewith.
Dated the 8th day of January, 1997.
/s/ H. Brewster Atwater, Jr. /s/ Melvin R. Laird
H. Brewster Atwater, Jr. Melvin R. Laird
/s/ Lynne V. Cheney /s/ William R. Pearce
Lynne V. Cheney William R. Pearce
/s/ William H. Dudley /s/ Alan K. Simpson
William H. Dudley Alan K. Simpson
/s/ Robert F. Froehlke /s/ Edson W. Spencer
Robert F. Froehlke Edson W. Spencer
/s/ David R. Hubers /s/ John R. Thomas
David R. Hubers John R. Thomas
/s/ Heinz F. Hutter /s/ Wheelock Whitney
Heinz F. Hutter Wheelock Whitney
/s/ Anne P. Jones /s/ C. Angus Wurtele
Anne P. Jones C. Angus Wurtele
<PAGE>
PAGE 1
OFFICERS' POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as officers of the below listed open-end,
diversified investment companies that previously have filed registration
statements and amendments thereto pursuant to the requirements of the Investment
Company Act of 1940 with the Securities and Exchange Commission:
Growth Trust
Growth and Income Trust
Income Trust
Tax-Free Income Trust
World Trust
hereby constitutes and appoints William R. Pearce and Leslie L. Ogg or either
one of them, as her or his attorney-in-fact and agent, to sign for her or him in
her or his name, place and stead, as an officer, any and all further amendments
to said registration statements filed pursuant to said Act and any rules and
regulations thereunder, and to file such amendments with all exhibits thereto
and other documents in connection therewith with the Securities and Exchange
Commission, granting to either of them the full power and authority to do and
perform each and every act required and necessary to be done in connection
therewith.
Dated the 11th day of April, 1996.
/s/ William R. Pearce
William R. Pearce
/s/ Melinda S. Urion
Melinda S. Urion
