<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 86 (File No. 2-13188) X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 42 (File No. 811-772) X
IDS EQUITY SELECT FUND, INC.
IDS Tower 10, Minneapolis, Minnesota 55440-0010
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 Jan. 29, 1998, pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2)of rule 485
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
Cross reference sheet showing the location in the prospectus and Statement of
Additional Information of the information called for by items enumerated in
Parts A and B of Form N-1A.
Negative answers omitted are so indicated.
<PAGE>
PART A
Item No. Section in Prospectus
1 Cover page of prospectus
2 (a) Sales charge and Fund expenses
(b) The Fund in brief
(c) The Fund in brief
3 (a) Financial highlights
(b) NA
(c) Performance
(d) Financial highlights
4 (a) The Fund in brief; Investment policies and risks; How the Fund
is organized
(b) Investment policies and risks
(c) Investment policies and risks
5 (a) Board members and officers
(b)(i) Investment manager; About American Express Financial
Corporation - General information
(b)(ii) Investment manager
(b)(iii) Investment manager
(c) Portfolio manager
(d) Administrator and transfer agent
(e) Administrator and transfer agent
(f) Distributor
(g) Investment manager; About American Express Financial
Corporation - General information
5A(a) *
(b) *
6 (a) Shares; Voting rights
(b) NA
(c) NA
(d) Voting rights
(e) Cover page; Special shareholder services
(f) Dividend and capital gain distributions; Reinvestments
(g) Taxes
(h) Alternative purchase arrangements
7 (a) Distributor
(b) Valuing Fund shares
(c) How to purchase, exchange or redeem shares
(d) How to purchase shares
(e) NA
(f) Distributor
(g) Alternative purchase arrangements; Reductions and waivers of the
sales charge
8 (a) How to redeem shares
(b) NA
(c) How to purchase shares: Three ways to invest
(d) How to purchase, exchange or redeem shares: Redemption
policies - "Important...
9 None
PART B
Item No. Section in Statement of Additional Information
10 Cover page of SAI
11 Table of Contents
12 NA
13 (a) Additional Investment Policies; all appendices except Dollar-Cos
Averaging
(b) Additional Investment Policies
(c) Additional Investment Policies
(d) Security Transactions
14 (a) Board members and officers**; Board Members and Officers
(b) Board Members and Officers
(c) Board Members and Officers
15 (a) NA
(b) Principal Holders of Securities, if applicable
(c) Board Members and Officers
16 (a)(i) How the Fund is organized; About the American Express Financial
Corporation**
(a)(ii) Agreements: Investment Management Services Agreement, Plan and
Agreement of Distribution
(a)(iii) Agreements: Investment Management Services Agreement
(b) Agreements: Investment Management Services Agreement
(c) NA
(d) Agreements: Administrative Services Agreement, Shareholder
Service Agreement
(e) NA
(f) Agreement: Distribution Agreement
(g) NA
(h) Custodian Agreement; Independent Auditors
(i) Agreements: Transfer Agency Agreement; Custodian Agreement
17 (a) Security Transactions
(b) Brokerage Commissions Paid to Brokers Affiliated with American
Express Financial Corporation
(c) Security Transactions
(d) Security Transactions
(e) Security Transactions
18 (a) Shares; Voting rights**
(b) NA
19(a) Investing in the Fund
(b) Valuing Fund Shares; Investing in the Fund
(c) Redeeming Shares
20 Taxes
21 (a) Agreements: Distribution Agreement
(b) NA
(c) NA
22 (a) Performance Information (for money market funds only)
(b) Performance Information (for all funds except money market funds)
23 Financial Statements
<PAGE>
* Designates information is located in annual report.
** Designates location in prospectus.
<PAGE>
IDS Equity Select Fund
Prospectus
Jan. 29, 1998
The goals of IDS Equity Select Fund, Inc. are growth of capital and income.
The Fund invests primarily in moderate growth stocks that generally pay
dividends and debt securities.
This prospectus contains facts that can help you decide if the Fund is the right
investment for you. Read it before you invest and keep it for future reference.
Additional facts about the Fund are in a Statement of Additional Information
(SAI), filed with the Securities and Exchange Commission (SEC) and available for
reference, along with other related materials, on the SEC Internet web site
(http://www.sec.gov). The SAI is incorporated by reference. For a free copy,
contact American Express Shareholder Service.
Like all mutual fund shares, these securities have not been approved or
disapproved by the Securities and Exchange Commission or any state securities
commission, nor has the Securities and Exchange Commission or any state
securities commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
Please note that the Fund:
o is not a bank deposit
o is not federally insured
o is not endorsed by any bank or government agency
o is not guaranteed to achieve its goals
American Express Shareholder Service
P.O. Box 534
Minneapolis, MN
55440-0534
800-862-7919
TTY: 800-846-4852
Web site address: http://www.americanexpress.com/advisors
<PAGE>
Table of contents
The Fund in brief
Goals
Investment policies and risks
Manager and distributor
Portfolio manager
Alternative purchase arrangements
Sales charge and Fund expenses
Performance
Financial highlights
Total returns
Investment policies and risks
Facts about investments and their risks
Alternative investment option
Valuing Fund shares
How to purchase, exchange or redeem shares
Alternative purchase arrangements
How to purchase shares
How to exchange shares
How to redeem shares
Reductions and waivers of the sales charge
Special shareholder services
Services
Quick telephone reference
Distributions and taxes
Dividend and capital gain distributions
Reinvestments
Taxes
How to determine the correct TIN
<PAGE>
How the Fund is organized
Shares
Voting rights
Shareholder meetings
Board members and officers
Investment manager
Administrator and transfer agent
Distributor
About American Express Financial Corporation
General information
Appendix
Descriptions of derivative instruments
<PAGE>
The Fund in brief
Goals
IDS Equity Select Fund (the Fund) seeks to provide shareholders with growth of
capital and income. Because any investment involves risk, achieving these goals
cannot be guaranteed. Only shareholders can change the goals.
Investment policies and risks
The Fund is a diversified mutual fund that invests in stocks of companies with
moderate growth that generally pay dividends, debt securities, preferred stocks,
convertible securities, derivative instruments and money market instruments. The
companies are located both in the U.S. and in foreign countries. Some of the
Fund'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."
Manager and distributor
The Fund is managed by American Express Financial Corporation (AEFC), a provider
of financial services since 1894. AEFC currently manages more than $70 billion
in assets for the IDS MUTUAL FUND GROUP. Shares of the Fund are sold through
American Express Financial Advisors Inc. (AEFA), a wholly-owned subsidiary of
AEFC.
Portfolio manager
Betty Tebault joined AEFC in 1985 as an analyst and currently serves as senior
portfolio manager. She became an associate portfolio manager in 1991, helping to
manage Wealth Management Portfolios and IDS Stock Fund. She served as portfolio
manager for IDS Life Series Fund, Managed Portfolio from 1995 to 1997.
Alternative purchase arrangements
The Fund offers its shares in three classes. Class A shares are subject to a
sales charge at the time of purchase. Class B shares are subject to a contingent
deferred sales charge (CDSC) on redemptions made within six years of purchase
and an annual distribution (12b-1) fee. Class Y shares are sold without a sales
charge to qualifying institutional investors.
Sales charge and Fund expenses
Shareholder transaction expenses are incurred directly by an investor on the
purchase or redemption of Fund shares. Fund operating expenses are paid out of
Fund assets for each class of shares. Operating expenses are reflected in the
Fund's daily share price and dividends, and are not charged directly to
shareholder accounts.
<PAGE>
<TABLE>
<CAPTION>
Shareholder transaction expenses
<S> <C> <C> <C>
Class A Class B Class Y
Maximum sales charge on purchases*
(as a percentage of offering price) 5% 0% 0%
Maximum deferred sales charge
imposed on redemptions (as a
percentage of original purchase price) 0% 5% 0%
Annual Fund operating expenses (as a percentage of average daily net assets):
Class A Class B Class Y
Management fee** 0.52% 0.52% 0.52%
12b-1 fee 0.00% 0.75% 0.00%
Other expenses*** 0.31% 0.32% 0.24%
Total 0.83% 1.59% 0.76%
</TABLE>
*This charge may be reduced depending on your total investments in IDS funds.
See "Reductions of the sales charge."
**Includes the impact of a performance fee that increased the management
fee by 0.004% in fiscal year 1997.
***Other expenses include an administrative services fee, a shareholder
services fee, a transfer agency fee and other nonadvisory expenses. Class Y
expenses have been restated to reflect the 0.10% shareholder service fee
effective May 9, 1997.
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 $58 $75 $ 94 $148
Class B $66 $90 $107 $169**
Class B* $16 $50 $ 87 $169**
Class Y $ 8 $24 $ 42 $ 95
*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
<TABLE>
<CAPTION>
Fiscal period ended Nov. 30,
Per share income and capital changesa
Class A
1997 1996 1995 1994b 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $14.71 $12.35 $10.31 $12.04 $11.19 $10.18 $8.82 $10.01 $8.09 $7.38
beginning of period
Income from investment operations:
Net investment .05 .07 .10 .10 .11 .13 .18 .26 .34 .24
income (loss)
Net gains (losses) 2.93 3.30 2.55 (.64) 1.31 1.69 1.75 (.55) 1.89 .94
(both realized
and unrealized)
Total from investment 2.98 3.37 2.65 (.54) 1.42 1.82 1.93 (.29) 2.23 1.18
operations
Less distributions:
Dividends from net (.06) (.06) (.12) (.09) (.11) (.14) (.20) (.27) (.31) (.23)
investment income
Distributions from (1.87) (.95) (.49) (1.10) (.46) (.67) (.37) (.63) -- (.24)
realized gains
Total distributions (1.93) (1.01) (.61) (1.19) (.57) (.81) (.57) (.90) (.31) (.47)
Net asset value, $15.76 $14.71 $12.35 $10.31 $12.04 $11.19 $10.18 $8.82 $10.01 $8.09
end of period
Ratios/supplemental data
Class A
1997 1996 1995 1994b 1993 1992 1991 1990 1989 1988
Net assets, end of $976 $832 $674 $581 $617 $475 $400 $348 $392 $357
period (in millions)
Ratio of expenses to .83% .87% .84% .71% .77% .74% .67% .63% .57% .68%
average daily net assetsc
Ratio of net income (loss).39% .53% .94% .90% 1.00% 1.22% 1.82% 2.78% 3.58% 2.80%
to average daily net assets
Portfolio turnover rate 63% 64% 62% 46% 41% 42% 46% 55% 49% 81%
(excluding short-term
securities)
Total returnd 23.6% 29.5% 27.1% (5.3%) 13.2% 19.2% 22.9% (3.3%) 27.9% 16.0%
Average brokerage $.0498 $.0557 -- -- -- -- -- -- -- --
commission ratee
aFor a share outstanding throughout the period. Rounded to the nearest cent.
bOn Nov. 10, 1994, the Fund's name changed from IDS Equity Plus Fund, Inc. to
IDS Equity Select Fund, Inc.
cEffective fiscal year 1996, expense ratio is based on total expenses of the
Fund before reduction of earnings credits on cash balances.
dTotal return does not reflect payment of a sales charge.
eEffective fiscal year 1996, the Fund is required to disclose an average
brokerage commission rate per share for security trades on which commissions are
charged. The comparability of this information may be affected by the fact that
commission rates per share vary significantly among foreign countries.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fiscal period ended Nov. 30,
Per share income and capital changesa
Class B Class Y
1997 1996 1995b 1997 1996 1995b
<S> <C> <C> <C> <C> <C> <C>
Net asset value, $14.63 $12.31 $10.37 $14.72 $12.35 $10.37
beginning of period
Income from investment operations:
Net investment
income (loss) (.01) (.03) .05 .06 .10 .08
Net gains (losses) 2.85 3.30 1.95 2.93 3.30 2.00
(both realized and unrealized)
Total from investment operations 2.84 3.27 2.00 2.99 3.40 2.08
Less distributions:
Dividends from net investment income -- -- (.06) (.07) (.08) (.10)
Distributions from realized gains (1.87) (.95) -- (1.87) (.95) --
Total distributions (1.87) (.95) (.06) (1.94) (1.03) (.10)
Net asset value, end of period $15.60 $14.63 $12.31 $15.77 $14.72 $12.35
Ratios/supplemental data
Class B Class Y
1997 1996 1995b 1997 1996 1995b
Net assets, end of $41 $18 $3 $-- $3 $3
period (in millions)
Ratio of expenses to 1.59% 1.63% 1.68%d .70% .70% .70%d
average daily net assetsc
Ratio of net income (loss) (.35%) (.21%) .08%d .54% .69% 1.08%d
to average daily net assets
Portfolio turnover 63% 64% 62% 63% 64% 62%
rate (excluding short-term
securities)
Total returne 22.6% 28.6% 19.3% 23.7% 29.8% 20.0%
Average brokerage commission ratef $.0498 $.0557 -- $.0498 $.0557 --
aFor a share outstanding throughout the period. Rounded to the nearest cent.
b Inception date was March 20, 1995.
cEffective fiscal year 1996, expense ratio is based on total expenses of the
Fund before reduction of earnings credits on cash balances.
d Adjusted to an annual basis.
eTotal return does not reflect payment of a sales charge.
fEffective fiscal year 1996, the Fund is required to disclose an average
brokerage commission rate per share for security trades on which commissions are
charged. The comparability of this information may be affected by the fact that
commission rates per share vary significantly among foreign countries.
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.
</TABLE>
<PAGE>
Total returns
Total return is the sum of all of your returns for a given period, assuming you
reinvest all distributions. It is calculated by taking the total value of shares
you own at the end of the period (including shares acquired by reinvestment),
less the price of shares you purchased at the beginning of the period.
Average annual total return is the annually compounded rate of return over a
given time period (usually two or more years). It is the total return for the
period converted to an equivalent annual figure.
<TABLE>
<CAPTION>
Average annual total returns as of Nov. 30, 1997
<S> <C> <C> <C> <C>
Purchase 1 year Since 5 years 10 years
made ago inception ago ago
- ----------------------------- ------------------ ------------------- --------------------- -----------------
Equity Select:
Class A +17.38% --% +15.69% +15.84%
Class B +18.62% +25.39%* --% --%
Class Y +23.68% +27.45%* --% --%
S&P 500 +28.50% +29.70%** +20.11% +18.69%
Lipper Growth and Income
Fund Index +23.65% +25.19%** +18.03% +16.58%
*Inception date was March 20, 1995.
**Measurement period started April 1, 1995.
Cumulative total returns as of Nov. 30, 1997
Purchase 1 year Since 5 years 10 years
made ago inception ago ago
- ----------------------------- ------------------ ------------------- --------------------- -----------------
Equity Select:
Class A +17.38% --% +107.29% +335.57%
Class B +18.62% +84.28%* --% --%
Class Y +23.68% +92.57%* --% --%
S&P 500 +28.50% +101.77%** +149.96% +454.83%
Lipper Growth and Income
Fund Index +23.65% +83.23%** +129.11% +363.63%
*Inception date was March 20, 1995.
**Measurement period started April 1, 1995.
</TABLE>
<PAGE>
These examples show total returns from hypothetical investments in Class A,
Class B and Class Y shares of the Fund. These returns are compared to those of
popular indexes for the same periods. The performance of Class B and Class Y
will vary from the performance of Class A based on differences in sales charges
and fees. Past performance for Class Y for the periods prior to March 20, 1995
may be calculated based on the performance of Class A, adjusted to reflect
differences in sales charges although not for other differences in expenses.
For purposes of calculation, information about the Fund assumes:
o a sales charge of 5% for Class A shares
o redemption at the end of the period and deduction of the applicable
contingent deferred sales
charge for Class B shares
o no sales charge for Class Y shares
o no adjustments for taxes an investor may have paid on the reinvested
income and capital gains
o a period of widely fluctuating securities prices. Returns shown should
not be considered a representation of the Fund's future performance.
Standard & Poor's 500 Stock Index (S&P 500), an unmanaged list of common stocks,
is frequently used as a general measure of market performance. The index
reflects reinvestment of all distributions and changes in market prices, but
excludes brokerage commissions or other fees.
Lipper Growth and Income Fund Index, an unmanaged index published by Lipper
Analytical Services, Inc., includes 30 funds that are generally similar to the
Fund, although some funds in the index may have somewhat different investment
policies or objectives.
Investment policies and risks
The Fund invests in stocks of companies with moderate growth that generally pay
dividends, debt securities, preferred stocks, convertible securities, derivative
instruments and money market instruments. The companies are located both in the
U.S. and in foreign countries.
Capital growth is derived from an increase in the market value of assets the
Fund owns. Income is derived primarily from dividends and interest.
The various types of investments the investment manager uses to achieve
investment performance are described in more detail in the next section and in
the SAI.
<PAGE>
Facts about investments and their risks
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. Stocks of smaller companies may be subject to more
abrupt or erratic price movements than large company stocks. Also, small
companies often have limited product lines, smaller markets or fewer financial
resources. Small companies are defined as having market capitalization of $1
billion or less.
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.
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 Fund only invests in bonds given
the four highest ratings by Moody's Investors Service, Inc. or by Standard &
Poor's Corporation or in bonds of comparable quality in the judgment of the
investment manager. Securities that are subsequently downgraded in quality may
continue to be held by the Fund and will be sold only when the investment
manager believes it is advantageous to do so.
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 Fund
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 Fund may
invest up to 25% of its total assets in foreign investments.
<PAGE>
Derivative instruments: The investment manager may use derivative instruments in
addition to securities to achieve investment performance. Derivative instruments
include futures, options and forward contracts. Such instruments may be used to
maintain cash reserves while remaining fully invested, to offset anticipated
declines in values of investments, to facilitate trading, to reduce transaction
costs or to pursue higher investment returns. Derivative instruments are
characterized by requiring little or no initial payment and a daily change in
price based on or derived from a security, a currency, a group of securities or
currencies, or an index. A number of strategies or combination of instruments
can be used to achieve the desired investment performance characteristics. A
small change in the value of the underlying security, currency or index will
cause a sizable gain or loss in the price of the derivative instrument.
Derivative instruments allow the investment manager to change the investment
performance characteristics very quickly and at lower costs. Risks include
losses of premiums, rapid changes in prices, defaults by other parties and
inability to close such instruments. The Fund will use derivative instruments
only to achieve the same investment performance characteristics it could achieve
by directly holding those securities and currencies permitted under the
investment policies. The Fund will designate cash or appropriate liquid assets
to cover its portfolio obligations. No more than 5% of the Fund's net assets can
be used at any one time for good faith deposits on futures and premiums for
options on futures that do not offset existing investment positions. This does
not, however, limit the portion of the Fund's assets at risk to 5%. The Fund is
not limited as to the percentage of its assets that may be invested in
permissible investments, including derivatives, except as otherwise explicitly
provided in this prospectus or the SAI. For descriptions of these and other
types of derivative instruments, see the Appendix to this prospectus and the
SAI.
Securities and other instruments that are illiquid: A security or other
instrument is illiquid if it cannot be sold quickly in the normal course of
business. Some investments cannot be resold to the U.S. public because of their
terms or government regulations. Securities and instruments, however, can be
sold in private sales, and many may be sold to other institutions and qualified
buyers or on foreign markets. The investment manager will follow guidelines
established by the board and consider relevant factors such as the nature of the
security and the number of likely buyers when determining whether a security is
illiquid. No more than 10% of the Fund's net assets will be held in securities
and other instruments that are illiquid.
<PAGE>
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 Fund'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 board.
Lending portfolio securities: The Fund may lend its securities to earn income so
long as borrowers provide collateral equal to the market value of the loans. The
risks are that borrowers will not provide collateral when required or return
securities when due. Unless a majority of the outstanding voting securities
approve otherwise, loans may not exceed 30% of the Fund's net assets.
Alternative investment option
In the future, the board of the Fund may determine for operating efficiencies to
use a master/feeder structure. Under that structure, the Fund's assets would be
invested in an investment company with the same goal as the Fund, rather than
invested directly in a portfolio of securities.
Valuing Fund shares
The public offering price is the net asset value (NAV) adjusted for the sales
charge for Class A. It is the NAV for Class B and Class Y.
The NAV is the value of a single Fund share. The NAV usually changes daily, and
is calculated at the close of business, normally 3 p.m. Central time, each
business day (any day the New York Stock Exchange is open).
To establish the net assets, all securities are valued as of the close of each
business day. In valuing assets:
o Securities and assets with available market values are valued on that
basis
o Securities maturing in 60 days or less are valued at amortized cost
o Assets without readily available market values are valued according to
methods selected in good faith by the board
<PAGE>
How to purchase, exchange or redeem shares
Alternative purchase arrangements
The Fund offers three different classes of shares - Class A, Class B and Class
Y. The primary differences among the classes are in the sales charge structures
and in their ongoing expenses. These differences are summarized in the table
below. You may choose the class that best suits your circumstances and
objectives.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Sales charge and
distribution
(12b-1) fee Service fee Other information
Class A Maximum initial sales 0.175% of average daily net Initial sales charge waived
charge of 5%; no 12b-1 fee assets or reduced for certain
purchases
Class B No initial sales charge; 0.175% of average daily net Shares convert to Class A
maximum CDSC of 5% assets in the ninth year of
declines to 0% after six ownership; CDSC waived in
years; 12b-1 fee of 0.75% certain circumstances
of average daily net
assets
Class Y None 0.10% of average daily net Available only to certain
assets qualifying institutional
investors
</TABLE>
Conversion of Class B shares to Class A shares - During the ninth calendar year
of owning your Class B shares, Class B shares will convert to Class A shares and
will no longer be subject to a distribution fee. Class B shares that convert to
Class A shares are not subject to a sales charge. Class B shares purchased
through reinvested dividends and distributions also will convert to Class A
shares in the same proportion as the other Class B shares. This means more of
your money will be put to work for you.
Considerations in determining whether to purchase Class A or Class B shares -
You should consider the information below in determining whether to purchase
Class A or Class B shares. The distribution fee (included in "Ongoing expenses")
and sales charges are structured so that you will have approximately the same
total return at the end of eight years regardless of which class you chose.
<PAGE>
Sales charges on purchase or redemption
If you purchase Class A shares If you purchase Class B shares
o You will not have all of your o All of your money is invested in
purchase price invested. Part shares of stock. However, you
of your purchase price will go will pay a sales charge if you
to pay the sales charge. You redeem your shares within six
will not pay a sales charge when years of purchase.
you redeem your shares.
o You will be able to take advantage o No reductions of the sales charge
of reductions in the sales charge. are available for large purchases.
If your investments in IDS funds that are subject to a sales charge total
$250,000 or more, you are better off paying the reduced sales charge in Class A
than paying the higher fees in Class B. If you qualify for a waiver of the sales
charge, you should purchase Class A shares.
Ongoing expenses
If you purchase Class A shares If you purchase Class B shares
o Your shares will have a lower o The distribution and transfer
expense ratio than Class B shares agency fees for Class B will
because Class A does not pay a cause your shares to have a
distribution fee and the transfer higher expense ratio and to
agency fee for Class A is lower pay lower dividend than Class
than the fee for Class B. As a A shares. In the ninth year of
result, Class A shares will pay ownership, Class B shares will
higher dividends than Class B shares. convert to Class A shares and
you will no longer be subject
to higher fees.
You should consider how long you plan to hold your shares and whether the
accumulated higher fees and CDSC on Class B shares prior to conversion would be
less than the initial sales charge on Class A shares. Also consider to what
extent the difference would be offset by the lower expenses on Class A shares.
To help you in this analysis, the example in the "Sales charge and Fund
expenses" section of the prospectus illustrates the charges applicable to each
class of shares.
<PAGE>
Class Y shares - Class Y shares are offered to certain institutional investors.
Class Y shares are sold without a front-end sales charge or a CDSC and are not
subject to a distribution fee. The following investors are eligible to purchase
Class Y shares:
o Qualified employee benefit plans* if the plan:
- uses a daily transfer recordkeeping service offering participants daily
access to IDS funds and has
- at least $10 million in plan assets or
- 500 or more participants; or
- does not use daily transfer recordkeeping and has
- at least $3 million invested in funds of the IDS MUTUAL FUND GROUP or
- 500 or more participants.
o Trust companies or similar institutions, and charitable organizations that
meet the definition in Section 501(c)(3) of the Internal Revenue Code.*
These must have at least $10 million invested in funds of the IDS MUTUAL
FUND GROUP.
o Nonqualified deferred compensation plans* whose participants are included
in a qualified employee benefit plan described above.
* Eligibility must be determined in advance by AEFA. To do so, contact your
financial advisor.
How to purchase shares
If you are investing in this Fund for the first time, you will need to set up an
account. Your financial advisor will help you fill out and submit an
application. Once your account is set up, you can choose among several
convenient ways to invest.
Important: When opening an account, you must provide your correct Taxpayer
Identification Number (Social Security or Employer Identification number). See
"Distributions and taxes."
When you purchase shares for a new or existing account, the price you pay per
share is determined at the close of business on the day your investment is
received and accepted at the Minneapolis headquarters.
<PAGE>
Purchase policies:
o Investments must be received and accepted in the Minneapolis
headquarters on a business day before 3 p.m. Central time to be
included in your account that day and to receive that day's share
price. Otherwise, your purchase will be processed the next business day
and you will pay the next day's share price.
o The minimums allowed for investment may change from time to time.
o Wire orders can be accepted only on days when your bank, AEFC, the Fund
and Norwest Bank Minneapolis are open for business.
o Wire purchases are completed when wired payment is received and the
Fund accepts the purchase.
o AEFC and the Fund are not responsible for any delays that occur in
wiring funds, including delays in processing by the bank.
o You must pay any fee the bank charges for wiring.
o The Fund reserves the right to reject any application for any reason.
o If your application does not specify which class of shares you are
purchasing, it will be assumed that you are investing in Class A
shares.
Three ways to invest
<TABLE>
<CAPTION>
<S> <C> <C>
1
By regular account Send your check and application (or your name Minimum amounts
and account number if you have an established Initial investment: $2,000
account) to: Additional investments:$ 100
Account balances: $ 300*
American Express Financial Advisors Inc. Qualified retirement
P.O. Box 74 accounts: none
Minneapolis, MN 55440-0074
Your financial advisor will help you with this
process.
2
By scheduled investment Contact your financial advisor to set up one Minimum amounts
plan of the following scheduled plans: Initial investment: $ 100
Additional investments:$100/
o automatic payroll deduction each payment
Account balances: none
o bank authorization (on active plans of
monthly payments)
o direct deposit of Social Security check
If account balance is below
o other plan approved by the Fund $2,000, frequency of payments
must be at least monthly.
<PAGE>
3
By wire If you have an established account, you may If this information is not
wire money to: included, the order may be
rejected and all money
Norwest Bank Minneapolis received by the Fund, less any
Routing No. 091000019 costs the Fund or AEFC incurs,
Minneapolis, MN will be returned promptly.
Attn: Domestic Wire Dept.
Minimum amounts
Give these instructions: Each wire investment: $1,000
Credit IDS Account #00-30-015 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 do not do so
within 30 days, your shares can be redeemed and the proceeds mailed to you. If
you are in a "wrap-fee" program sponsored by AEFA and your wrap program balance
falls below the required program minimum or is terminated, your shares will be
redeemed and the proceeds mailed to you.
How to exchange shares
You can exchange your shares of the Fund at no charge for shares of the same
class of any other publicly offered fund in the IDS MUTUAL FUND GROUP available
in your state. Exchanges into IDS Tax-Free Money Fund must be made from Class A
shares. For complete information on any other fund, including fees and expenses,
read that fund's prospectus carefully.
If your exchange request arrives at the Minneapolis headquarters before the
close of business, your shares will be redeemed at the net asset value set for
that day. The proceeds will be used to purchase new fund shares the same day.
Otherwise, your exchange will take place the next business day at that day's net
asset value.
For tax purposes, an exchange represents a redemption and purchase and may
result in a gain or loss. However, you cannot use the sales charge imposed on
the purchase of Class A shares to create or increase a tax loss (or reduce a
taxable gain) by exchanging from the Fund within 91 days of your purchase. For
further explanation, see the SAI.
How to redeem shares
You can redeem your shares at any time. American Express Shareholder Service
will mail payment within seven days after receiving your request.
When you redeem shares, the amount you receive may be more or less than the
amount you invested. Your shares will be redeemed at net asset value, minus any
applicable sales charge, at the close of business on the day your request is
accepted at the Minneapolis headquarters. If your request arrives after the
close of business, the price per share will be the net asset value, minus any
applicable sales charge, at the close of business on the next business day.
<PAGE>
A redemption is a taxable transaction. If the proceeds from your redemption are
more or less than the cost of your shares, you will have a gain or loss, which
can affect your tax liability. 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 IdentificationNumber (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, indicat 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 o The Fund and AEFC will honor any telephone
Financial Advisors exchange or redemption request believed to be
Telephone Transaction authentic and will use reasonable procedures
Service: to confirm that they are. This includes asking
800-437-3133 or identifying questions and tape recording
612-671-3800 calls. If reasonable procedures are followed,
the Fund or AEFC will not be liable for any
loss resulting from fraudulent requests.
o Phone exchange and redemption privileges
automatically apply to all accounts except
custodial, corporate or qualified retirement
accounts unless you request these privileges
NOT apply by writing American Express
Shareholder Service. Each registered owner
must sign the request.
o 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>
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>
Three ways to receive payment when you redeem shares
1 o Mailed to the address on record
By regular or o Payable to names listed on the account
express mail NOTE: You will be charged a fee if you request
express mail delivery.
2 o Minimum wire redemption: $1,000
By wire 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 o Minimum payment: $50
By scheduled o Contact your financial advisor or American
payout plan Express Shareholder Service to set up regular
payments to you on a monthly, bimonthly,
quarterly,semiannual or annual basis
o Purchasing new shares while under a payout
plan may be disadvantageous because of the
sales charges
Reductions and waivers of the sales charge
Class A - initial sales charge alternative
On purchases of Class A shares, you pay a 5% sales charge on the first $50,000
of your total investment and less on investments after the first $50,000:
Total investment Sales charge as a
percentage of:*
Public Net
offering amount
price invested
Up to $50,000 5.0% 5.26%
Next $50,000 4.5 4.71
Next $400,000 3.8 3.95
Next $500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
* To calculate the actual sales charge on an investment greater than $50,000 and
less than $1,000,000, amounts for each applicable increment must be totaled. See
the SAI.
<PAGE>
Reductions of the sales charge on Class A shares Your sales charge may be
reduced, depending on the totals of:
o the amount you are investing in this Fund now;
o the amount of your existing investment in this Fund, if any; and
o the amount you and your primary household group are investing or have in
other funds in the IDS MUTUAL FUND GROUP that carry a sales charge.
(The primary household group consists of accounts in any ownership for
spouses or domestic partners and their unmarried children under 21.
Domestic partners are individuals who maintain a shared primary residence
and have joint property or other insurable interests.)
Other policies that affect your sales charge:
o IDS Tax-Free Money Fund and Class A shares of IDS Cash Management Fund do
not carry sales charges. However, you may count investments in these funds if
you acquired shares in them by exchanging shares from IDS funds that carry sales
charges.
o 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.
<PAGE>
o Qualified employee benefit plans* using a daily transfer recordkeeping system
offering participants daily access to IDS funds.
(Participants in certain qualified plans for which the initial sales charge is
waived may be subject to a deferred sales charge of up to 4% on certain
redemptions. For more information, see the SAI.)
o Shareholders who have at least $1 million invested in funds of the IDS MUTUAL
FUND GROUP. If the investment is redeemed in the first year after purchase, a
CDSC of 1% will be charged on the redemption. The CDSC will be waived only in
the circumstances described for waivers for Class B shares.
o Purchases made within 30 days after a redemption of shares (up to the
amount redeemed):
- of a product distributed by AEFA in a qualified plan subject to a
deferred sales charge or
- in a qualified plan where American Express Trust Company has a
recordkeeping, trustee, investment management or investment servicin
relationship.
Send the Fund a written request along with your payment, indicating the amount
of the redemption and the date on which it occurred.
o Purchases made with dividend or capital gain distributions from the same class
of another fund in the IDS MUTUAL FUND GROUP that has a sales charge.
o Purchases made through or under a "wrap fee" product sponsored by AEFA (total
amount of all investments must be $50,000); the University of 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.
* Eligibility must be determined in advance by AEFA. To do so, contact your
financial advisor.
<PAGE>
Class B - contingent deferred sales charge alternative
Where a CDSC is imposed on a redemption, it is based on the amount of the
redemption and the number of calendar years, including the year of purchase,
between purchase and redemption. The following table shows the declining scale
of percentages that apply to redemptions during each year after a purchase:
If a redemption is The percentage rate
made during the for the CDSC is:
First year 5%
Second year 4%
Third year 4%
Fourth year 3%
Fifth year 2%
Sixth year 1%
Seventh year 0%
If the amount you are redeeming reduces the current net asset value of your
investment in Class B shares below the total dollar amount of all your purchase
payments during the last six years (including the year in which your redemption
is made), the CDSC is based on the lower of the redeemed purchase payments or
market value.
The following example illustrates how the CDSC is applied. Assume you had
invested $10,000 in Class B shares and that your investment had appreciated in
value to $12,000 after 15 months, including reinvested dividend and capital gain
distributions. You could redeem any amount up to $2,000 without paying a CDSC
($12,000 current value less $10,000 purchase amount). If you redeemed $2,500,
the CDSC would apply only to the $500 that represented part of your original
purchase price. The CDSC rate would be 4% because a redemption after 15 months
would take place during the second year after purchase.
Because the CDSC is imposed only on redemptions that reduce the total of your
purchase payments, you never have to pay a CDSC on any amount you redeem that
represents appreciation in the value of your shares, income earned by your
shares or capital gains. In addition, when determining the rate of any CDSC,
your redemption will be made from the oldest purchase payment you made. Of
course, once a purchase payment is considered to have been redeemed, the next
amount redeemed is the next oldest purchase payment. By redeeming the oldest
purchase payments first, lower CDSCs are imposed than would otherwise be the
case.
<PAGE>
Waivers of the contingent deferred sales charge The CDSC on Class B shares will
be waived on redemptions of shares:
o In the event of the shareholder's death,
o Purchased by any board member, officer or employee of a fund or AEFC or
its subsidiaries,
o Held in a trusteed employee benefit plan,
o Held in IRAs or certain qualified plans for which American Express Trust
Company acts as custodian, such as Keogh plans, tax-sheltered custodial
accounts or corporate pension plans, provided that the shareholder is:
- at least 59-1/2 years old, and
- taking a retirement distribution (if the redemption is part of a
transfer to an IRA or qualified plan in a product distributed by AEFA,
or a custodian-to-custodian transfer to a product not distributed by
AEFA, the CDSC will not be waived), or
- redeeming under an approved substantially equal periodic payment
arrangement.
Special shareholder services
Services
To help you track and evaluate the performance of your investments, AEFC
provides these services:
Quarterly statements listing all of your holdings and transactions during the
previous three months.
Yearly tax statements featuring average-cost-basis reporting of capital gains or
losses if you redeem your shares along with distribution information which
simplifies tax calculations.
A personalized mutual fund progress report detailing returns on your initial
investment and cash-flow activity in your account. It calculates a total return
to reflect your individual history in owning Fund shares. This report is
available from your financial advisor.
<PAGE>
Quick telephone reference
American Express Financial Advisors Telephone Transaction Service
Redemptions and exchanges, dividend payments or reinvestments and automatic
payment arrangements
National/Minnesota: 800-437-3133
Mpls./St. Paul area: 671-3800
TTY Service
For the hearing impaired
800-846-4852
American Express Financial Advisors Easy Access Line
Automated account information (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 Fund's net investment income from dividends and interest is distributed to
you at the end of each calendar quarter as dividends. Capital gains are realized
when a security is sold for a higher price than was paid for it. Short-term
capital gains are distributed at the end of the calendar year and are included
in net investment income. Long-term capital gains are realized when a security
is held for more than one year. The Fund will offset any net realized capital
gains by any available capital loss carryovers. Net realized long-term capital
gains, if any, are distributed at the end of the calendar year as capital gain
distributions. These long-term capital gains will be subject to differing tax
rates depending on the holding period of the underlying investments. Before they
are distributed, both net investment income and net long-term capital gains are
included in the value of each share. After they are distributed, the value of
each share drops by the per-share amount of the distribution. (If your
distributions are reinvested, the total value of your holdings will not change.)
Dividends for each class will be calculated at the same time, in the same manner
and will be the same amount prior to deduction of expenses. Expenses
attributable solely to a class of shares will be paid exclusively by that class.
<PAGE>
Reinvestments
Dividends and capital gain distributions are automatically reinvested in
additional shares in the same class of the Fund, unless:
o you request the Fund in writing or by phone to pay distributions to you
in cash, or
o you direct the Fund to invest your distributions in the same class of
another publicly available IDS fund for which you have previously
opened an account.
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. Prior to
reinvestment, no interest will accrue on amounts represented by uncashed
distribution or redemption checks.
Taxes
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 net investment income or a capital gain distribution. You pay the full
pre-distribution price for the shares, then receive a portion of your investment
back as a distribution, which is taxable.
Redemptions and exchanges subject you to a tax on any capital gain. If you sell
shares for more than their cost, the difference is a capital gain. Your gain may
be short term (for shares held for one year or less) or long term (for shares
held for more than one year). Long-term capital gains will be taxed at rates
that vary depending upon the holding period. Long-term capital gains are divided
into two holding periods: (1) shares held more than one year but not more than
18 months and (2) shares held more than 18 months.
<PAGE>
Your Taxpayer Identification Number (TIN) is important. As with any financial
account you open, you must list your current and correct Taxpayer Identification
Number (TIN) -- either your Social Security or Employer Identification number.
The TIN must be certified under penalties of perjury on your application when
you open an account.
If you do not provide the TIN, or the TIN you report is incorrect, you could be
subject to backup withholding of 31% of taxable distributions and proceeds from
certain sales and exchanges. You also could be subject to further penalties,
such as:
o a $50 penalty for each failure to supply your correct TIN
o a civil penalty of $500 if you make a false statement that results in
no backup withholding
o criminal penalties for falsifying information
You also could be subject to backup withholding because you failed to report
interest or dividends on your tax return as required.
<TABLE>
<CAPTION>
How to determine the correct TIN
<S> <C>
Use the Social Security or
For this type of account: Employer Identification number of:
Individual or joint account The individual or individuals listed on the account
Custodian account of a minor (Uniform The minor
Gifts/Transfers to Minors Act)
A living trust The grantor-trustee (the person who puts the money
into the trust)
An irrevocable trust, The legal entity (not the personal representative
pension trust or estate or trustee, unless no legal entity is designated in
the account title)
Sole proprietorship The owner
Partnership The partnership
Corporate The corporation
Association, club or tax-exempt organization The organization
</TABLE>
<PAGE>
For details on TIN requirements, ask your financial advisor or local American
Express Financial Advisors office for federal Form W-9, "Request for Taxpayer
Identification Number and Certification."
Important: This information is a brief and selective summary of certain federal
tax rules that apply to this Fund. Tax matters are highly individual and
complex, and you should consult a qualified tax advisor about your personal
situation.
How the Fund is organized
Shares
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.
Board members and officers
Shareholders elect a board that oversees the operations of the Fund and chooses
its officers. Its officers are responsible for day-to-day business decisions
based on policies set by the board. The board has named an executive committee
that has authority to act on its behalf between meetings. Board members and
officers serve 47 IDS and IDS Life funds and 15 Master Trust portfolios, except
for William H. Dudley, who does not serve the nine IDS Life funds.
<PAGE>
Independent board members and officers
Chairman of the board
William R. Pearce*
Chairman of the board, Board Services Corporation (provides administrative
services to boards including the boards of the IDS and IDS Life funds and Master
Trust portfolios).
H. Brewster Atwater, Jr.
Former chairman and chief executive officer, General Mills, Inc.
Lynne V. Cheney
Distinguished fellow, American Enterprise Institute for Public Policy Research.
Heinz F. Hutter
Former president and chief operating officer, Cargill, Inc.
Anne P. Jones
Attorney and telecommunications consultant.
Alan K. Simpson
Former United States senator for Wyoming.
Edson W. Spencer
Former chairman and chief executive officer, Honeywell, Inc.
Wheelock Whitney
Chairman, Whitney Management Company.
C. Angus Wurtele
Chairman of the board, The Valspar Corporation.
Officer
Vice president, general counsel and secretary
Leslie L. Ogg*
President, treasurer and corporate secretary of Board Services Corporation.
<PAGE>
Board members and officers associated with AEFC
President
John R. Thomas*
Senior vice president, AEFC.
William H. Dudley*
Senior advisor to the chief executive officer, AEFC.
David R. Hubers*
President and chief executive officer, AEFC.
Officers associated with AEFC
Vice president
Peter J. Anderson*
Senior vice president, AEFC.
Treasurer
Matthew N. Karstetter*
Vice president, AEFC.
Refer to the SAI for the board members' and officers' biographies.
* Interested person as defined by the Investment Company Act of 1940.
<PAGE>
Investment manager
The Fund pays AEFC for managing its assets. Under its Investment Management
Services Agreement, AEFC is paid a fee for these services based on the average
daily net assets of the Fund, as follows:
Assets Annual rate
(billions) at each asset level
First $0.50 0.530%
Next 0.50 0.505
Next 1.0 0.480
Next 1.0 0.455
Next 3.0 0.430
Over 6.0 0.400
This fee may be increased or decreased by a performance adjustment based on a
comparison of performance of Class A shares of the Fund to the Lipper Growth and
Income Fund Index. The maximum adjustment is 0.08% of the Fund's average daily
net assets on an annual basis.
For the fiscal year ended Nov. 30, 1997, the Fund paid AEFC a total investment
management fee of 0.52% of its average daily net assets. Under the Agreement,
the Fund also pays taxes, brokerage commissions and nonadvisory expenses.
Administrator and transfer agent
Under an Administrative Services Agreement, the Fund pays AEFC for
administration and accounting services at an annual rate of 0.04% decreasing in
gradual percentages to 0.02% as assets increase.
Under a separate Transfer Agency Agreement, American Express Client Service
Corporation (AECSC) maintains shareholder accounts and records. The Fund pays
AECSC an annual fee per shareholder account for this service as follows:
o Class A $15
o Class B $16
o Class Y $15
<PAGE>
Distributor
The Fund has an exclusive distribution agreement with American Express Financial
Advisors, a wholly-owned subsidiary of AEFC. Financial advisors representing
AEFA provide information to investors about individual investment programs, the
Fund and its operations, new account applications, and exchange and redemption
requests. The cost of these services is paid partially by the Fund's sales
charges.
Persons who buy Class A shares pay a sales charge at the time of purchase.
Persons who buy Class B shares are subject to a contingent deferred sales charge
on a redemption in the first six years and pay an asset-based sales charge (also
known as a 12b-1 fee) of 0.75% of the Fund's average daily net assets. Class Y
shares are sold without a sales charge and without an asset-based sales charge.
Financial advisors may receive different compensation for selling Class A, Class
B and Class Y shares. Portions of the sales charge also may be paid to
securities dealers who have sold the Fund's shares or to banks and other
financial institutions. The amounts of those payments range from 0.8% to 4% of
the Fund's offering price depending on the monthly sales volume.
Under a Shareholder Service Agreement, the Fund also pays a fee for service
provided to shareholders by financial advisors and other servicing agents. The
fee is calculated at a rate of 0.175% of average daily net assets for Class A
and Class B shares and 0.10% for Class Y shares.
Total expenses paid by the Fund's Class A shares for the fiscal year ended Nov.
30, 1997, were 0.83% of its average daily net assets. Expenses for Class B and
Class Y were 1.59% and 0.70%, 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 Nov.
30, 1997 were more than $172 billion.
<PAGE>
AEFA serves individuals and businesses through its nationwide network of more
than 175 offices and more than 8,700 advisors.
Other AEFC subsidiaries provide investment management and related services for
pension, profit sharing, employee savings and endowment funds of businesses and
institutions.
AEFC is located at IDS Tower 10, Minneapolis, MN 55440-0010. It is a
wholly-owned subsidiary of American Express Company (American Express), a
financial services company with headquarters at American Express Tower, World
Financial Center, New York, NY 10285. The Fund may pay brokerage commissions to
broker-dealer affiliates of AEFC.
<PAGE>
Appendix
Descriptions of derivative instruments
What follows are brief descriptions of derivative instruments the Fund may use.
At various times the Fund may use some or all of these instruments and is not
limited to these instruments. It may use other similar types of instruments if
they are consistent with the Fund's investment goal and policies. For more
information on these instruments, see the SAI.
Options and futures contracts - An option is an agreement to buy or sell an
instrument at a set price during a certain period of time. A futures contract is
an agreement to buy or sell an instrument for a set price on a future date. The
Fund may buy and sell options and futures contracts to manage its exposure to
changing interest rates, security prices and currency exchange rates. Options
and futures may be used to hedge the Fund's investments against price
fluctuations or to increase market exposure.
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.
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>
STATEMENT OF ADDITIONAL INFORMATION
FOR
IDS EQUITY SELECT FUND
Jan. 29, 1998
This Statement of Additional Information (SAI) is not a prospectus. It should be
read together with the prospectus and the financial statements contained in the
Annual Report which may be obtained from your American Express financial advisor
or by writing to American Express Shareholder Service, P.O. Box 534,
Minneapolis, MN 55440-0534.
This SAI is dated Jan. 29, 1998, and it is to be used with the prospectus date
Jan. 29, 1998, and the Annual Report for the fiscal year ended Nov. 30, 1997.
<PAGE>
IDS Equity Select Fund
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. 8
Performance Information...................................................p. 9
Valuing Fund Shares........................................................p.10
Investing in the Fund......................................................p.12
Redeeming Shares...........................................................p.16
Pay-out Plans..............................................................p.17
Taxes......................................................................p.18
Agreements.................................................................p.19
Organizational Information.................................... ............p.23
Board Members and Officers.................................................p.23
Compensation for Fund 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 Stock Index Futures Contracts.....................p.34
Appendix C: Mortgage-Backed Securities....................................p.41
Appendix D: Dollar-Cost Averaging.........................................p.42
<PAGE>
ADDITIONAL INVESTMENT POLICIES
These are investment policies in addition to those presented in the prospectus.
The policies below are fundamental policies of IDS Equity Select Fund, Inc. (the
Fund) and may be changed only with shareholder approval. Unless holders of a
majority of the outstanding voting securities agree to make the change the Fund
will not:
`Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it purchases
securities directly from the issuer and later resells them.
`Borrow money or property, except as a temporary measure for extraordinary or
emergency purposes, in an amount not exceeding one-third of the market value of
its total assets (including borrowings) less liabilities (other than borrowings)
immediately after the borrowing. The Fund has not borrowed in the past and has
no present intention to borrow.
`Make cash loans if the total commitment amount exceeds 5% of the Fund's total
assets.
`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
Fund'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.
`Invest more than 5% of its total assets in securities of any one company,
government or political subdivision thereof, except the limitation will not
apply to investments in securities issued by the U.S. government, its agencies
or instrumentalities, and except that up to 25% of the Fund's total assets may
be invested without regard to this 5% limitation.
`Buy or sell real estate, unless acquired as a result of ownership of securities
or other instruments, except this shall not prevent the Fund from investing in
securities or other instruments backed by real estate or securities of companies
engaged in the real estate business or real estate investment trusts. For
purposes of this policy, real estate includes real estate limited partnerships.
`Buy or sell physical commodities unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund from
buying or selling options and futures contracts or from investing in securities
or other instruments backed by, or whose value is derived from, physical
commodities.
`Purchase securities of an issuer if the board members and officers of the Fund
and of American Express Financial Corporation (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 and of AEFC who own more than 0.5% of an
<PAGE>
issuer's securities are added together, and if in total they own more than 5%,
the Fund will not purchase securities of that issuer.
`Lend Fund securities in excess of 30% of its net assets. The current policy of
the Fund's board is to make these loans, either long- or short-term, to
broker-dealers. In making loans, the Fund receives the market price in cash,
U.S. government securities, letters of credit or such other collateral as may be
permitted by regulatory agencies and approved by the board. If the market price
of the loaned securities goes up, the Fund 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 Fund 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.
`Lend the Fund's assets to the Fund's board members and officers, to AEFC, or to
AEFC's board members and officers.
Unless changed by the board, the Fund will not:
`Buy on margin or sell short, except the Fund may make margin payments in
connection with transactions in stock index futures contracts.
`Pledge or mortgage its assets beyond 15% of total assets. If the Fund were ever
to do so, valuation of the pledged or mortgaged assets would be based on market
values. For purposes of this policy, collateral arrangements for margin deposits
on a futures contract are not deemed to be a pledge of assets.
`Invest more than 5% of its total assets in securities 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.
The Fund has no current intention to invest in securities of other 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 the Fund's net assets in securities and derivative
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
<PAGE>
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 Fund may make contracts to purchase securities for a fixed price at a future
date beyond normal settlement time (when-issued securities or forward
commitments). Under normal market conditions, the Fund does not intend to commit
more than 5% of its total assets to these practices. The Fund does not pay for
the securities or receive dividends or interest on them until the contractual
settlement date. The Fund will designate cash or liquid high-grade debt
securities at least equal in value to its commitments to purchase the
securities. When-issued securities or forward commitments are subject to market
fluctuations and they may affect the Fund's total assets the same as owned
securities.
The Fund may invest a portion of its assets in cash and cash-equivalent
investments. The cash-equivalent investments the Fund 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 Fund 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 bankruptcy
laws, the Fund's ability to liquidate the security involved could be impaired.
The Fund 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
<PAGE>
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.
Notwithstanding any of the Fund's other investment policies, the Fund may invest
its assets in an open-end management investment company having substantially the
same investment objectives, policies and restrictions as the Fund for the
purpose of having those assets managed as part of a combined pool.
For a discussion about foreign currency transactions, see Appendix A. For a
discussion on options and stock index 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 investment goals and policies, which securities will
be purchased, held or sold. In determining where the buy and sell orders are to
be placed, AEFC has been directed to use its best efforts to obtain the best
available price and the most favorable execution except where otherwise
authorized by the board. In selecting broker-dealers to execute transactions,
AEFC may consider the price of the security, including commission or mark-up,
the size and difficulty of the order, the reliability, integrity, financial
soundness and general operation and execution capabilities of the broker, the
broker's expertise in particular markets, and research services provided by the
broker.
AEFC has a strict Code of Ethics that prohibits its affiliated personnel from
engaging in personal investment activities that compete with or attempt to take
advantage of planned portfolio transactions for any fund in the IDS MUTUAL FUND
GROUP. AEFC carefully monitors compliance with its Code of Ethics.
On occasion, it may be desirable to compensate a broker for research services or
for brokerage services by paying a commission that might not otherwise be
charged or a commission in excess of the amount another broker might charge. The
board has adopted a policy authorizing AEFC to do so to the extent authorized by
law, if AEFC determines, in good faith, that such commission is reasonable in
relation to the value of the brokerage or research services provided by a broker
or dealer, viewed either in the light of that transaction or AEFC's overall
responsibilities with respect to the Fund and other funds and trusts in the IDS
MUTUAL FUND GROUP for which it acts as investment advisor.
<PAGE>
Research provided by brokers supplements AEFC's own research activities. Such
services include economic data on, and analysis of, U.S. and foreign economies;
information on specific industries; information about specific companies,
including earnings estimates; purchase recommendations for stocks and bonds;
portfolio strategy services; political, economic, business and industry trend
assessments; historical statistical information; market data services providing
information on specific issues and prices; and technical analysis of various
aspects of the securities markets, including technical charts. Research services
may take the form of written reports, computer software or personal contact by
telephone or at seminars or other meetings. AEFC has obtained, and in the future
may obtain, computer hardware from brokers, including but not limited to
personal computers that will be used exclusively for investment decision-making
purposes, which include the research, portfolio management and trading functions
and other services to the extent permitted under an interpretation by the SEC.
When paying a commission that might not otherwise be charged or a commission in
excess of the amount another broker might charge, AEFC must follow procedures
authorized by the board. To date, three procedures have been authorized. One
procedure permits AEFC to direct an order to buy or sell a security traded on a
national securities exchange to a specific broker for research services it has
provided. The second procedure permits AEFC, in order to obtain research, to
direct an order on an agency basis to buy or sell a security traded in the
over-the-counter market to a firm that does not make a market in that security.
The commission paid generally includes compensation for research services. The
third procedure permits AEFC, in order to obtain research and brokerage
services, to cause the Fund to pay a commission in excess of the amount another
broker might have charged. AEFC has advised the Fund it is necessary to do
business with a number of brokerage firms on a continuing basis to obtain such
services as the handling of large orders, the willingness of a broker to risk
its own money by taking a position in a security, and the specialized handling
of a particular group of securities that only certain brokers may be able to
offer. As a result of this arrangement, some portfolio transactions may not be
effected at the lowest commission, but AEFC believes it may obtain better
overall execution. AEFC has represented that under all three procedures the
amount of commission paid will be reasonable and competitive in relation to the
value of the brokerage services performed or research provided.
All other transactions shall be placed on the basis of obtaining the best
available price and the most favorable execution. In so doing, if in the
professional opinion of the person responsible for selecting the broker or
dealer, several firms can execute the transaction on the same basis,
consideration will be given by such person to those firms offering research
services. Such services may be used by AEFC in providing advice to all the funds
in the IDS MUTUAL FUND GROUP even though it is not possible to relate the
benefits to any particular fund or account.
Each investment decision made for the Fund is made independently from any
decision made for another fund in the IDS MUTUAL FUND GROUP or other account
advised by AEFC or any AEFC subsidiary. When the Fund buys or sells the same
security as another
<PAGE>
fund or account, AEFC carries out the purchase or sale in a way the Fund agrees
in advance is fair. Although sharing in large transactions may adversely affect
the price or volume purchased or sold by the Fund, the Fund hopes to gain an
overall advantage in execution. AEFC has assured the Fund it will continue to
seek ways to reduce brokerage costs.
On a periodic basis, AEFC makes a comprehensive review of the broker-dealers and
the overall reasonableness of their commissions. The review evaluates execution,
operational efficiency and research services.
The Fund paid total brokerage commissions of $1,130,641 for the fiscal year
ended Nov. 30, 1997, $1,065,170 for fiscal year 1996, and $913,821 for fiscal
year 1995. Substantially all firms through whom transactions were executed
provide research services.
In fiscal year 1997, transactions amounting to $23,261,000, on which $27,170 in
commissions were imputed or paid, were specifically directed to firms in
exchange for research services.
As of the fiscal year ended Nov. 30, 1997, the Fund held securities of its
regular brokers or dealers or of the parent of those brokers or dealers that
derived more than 15% of gross revenue from securities-related activities as
presented below:
Value of Securities owned at
Name of Issuer End of Fiscal Year
Bank of America $ 5,678,834
Morgan Stanley Group 7,169,250
Travelers 12,120,000
The portfolio turnover rate was 63% in the fiscal year ended Nov. 30, 1997, and
64% in fiscal year 1996.
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH AMERICAN EXPRESS FINANCIAL
CORPORATION
Affiliates of American Express Company (American Express) (of which AEFC is a
wholly-owned subsidiary) may engage in brokerage and other securities
transactions on behalf of the Fund according to procedures adopted by that
Fund's board and to the extent consistent with applicable provisions of the
federal securities laws. AEFC will use an American Express affiliate only if (i)
AEFC determines that the Fund will receive prices and executions at least as
favorable as those offered by qualified independent brokers performing similar
brokerage and other services for the Fund and (ii) the affiliate charges the
Fund commission rates consistent with those the affiliate charges comparable
unaffiliated customers in similar transactions and if such use is consistent
with terms of the Investment Management Services Agreement.
<PAGE>
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.
Information about brokerage commissions paid by the Fund for the last three
fiscal years to brokers affiliated with AEFC is contained in the following
table:
<TABLE>
<CAPTION>
For the Fiscal Year Ended Nov. 30,
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995
Percent of
Aggregate
Dollar Amount
Aggregate Percent of of Aggregate Aggregate
Dollar Amount Aggregate Transactions Dollar Amount Dollar Amount
Nature of Brokerage Involving of of
Broker of Commissions Commissions Payment of Commissions Commissions
Affiliation Paid to Broker Commissions Paid to Broker Paid to Broker
American (1) $135,987 12.15% 21.28% $103,970 $111,986
Enterprise
Investment
Services Inc.
</TABLE>
(1) Wholly-owned subsidiary of AEFC.
PERFORMANCE INFORMATION
The Fund may quote various performance figures to illustrate past performance.
Average annual total return quotations used by the Fund are based on
standardized methods of computing performance as required by the SEC. An
explanation of the methods used by the Fund to compute performance follows
below.
Average annual total return
The Fund may calculate average annual total return for a class for certain
periods by finding the average annual compounded rates of return over the period
that would equate the initial amount invested to the ending redeemable value,
according to the following formula:
<PAGE>
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)
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 ne
asset value before shareholder transactions for the day. On Dec. 1, 1997, the
first business day following the end of the fiscal year, the computation looked
like this:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Net assets Shares
before outstanding at Net asset value
shareholder the end of of one share
transactions previous day
----------------- ----------------- ----------------- ----------------- -----------------
Class A $991,814,825 divided by 61,949,708 equals $16.01
Class B 41,977,267 2,650,080 15.84
Class Y 391,128 24,415 16.02
</TABLE>
<PAGE>
In determining net assets before shareholder transactions, the Fund's securities
are valued as follows as of the close of business of the New York Stock Exchange
(the Exchange):
`Securities traded on a securities exchange for which a last-quoted sales price
is readily available are valued at the last-quoted sales price on the exchange
where such security is primarily traded.
`Securities traded on a securities exchange for which a last-quoted sales price
is not readily available are valued at the mean of the closing bid and asked
prices, looking first to the bid and asked prices on the exchange where the
security is primarily traded and, if none 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
Fund'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 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
<PAGE>
service independent from the Fund. If a valuation of a bond is not available
from a pricing service, the bond will be valued by a dealer knowledgeable about
the bond if such a dealer is available.
The Exchange, AEFC and the Fund will be closed on the following holidays: New
Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
INVESTING IN THE FUND
Sales Charge
Shares of the Fund are sold at the public offering price determined at the close
of business on the day an application is accepted. The public offering price is
the net asset value of one share adjusted for the sales charge for Class A. For
Class B and Class Y, there is no initial sales charge so the public offering
price is the same as the net asset value. For Class A, the public offering price
for an investment of less than $50,000, made Dec. 1, 1997, was determined by
dividing the net asset value of one share, $16.01, by 0.95 (1.00-0.05 for a
maximum 5% sales charge) for a public offering price of $16.85. The sales charge
is paid to American Express Financial Advisors Inc. (AEFA) by the person buying
the shares.
Class A - Calculation of the Sales Charge
Sales charges are determined as follows:
Within each increment,
sales charge as a percentage of:
Public Net
Amount of Investment Offering Price Amount Invested
First $ 50,000 5.0% 5.26%
Next 50,000 4.5 4.71
Next 400,000 3.8 3.95
Next 500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
Sales charges on an investment greater than $50,000 and less than $1,000,000 are
calculated for each increment separately and then totaled. The resulting total
sales charge, expressed as a percentage of the public offering price and of the
net amount invested, will vary depending on the proportion of the investment at
different sales charge levels.
For example, compare an investment of $60,000 with an investment of $85,000. The
$60,000 investment is composed of $50,000 that incurs a sales charge of $2,500
(5.0% x $50,000) and $10,000 that incurs a sales charge of $450 (4.5% x
$10,000). The total sales charge of $2,950 is 4.92% of the public offering price
and 5.17% of the net amount invested.
<PAGE>
In the case of the $85,000 investment, the first $50,000 also incurs a sales
charge of $2,500 (5.0% x $50,000) and $35,000 incurs a sales charge of $1,575
(4.5% x $35,000). The total sales charge of $4,075 is 4.79% of the public
offering price and 5.04% of the net amount invested.
The following table shows the range of sales charges as a percentage of the
public offering price and of the net amount invested on total investments at
each applicable level.
On total investment,
sales charge as a
percentage of:
Public Net
Offering Price Amount Invested
Amount of Investment ranges from:
First $ 50,000 5.00% 5.26%
Next 50,000 to 100,000 5.00-4.50 5.26-4.71
Next 100,000 to 500,000 4.50-3.80 4.71-3.95
Next 500,000 to 999,999 3.80-2.00 3.95-2.04
$1,000,000 or more 0.00 0.00
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.
<PAGE>
The total amount invested includes any shares held in the Fund in the name of a
member of your primary household group. (The primary household group consists of
accounts in any ownership for spouses or domestic partners and their unmarried
children under 21. Domestic partners are individuals who maintain a shared
primary residence and have joint property or other insurable interests.) For
instance, if your spouse already has invested $20,000 and you want to invest
$40,000, your total amount invested will be $60,000 and therefore you will pay
the lower charge of 4.5% on $10,000 of the $40,000.
Until a spouse remarries, the sales charge is waived for spouses and unmarried
children under 21 of deceased board members, officers or employees of the Fund
or AEFC or its subsidiaries and deceased advisors.
The total amount invested also includes any investment you or your immediate
family already have in the other publicly offered funds in the IDS MUTUAL FUND
GROUP where the investment is subject to a sales charge. For example, suppose
you already have an investment of $30,000 in another IDS fund. If you invest
$40,000 more in this Fund, your total amount invested in the funds will be
$70,000 and therefore $20,000 of your $40,000 investment will incur a 4.5% sales
charge.
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 a LOI may be used to reach the $1 million
total, excluding Cash Management Fund and Tax-Free Money Fund. However, we will
not adjust for sales charges on investments made prior to the signing of the
LOI. If you do not invest $1 million by the end of 13 months, there is no
penalty, you'll just miss out on the sales charge adjustment. A LOI is not an
option (absolute right) to buy shares.
Here's an example. You file a LOI to invest $1 million and make an investment of
$100,000 at that time. You pay the normal 5% sales charge on the first $50,000
and 4.5% sales charge on the next $50,000 of this investment. Let's say you make
a second investment of $900,000 (bringing the total up to $1 million) one month
before the 13-month period is up. On the date that you bring your total to $1
million, AEFC makes an adjustment to your account. The adjustment is made by
crediting your account with additional shares, in an amount equivalent to the
sales charge previously paid.
<PAGE>
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 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);
<PAGE>
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 exchanging dividends into
another fund, you should read that fund's prospectus. You will receive a
confirmation that the automatic directed dividend service has been set up for
your account.
REDEEMING SHARES
You have a right to redeem your shares at any time. For an explanation of
redemption procedures, please see the prospectus.
During an emergency, the board can suspend the computation of net asset value,
stop accepting payments for purchase of shares or suspend the duty of the Fund
to redeem shares for more than seven days. Such emergency situations would occur
if:
`The Exchange closes for reasons other than the usual weekend and holiday
closings or trading on the Exchange is restricted, or
`Disposal of the Fund's securities is not reasonably practicable or it is not
reasonably practicable for the Fund to determine the fair value of its net
assets, or
`The SEC, under the provisions of the Investment Company Act of 1940, as amended
(the 1940 Act), declares a period of emergency to exist.
Should the Fund stop selling shares, the board may make a deduction from the
value of the assets held by the Fund to cover the cost of future liquidations of
the assets so as to distribute fairly these costs among all shareholders.
The Fund has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates the Fund to redeem shares in cash, with respect to any one shareholder
during any 90-day period, up to the lesser of $250,000 or 1% of the net assets
of the Fund at the beginning of the period. Although redemptions in excess of
this limitation would normally be paid in cash, the Fund reserves the right to
make these payments in whole or in part in securities or other assets in case of
an emergency, or if the payment of a redemption in cash would be detrimental to
the existing shareholders of the Fund as determined by the board. In these
circumstances, the securities distributed would be valued as set forth in the
prospectus. Should the Fund distribute securities, a shareholder may incur
brokerage fees or other transaction costs in converting the securities to cash
<PAGE>
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 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.
<PAGE>
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 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 redemption 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 redemption 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 Nov. 30, 1997, 100% of the Fund's net investment income
dividends qualified for the corporate deduction.
<PAGE>
Capital gain distributions, if any, received by corporate shareholders should be
treated as long-term capital gains regardless of how long they owned their
shares. Capital gain distributions, if any, received by individuals should be
treated as long-term if held for more than one year; however, recent tax laws
have divided long-term capital gains into two holding periods: (1) shares held
more than one year but not more than 18 months and (2) shares held more than 18
months. Short-term capital gains earned by the Fund are paid to shareholders as
part of their ordinary income dividend and are taxable.
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.
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 Fund has an Investment Management Services Agreement with AEFC. For its
services, AEFC is paid a fee based on the following schedule:
<PAGE>
Assets Annual rate at
(billions) each asset level
First $0.50 0.530%
Next 0.50 0.505
Next 1.0 0.480
Next 1.0 0.455
Next 3.0 0.430
Over 6.0 0.400
On Nov. 30, 1997, the daily rate applied to the Fund's net assets was equal to
0.517% on an annual basis. The fee is calculated for each calendar day on the
basis of net assets as of the close of business two business days prior to the
day for which the calculation is made.
<PAGE>
Before the fee based on the asset charge is paid, it is adjusted for investment
performance. The adjustment, determined monthly, will be calculated using the
percentage point difference between the change in the net asset value of one
Class A share of the Fund and the change in the Lipper Growth and Income Fund
Index (Index). The performance of one Class A share of the Fund is measured by
computing the percentage difference between the opening and closing net asset
value of one Class A share of the Fund, as of the last business day of the
period selected for comparison, adjusted for dividend or capital gain
distributions which are treated as reinvested at the end of the month during
which the distribution was made. The performance of the Index for the same
period is established by measuring the percentage difference between the
beginning and ending Index for the comparison period. The performance is
adjusted for dividend or capital gain distributions (on the securities which
comprise the Index), which are treated as reinvested at the end of the month
during which the distribution was made. One percentage point will be subtracted
from the calculation to help assure that incentive adjustments are attributable
to AEFC's management abilities rather than random fluctuations and the result
multiplied by 0.01%. That number will be multiplied times the Fund's average net
assets for the comparison period and then divided by the number of months in the
comparison period to determine the monthly adjustment.
Where the Fund's Class A share performance exceeds that of the Index, the base
fee will be increased. Where the performance of the Index exceeds the
performance of the Fund's Class A share, the base fee will be decreased. The
maximum monthly increase or decrease will be 0.08% of the Fund's average net
assets on an annual basis.
The 12 month comparison period rolls over with each succeeding month, so that it
always equals 12 months, ending with the month for which the performance
adjustment is being computed. The adjustment increased the fee by $39,949 for
the fiscal year ended Nov. 30, 1997.
The management fee is paid monthly. Under the agreement, the total amount paid
was $4,783,641 for the fiscal year ended Nov. 30, 1997, $4,015,412 for fiscal
year 1996, and $2,988,666 for fiscal year 1995.
Under the agreement, the Fund also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees; audit and certain legal
fees; fidelity bond premiums; registration fees for shares; office expenses;
consultants' fees; compensation of board members, officers and employees;
corporate filing fees; organizational expenses; expenses incurred in connection
with lending securities of the Fund; and expenses properly payable by the Fund,
approved by the board. Under the agreement, the Fund paid nonadvisory expenses
of $147,116 for the fiscal year ended Nov. 30, 1997, $200,754 for fiscal year
1996, and $458,984 for fiscal year 1995.
<PAGE>
Administrative Services Agreement
The Fund has an Administrative Services Agreement with AEFC. Under this
agreement, the Fund pays AEFC for providing administration and accounting
services. The fee is calculated as follows:
Assets Annual rate
(billions) each asset level
First $0.50 0.040%
Next 0.50 0.035
Next 1.0 0.030
Next 1.0 0.025
Next 3.0 0.020
Over 6.0 0.020
On Nov. 30, 1997, the daily rate applied to the Fund's net assets was equal to
0.037% 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 $357,709 for the fiscal year ended Nov. 30, 1997.
Transfer Agency Agreement
The Fund has a Transfer Agency Agreement with American Express Client Service
Corporation (AECSC). This agreement governs AECSC's responsibility for
administering and/or performing transfer agent functions, for acting as service
agent in connection with dividend and distribution functions and for performing
shareholder account administration agent functions in connection with the
issuance, exchange and redemption or repurchase of the Fund's shares. Under the
agreement, AECSC will earn a fee from the Fund determined by multiplying the
number of shareholder accounts at the end of the day by a rate determined for
each class per year and dividing by the number of days in the year. The rate for
Class A and Class Y is $15 per year and for Class B is $16 per year. The fees
paid to AECSC may be changed from time to time upon agreement of the parties
without shareholder approval. Under the agreement, the Fund paid fees of
$679,265 for the fiscal year ended Nov. 30, 1997.
Distribution Agreement
Under a Distribution Agreement, sales charges deducted for distributing Fund
shares are paid to AEFA daily. These charges amounted to $855,170 for the fiscal
year ended Nov. 30, 1997. After paying commissions to personal financial
advisors, and other expenses, the amount retained was $35,338. The amounts were
$686,056 and $84,009 for fiscal year 1996, and $524,140 and $141,972 for fiscal
year 1995.
<PAGE>
Shareholder Service Agreement
The Fund pays a fee for service provided to shareholders by financial advisors
and other servicing agents. The fee is calculated at a rate of 0.175% of average
daily net assets for Class A and Class B and 0.10% for Class Y.
Plan and Agreement of Distribution
For Class B shares, to help AEFA defray the cost of distribution and servicing,
not covered by the sales charges received under the Distribution Agreement, the
Fund and AEFA 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, AEFA is paid a fee at an annual rate of 0.75% of the Fund's average daily
net assets attributable to Class B shares.
The Plan must be approved annually by the board, including a majority of the
disinterested board members, if it is to continue for more than a year. At least
quarterly, the board must review written reports concerning the amounts expended
under the Plan and the purposes for which such expenditures were made. The Plan
and any agreement related to it may be terminated at any time by vote of a
majority of 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 AEFA. The Plan (or any
agreement related to it) will terminate in the event of its assignment, as that
term is defined in the 1940 Act. The Plan may not be amended to increase the
amount to be spent for distribution without shareholder approval, and all
material amendments to the Plan must be approved by a majority of the board
members, including a majority of the board members who are not interested
persons of the 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 Nov. 30, 1997, under the agreement, the
Fund paid fees of $217,189.
Custodian Agreement
The Fund's securities and cash are held by American Express Trust Company, 1200
Northstar Center West, 625 Marquette Ave., Minneapolis, MN 55402-2307, through a
custodian agreement. The custodian is permitted to deposit some or all of its
securities in central depository systems as allowed by federal law. For its
services, the Fund pays the custodian a maintenance charge and a charge per
transaction in addition to reimbursing the custodian's out-of-pocket expenses.
<PAGE>
The custodian has entered into a sub-custodian arrangement with the Morgan
Stanley Trust Company (Morgan Stanley), One Pierrepont Plaza, Eighth Floor,
Brooklyn, NY 11201-2775. As part of this arrangement, securities purchased
outside the United States are maintained in the custody of various foreign
branches of Morgan Stanley or in such other financial institutions as may be
permitted by law and by the Fund's sub-custodian agreement.
Total fees and expenses
The Fund paid total fees and nonadvisory expenses, net of earnings credits, of
$7,746,301 for the fiscal year ended Nov. 30, 1997.
ORGANIZATIONAL INFORMATION
The Fund is a diversified, open-end management investment company, as defined in
the 1940 Act. Originally incorporated on March 18, 1957 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>
Lynne V. Cheney'
Born in 1941
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W.
Washington, D.C.
Distinguished Fellow AEI. Former Chair of National Endowment of the Humanities.
Director, The Reader's Digest Association Inc., Lockheed-Martin, Union Pacific
Resources and FPL Group, Inc. (holding company for Florida Power and Light).
William H. Dudley**
Born in 1932
2900 IDS Tower
Minneapolis, MN
Senior advisor to the chief executive officer of AEFC.
David R. Hubers+**
Born in 1943
2900 IDS Tower
Minneapolis, MN
President and chief executive officer of AEFC since August 1993, and director of
AEFC. Previously, senior vice president, finance and chief financial officer of
AEFC.
Heinz F. Hutter+'
Born in 1929
P.O. Box 2187
Minneapolis, MN
Former president and chief operating officer, Cargill, Incorporated (commodity
merchants and processors).
Anne P. Jones
Born in 1935
5716 Bent Branch Rd.
Bethesda, MD
Attorney and telecommunications consultant. Former partner, law firm of
Sutherland, Asbill & Brennan. Director, Motorola, Inc. and C-Cor Electronics,
Inc.
<PAGE>
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 of AEFC.
Wheelock Whitney+
Born in 1926
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN
Chairman, Whitney Management Company (manages family assets).
<PAGE>
C. Angus Wurtele'
Born in 1934
Valspar Corporation
Suite 1700
Foshay Tower
Minneapolis, MN
Chairman of the board and retired chief executive officer, The Valspar
Corporation (paints). Director, Bemis Corporation (packaging), Donaldson Company
(air cleaners & mufflers) and General Mills, Inc.
(consumer foods).
+ Member of executive committee.
' Member of joint audit committee.
* Interested person by reason of being an officer and employee of the Fund.
**Interested person by reason of being an officer, board member, employee and/or
shareholder of AEFC or American Express.
The board also has appointed officers who are responsible for day-to-day
business decisions based on policies it has established.
In addition to Mr. Pearce, who is chairman of the board, and Mr. Thomas, who is
president, the Fund's other officers are:
Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN
President, 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>
Matthew N. Karstetter
Born in 1961
IDS Tower 10
Minneapolis, MN
Vice president of Investment Accounting for AEFC since 1996. Prior to joining
AEFC, he served as vice president of State Street Bank's mutual fund service
operation from 1991 to 1996.
COMPENSATION FOR FUND BOARD MEMBERS
Members of the Fund board who are not officers of the Fund or of AEFC receive an
annual fee of $600, and the chair of the Contracts Committee receives an
additional fee of $86. Board members receive a $50 per day attendance fee for
board meetings. The attendance fee for meetings of the Contracts and Investment
Review Committees is $50; for meetings of the Audit Committee and Personnel
Committee $25 and for traveling from out-of-state $6. Expenses for attending
meetings are reimbursed.
During the fiscal year ended Nov. 30, 1997, the independent members of the
board, for attending up to 30 meetings, received the following compensation:
<TABLE>
<CAPTION>
Compensation Table
<S> <C> <C> <C> <C>
Total cash
compensation from
Aggregate Pension or the IDS MUTUAL
compensations from Retirement Estimated annual FUND GROUP and
Board member the Fund benefits accrued benefit upon Preferred Master
as Fund expenses retirement Trust Group
- ---------------------- --------------------- -------------------- --------------------- --------------------
H. Brewster Atwater, $1,456 $0 $0 $100,900
Jr.
Lynne V. Cheney 1,342 0 0 95,200
Robert F. Froehlke 1,481 0 0 102,700
Heinz F. Hutter 1,506 0 0 103,800
Anne P. Jones 1,498 0 0 104,500
Melvin R. Laird 1,286 0 0 90,500
Alan K. Simpson 1,161 0 0 83,000
(part of year)
Edson W. Spencer 1,942 0 0 129,800
Wheelock Whitney 1,606 0 0 109,900
C. Angus Wurtele 1,556 0 0 106,700
On Nov. 30, 1997, the Fund's board members and officers as a group owned less than 1% of the outstanding
shares of any class.
</TABLE>
<PAGE>
INDEPENDENT AUDITORS
The financial statements contained in the Annual Report to shareholders for the
fiscal year ended Nov. 30, 1997 were audited by independent auditors, KPMG Peat
Marwick LLP, 4200 Norwest Center, 90 S. Seventh St., Minneapolis, MN 55402-3900.
The independent auditors also provide other accounting and tax-related services
as requested by the Fund.
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 Nov.
30, 1997, pursuant to Section 30(d) of the 1940 Act, are hereby incorporated in
this SAI by reference. No other portion of the Annual Report, however, is
incorporated by reference.
PROSPECTUS
The prospectus for IDS Equity Select Fund, dated Jan. 29, 1998, is hereby
incorporated in this SAI by reference.
<PAGE>
APPENDIX A
FOREIGN CURRENCY TRANSACTIONS
Since investments in foreign countries usually involve currencies of foreign
countries, and since the Fund may hold cash and cash-equivalent investments in
foreign currencies, the value of the Fund'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 Fund may incur costs in connection
with conversions between various currencies.
Spot Rates and Forward Contracts. The Fund 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 Fund may enter into forward contracts to settle a security transaction or
handle dividend and interest collection. When the Fund 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 Fund 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 Fund also may enter into forward contracts when management of the Fund
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 Fund'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
Fund will not enter into such forward contracts or maintain a net exposure to
such contracts when consummating the contracts would obligate the Fund to
deliver an amount of foreign currency in excess of the value of the Fund's
securities or other assets denominated in that currency.
<PAGE>
The Fund will designate cash or securities in an amount equal to the value of
the Fund'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 Fund's
commitments on such contracts.
At maturity of a forward contract, the Fund 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 Fund retains the security and engages in an offsetting transaction, the
Fund will incur a gain or a loss (as described below) to the extent there has
been movement in forward contract prices. If the Fund 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 Fund enters
into a forward contract for selling foreign currency and the date it enters into
an offsetting contract for purchasing the foreign currency, the Fund 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 Fund 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 Fund 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 Fund 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 Fund is obligated to deliver.
The Fund's dealing in forward contracts will be limited to the transactions
described above. This method of protecting the value of the Fund'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.
Although the Fund 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
<PAGE>
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 Fund at one rate, while offering a lesser rate of
exchange should the Fund desire to resell that currency to the dealer.
Options on Foreign Currencies. The Fund 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 Fund may buy put options on the foreign currency. If
the value of the currency does decline, the Fund 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 Fund
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
Fund 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 Fund may write options on foreign currencies for the same types of hedging
purposes. For example, when the Fund 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 Fund 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 Fund 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.
All options written on foreign currencies will be covered. An option written on
foreign currencies is covered if the Fund 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.
<PAGE>
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 Fund 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 Fund may enter into currency
futures contracts to sell currencies. It also may buy put options and write
covered call options on currency 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
Fund 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 Fund's investments. A currency hedge, for example, should protect a
Yen-denominated bond
<PAGE>
against a decline in the Yen, but will not protect the Fund against price
decline if the issuer's creditworthiness deteriorates. Because the value of the
Fund'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 Fund's investments denominated
in that currency over time.
The Fund will hold securities or other options or futures positions whose values
are expected to offset its obligations. The Fund will not enter into an option
or futures position that exposes the Fund 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>
APPENDIX B
OPTIONS AND STOCK INDEX FUTURES CONTRACTS
The Fund may buy or write options traded on any U.S. or foreign exchange or in
the over-the-counter market. The Fund may enter into stock index futures
contracts traded on any U.S. or foreign exchange. The Fund also may buy or write
put and call options on these futures and on stock indexes. Options in the
over-the-counter market will be purchased only when the investment manager
believes a liquid secondary market exists for the options and only from dealers
and institutions the investment manager believes present a minimal credit risk.
Some options are exercisable only on a specific date. In that case, or if a
liquid secondary market does not exist, the Fund could be required to buy or
sell securities at disadvantageous prices, thereby incurring losses.
OPTIONS. An option is a contract. A person who buys a call option for a security
has the right to buy the security at a set price for the length of the contract.
A person who sells a call option is called a writer. The writer of a call option
agrees to sell the security at the set price when the buyer wants to exercise
the option, no matter what the market price of the security is at that time. A
person who buys a put option has the right to sell a security at a set price for
the length of the contract. A person who writes a put option agrees to buy the
security at the set price if the purchaser wants to exercise the option, no
matter what the market price of the security is at that time. An option is
covered if the writer owns the security (in the case of a call) or sets aside
the cash or securities of equivalent value (in the case of a put) that would be
required upon exercise.
The price paid by the buyer for an option is called a premium. In addition the
buyer generally pays a broker a commission. The writer receives a premium, less
another 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. The risk of the writer is potentially unlimited, unless the
option is covered.
Options can be used to produce incremental earnings, protect gains and
facilitate buying and selling securities for investment purposes. The use of
options may benefit the Fund and its shareholders by improving the Fund's
liquidity and by helping to stabilize the value of its net assets.
Buying options. Put and call options may be used as a trading technique to
facilitate buying and selling securities for investment reasons. Options are
used as a trading technique to take advantage of any disparity between the price
of the underlying security in the securities market and its price on the options
market. It is anticipated the trading technique will be utilized only to effect
a transaction when the price of the security plus
<PAGE>
the option price will be as good or better than the price at which the security
could be bought or sold directly. When the option is purchased, the Fund pays a
premium and a commission. It then pays a second commission on the purchase or
sale of the underlying security when the option is exercised. For record keeping
and tax purposes, the price obtained on the purchase of the underlying security
will be the combination of the exercise price, the premium and both commissions.
When using options as a trading technique, commissions on the option will be set
as if only the underlying securities were traded.
Put and call options also may be held by the Fund for investment purposes.
Options permit the Fund to experience the change in the value of a security with
a relatively small initial cash investment.
The risk the Fund assumes when it buys an option is the loss of the premium. To
be beneficial to the Fund, the price of the underlying security must change
within the time set by the option contract. Furthermore, the change must be
sufficient to cover the premium paid, the commissions paid both in the
acquisition of the option and in a closing transaction or in the exercise of the
option and sale (in the case of a call) or purchase (in the case of a put) of
the underlying security. Even then the price change in the underlying security
does not ensure a profit since prices in the option market may not reflect such
a change.
Writing covered options. The Fund will write covered options when it feels it is
appropriate and will follow these guidelines:
`Underlying securities will continue to be bought or sold solely on the basis of
investment considerations consistent with the Fund's goals.
`All options written by the Fund will be covered. For covered call options if a
decision is made to sell the security, the Fund will attempt to terminate the
option contract through a closing purchase transaction.
`The Fund will deal only in standard option contracts traded on national
securities exchanges or those that may be quoted on NASDAQ (a system of price
quotations developed by the National Association of Securities Dealers, Inc.)
Net premiums on call options closed or premiums on expired call options are
treated as short-term capital gains.
If a covered call option is exercised, the security is sold by the Fund. The
premium received upon writing the option is added to the proceeds received from
the sale of the security. The Fund will recognize a capital gain or loss based
upon the difference between
<PAGE>
the proceeds and the security's basis. Premiums received from writing
outstanding call options are included as a deferred credit in the Statement of
Assets and Liabilities and adjusted daily to the current market value.
Options are valued at the close of the New York Stock Exchange. An option listed
on a national exchange, CBOE or NASDAQ will be valued at the last-quoted sales
price or, if such a price is not readily available, at the mean of the last bid
and asked prices.
STOCK INDEX FUTURES CONTRACTS. Stock index futures contracts are commodity
contracts listed on commodity exchanges. They currently include contracts on the
Standard & Poor's 500 Stock Index (S&P 500 Index) and other broad stock market
indexes such as the New York Stock Exchange Composite Stock Index and the Value
Line Composite Stock Index, as well as narrower sub-indexes such as the S&P 100
Energy Stock Index and the New York Stock Exchange Utilities Stock Index. A
stock index assigns relative values to common stocks included in the index and
the index fluctuates with the value of the common stocks so included.
A futures contract is a legal agreement between a buyer or seller and the
clearinghouse of a futures exchange in which the parties agree to make a cash
settlement on a specified future date in an amount determined by the stock index
on the last trading day of the contract. The amount is a specified dollar amount
(usually $100 or $500) multiplied by the difference between the index value on
the last trading day and the value on the day the contract was struck.
For example, the S&P 500 Index consists of 500 selected common stocks, most of
which are listed on the New York Stock Exchange. The S&P 500 Index assigns
relative weightings to the common stocks included in the Index, and the Index
fluctuates with changes in the market values of those stocks. In the case of S&P
500 Index futures contracts, the specified multiple is $500. Thus, if the value
of the S&P 500 Index were 150, the value of one contract would be $75,000 (150 x
$500). Unlike other futures contracts, a stock index futures contract specifies
that no delivery of the actual stocks making up the index will take place.
Instead, settlement in cash must occur upon the termination of the contract. For
example, excluding any transaction costs, if the Fund enters into one futures
contract to buy the S&P 500 Index at a specified future date at a contract value
of 150 and the S&P 500 Index is at 154 on that future date, the Fund will gain
$500 x (154-150) or $2,000. If the Fund enters into one futures contract to sell
the S&P 500 Index at a specified future date at a contract value of 150 and the
S&P 500 Index is at 152 on that future date, the Fund will lose $500 x (152-150)
or $1,000.
Unlike the purchase or sale of an equity security, no price would be paid or
received by the Fund upon entering into futures contracts. However, the Fund
would be required to deposit with its custodian, in a segregated account in the
name of the futures broker, an amount of cash or U.S. Treasury bills equal to
approximately 5% of the contract value. This amount is known as initial margin.
The nature of initial margin in futures
<PAGE>
transactions is different from that of margin in security transactions in that
futures contract margin does not involve borrowing funds by the Fund to finance
the transactions. Rather, the initial margin is in the nature of a performance
bond or good-faith deposit on the contract that is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied.
Subsequent payments, called variation margin, to and from the broker would be
made on a daily basis as the price of the underlying stock index fluctuates,
making the long and short positions in the contract more or less valuable, a
process known as marking to market. For example, when the Fund enters into a
contract in which it benefits from a rise in the value of an index and the price
of an underlying stock index has risen, the Fund will receive from the broker a
variation margin payment equal to that increase in value. Conversely, if the
price of the underlying stock index declines, the Fund would be required to make
a variation margin payment to the broker equal to the decline in value.
How the Fund Would Use Stock Index Futures Contracts. The Fund intends to use
stock index futures contracts and related options for hedging and not for
speculation. Hedging permits the Fund to gain rapid exposure to or protect
itself from changes in the market. For example, the Fund may find itself with a
high cash position at the beginning of a market rally. Conventional procedures
of purchasing a number of individual issues entail the lapse of time and the
possibility of missing a significant market movement. By using futures
contracts, the Fund can obtain immediate exposure to the market and benefit from
the beginning stages of a rally. The buying program can then proceed and once it
is completed (or as it proceeds), the contracts can be closed. Conversely, in
the early stages of a market decline, market exposure can be promptly offset by
entering into stock index futures contracts to sell units of an index and
individual stocks can be sold over a longer period under cover of the resulting
short contract position.
The Fund may enter into contracts with respect to any stock index or sub-index.
To hedge the Fund's portfolio successfully, however, the Fund must enter into
contracts with respect to indexes or sub-indexes whose movements will have a
significant correlation with movements in the prices of the Fund's securities.
Special Risks of Transactions in Stock Index Futures Contracts
1. Liquidity. The Fund may elect to close some or all of its contracts prior to
expiration. The purpose of making such a move would be to reduce or eliminate
the hedge position held by the Fund. The Fund may close its positions by taking
opposite positions. Final determinations of variation margin are then made,
additional cash as required is paid by or to the Fund, and the Fund realizes a
gain or a loss.
Positions in stock index futures contracts may be closed only on an exchange or
board of trade providing a secondary market for such futures contracts. For
example, futures contracts transactions can currently be entered into with
respect to the S&P 500 Stock
<PAGE>
Index on the Chicago Mercantile Exchange, the New York Stock Exchange Composite
Stock Index on the New York Futures Exchange and the Value Line Composite Stock
Index on the Kansas City Board of Trade. Although the Fund intends to enter into
futures contracts only on exchanges or boards of trade where there appears to be
an active secondary market, there is no assurance that a liquid secondary market
will exist for any particular contract at any particular time. In such event, it
may not be possible to close a futures contract position, and in the event of
adverse price movements, the Fund would have to make daily cash payments of
variation margin. Such price movements, however, will be offset all or in part
by the price movements of the securities subject to the hedge. Of course, there
is no guarantee the price of the securities will correlate with the price
movements in the futures contract and thus provide an offset to losses on a
futures contract.
2. Hedging Risks. There are several risks in using stock index futures contracts
as a hedging device. One risk arises because the prices of futures contracts may
not correlate perfectly with movements in the underlying stock index due to
certain market distortions. First, all participants in the futures market are
subject to initial margin and variation margin requirements. Rather than making
additional variation margin payments, investors may close the contracts through
offsetting transactions which could distort the normal relationship between the
index and futures markets. Second, the margin requirements in the futures market
are lower than margin requirements in the securities market, and as a result the
futures market may attract more speculators than does the securities market.
Increased participation by speculators in the futures market also may cause
temporary price distortions. Because of price distortion in the futures market
and because of imperfect correlation between movements in stock indexes and
movements in prices of futures contracts, even a correct forecast of general
market trends may not result in a successful hedging transaction over a short
period.
Another risk arises because of imperfect correlation between movements in the
value of the futures contracts and movements in the value of securities subject
to the hedge. If this occurred, the Fund could lose money on the contracts and
also experience a decline in the value of its portfolio securities. While this
could occur, the investment manager believes that over time the value of the
Fund's portfolio will tend to move in the same direction as the market indexes
and will attempt to reduce this risk, to the extent possible, by entering into
futures contracts on indexes whose movements it believes will have a significant
correlation with movements in the value of the Fund's securities sought to be
hedged. It also is possible that if the Fund has hedged against a decline in the
value of the stocks held in its portfolio and stock prices increase instead, the
Fund will lose part or all of the benefit of the increased value of its stock
which it has hedged because it will have offsetting losses in its futures
positions. In addition, in such situations, if the Fund has insufficient cash,
it may have to sell securities to meet daily variation margin requirements. Such
sales of securities may be, but will not necessarily be, at increased prices
which reflect the rising market. The Fund may have to sell securities at a time
when it may be disadvantageous to do so.
<PAGE>
OPTIONS ON STOCK INDEX FUTURES CONTRACTS. Options on stock index futures
contracts are similar to options on stock except that options on futures
contracts give the purchaser the right, in return for the premium paid, to
assume a position in a stock index futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the period of the option. If the option is
closed instead of exercised, the holder of the option receives an amount that
represents the amount by which the market price of the contract exceeds (in the
case of a call) or is less than (in the case of a put) the exercise price of the
option on the futures contract. If the option does not appreciate in value prior
to the exercise date, the Fund will suffer a loss of the premium paid.
OPTIONS ON STOCK INDEXES. Options on stock indexes are securities traded on
national securities exchanges. An option on a stock index is similar to an
option on a futures contract except all settlements are in cash. A fund
exercising a put, for example, would receive the difference between the exercise
price and the current index level. Such options would be used in the same manner
as options on futures contracts.
SPECIAL RISKS OF TRANSACTIONS IN OPTIONS ON STOCK INDEX FUTURES CONTRACTS AND
OPTIONS ON STOCK INDEXES. As with options on stocks, the holder of an option on
a futures contract or on a stock index may terminate a position by selling an
option covering the same contract or index and having the same exercise price
and expiration date. The ability to establish and close out positions on such
options will be subject to the development and maintenance of a liquid secondary
market. The Fund will not purchase options unless the market for such options
has developed sufficiently, so that the risks in connection with options are not
greater than the risks in connection with stock index futures contracts
transactions themselves. Compared to using futures contracts, purchasing options
involves less risk to the Fund because the maximum amount at risk is the premium
paid for the options (plus transaction costs). There may be circumstances,
however, when using an option would result in a greater loss to the Fund than
using a futures contract, such as when there is no movement in the level of the
stock index.
TAX TREATMENT. As permitted under federal income tax laws, the Fund intends to
identify futures contracts as mixed straddles and not mark them to market, that
is, not treat them as having been sold at the end of the year at market value.
Such an election may result in the Fund being required to defer recognizing
losses incurred by entering into futures contracts and losses on underlying
securities identified as being hedged against.
Federal income tax treatment of gains or losses from transactions in options on
futures contracts and indexes will depend on whether such option is a section
1256 contract. If the option is a non-equity option, the Fund will either make a
1256(d) election and treat the option as a mixed straddle or mark to market the
option at fiscal year end and treat the gain/loss as 40% short term and 60% long
term. Certain provisions of the Internal
<PAGE>
Revenue Code may also limit the Fund's ability to engage in futures contracts
and related options transactions. For example, at the close of each quarter of
the Fund's taxable year, at least 50% of the value of its assets must consist of
cash, government securities and other securities, subject to certain
diversification requirements.
The IRS has ruled publicly that an exchange-traded call option is a security for
purposes of the 50%-of-assets test and that its issuer is the issuer of the
underlying security, not the writer of the option, for purposes of the
diversification requirements.
Accounting for futures contracts will be according to generally accepted
accounting principles. Initial margin deposits will be recognized as assets due
from a broker (the Fund's agent in acquiring the futures position). During the
period the futures contract is open, changes in value of the contract will be
recognized as unrealized gains or losses by marking to market on a daily basis
to reflect the market value of the contract at the end of each day's trading.
Variation margin payments will be made or received depending upon whether gains
or losses are incurred. All contracts and options will be valued at the
last-quoted sales price on their primary exchange.
<PAGE>
APPENDIX C
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 Fund, 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 Fund.
Stripped Mortgage-Backed Securities. The Fund 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 Fund 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 Fund would buy or sell covered MBS call spread options in
situations where mortgage-backed securities are expected to underperform
like-duration Treasury securities.
<PAGE>
APPENDIX D
DOLLAR-COST AVERAGING
A technique that works well for many investors is one that eliminates random buy
and sell decisions. One such system is dollar-cost averaging. Dollar-cost
averaging involves building a portfolio through the investment of fixed amounts
of money on a regular basis regardless of the price or market condition. This
may enable an investor to smooth out the effects of the volatility of the
financial markets. By using this strategy, more shares will be purchased when
the price is low and less when the price is high. As the accompanying chart
illustrates, dollar-cost averaging tends to keep the average price paid for the
shares lower than the average market price of shares purchased, although there
is no guarantee.
While this technique does not ensure a profit and does not protect against a
loss if the market declines, it is an effective way for many shareholders who
can continue investing on a regular basis through changing market conditions,
including times when the price of their shares falls or the market declines, to
accumulate shares in a fund to meet long-term goals.
Dollar-cost averaging
- ---------------------------- --------------------------- ----------------------
Regular Market Price Shares
Investment of a Share Acquired
- ---------------------------- --------------------------- ----------------------
$100 $6.00 16.7
100 4.00 25.0
100 4.00 25.0
100 6.00 16.7
100 5.00 20.0
$500 $25.00 103.4
Average market price of a share over 5 periods:
$5.00 ($25.00 divided by 5).
The average price you paid for each share:
$4.84 ($500 divided by 103.4).
<PAGE>
Independent auditors' report
The board and shareholders
IDS Equity Select Fund, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments in securities, of IDS Equity Select
Fund, Inc. as of November 30, 1997, and the related statement of
operations for the year then ended and the statements of changes in net
assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the ten-year period ended
November 30, 1997. These financial statements and the financial highlights
are the responsibility of fund management. Our responsibility is to
express an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and the
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Investment securities held in
custody are confirmed to us by the custodian. As to securities purchased
and sold but not received or delivered, and securities on loan, we request
confirmations from brokers, and where replies are not received, we carry
out other appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of IDS Equity Select
Fund, Inc. at November 30, 1997, and the results of its operations,
changes in its net assets, and the financial highlights for the periods
stated in the first paragraph above, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 2, 1998
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
IDS Equity Select Fund, Inc.
Nov. 30, 1997
Assets
Investments in securities, at value (Note 1)
<S> <C>
(identified cost $730,882,170) $1,027,992,186
Cash in bank on demand deposit 432,904
Dividends and accrued interest receivable 865,761
Receivable for investment securities sold 1,397,853
U.S. government securities held as collateral (Note 4) 1,907,568
---------
Total assets 1,032,596,272
-------------
Liabilities
Payable for investment securities purchased 12,587,139
Payable upon return of securities loaned (Note 4) 1,907,568
Accrued investment management services fee 28,611
Accrued distribution fee 1,680
Accrued service fee 9,679
Accrued transfer agency fee 3,134
Accrued administrative services fee 2,071
Other accrued expenses 71,514
------
Total liabilities 14,611,396
----------
Net assets applicable to outstanding capital stock $1,017,984,876
==============
Represented by
Capital stock-- of $.01 par value (Note 1) $ 646,242
Additional paid-in capital 560,995,237
Undistributed net investment income 573,806
Accumulated net realized gain (loss) 158,659,575
Unrealized appreciation (depreciation) on investments 297,110,016
-----------
Total-- representing net assets applicable to outstanding capital stock $1,017,984,876
==============
Net assets applicable to outstanding shares: Class A $ 976,255,568
Class B $ 41,344,284
Class Y $ 385,024
Net asset value per share of outstanding capital stock: Class A shares 61,949,708 $ 15.76
Class B shares 2,650,080 $ 15.60
Class Y shares 24,415 $ 15.77
See accompanying notes to financial statements.
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
IDS Equity Select Fund, Inc.
Year ended Nov. 30, 1997
Investment income
Income:
<S> <C>
Dividends $ 8,501,720
Interest 2,636,074
---------
Total income 11,137,794
----------
Expenses (Note 2):
Investment management services fee 4,783,641
Distribution fee -- Class B 217,189
Transfer agency fee 676,191
Incremental transfer agency fee-- Class B 3,074
Service fee
Class A 1,510,327
Class B 50,482
Class Y 572
Administrative services fees and expenses 357,709
Compensation of board members 14,945
Compensation of officers 56
Custodian fees 76,407
Postage 35,145
Registration fees 51,439
Reports to shareholders 11,407
Audit fees 25,500
Other 13,419
------
Total expenses 7,827,503
Earnings credits on cash balances (Note 2) (81,202)
-------
Total net expenses 7,746,301
---------
Investment income (loss) -- net 3,391,493
---------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 158,400,507
Foreign currency transactions (994)
Options contracts written (Note 6) 263,177
-------
Net realized gain (loss) on investments 158,662,690
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 33,083,694
----------
Net gain (loss) on investments and foreign currencies 191,746,384
-----------
Net increase (decrease) in net assets resulting from operations $195,137,877
============
See accompanying notes to financial statements.
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statements of changes in net assets
IDS Equity Select Fund, Inc.
Year ended Nov. 30,
Operations and distributions 1997 1996
<S> <C> <C>
Investment income (loss)-- net $ 3,391,493 $ 3,891,516
Net realized gain (loss) on investments 158,662,690 108,411,004
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 33,083,694 84,207,057
---------- ----------
Net increase (decrease) in net assets resulting from operations 195,137,877 196,509,577
----------- -----------
Distributions to shareholders from:
Net investment income
Class A (3,486,817) (3,834,204)
Class B -- (226)
Class Y (8,283) (20,808)
Net realized gain
Class A (105,561,837) (51,429,889)
Class B (2,509,090) (273,902)
Class Y (423,403) (215,425)
-------- --------
Total distributions (111,989,430) (55,774,454)
------------ -----------
Capital share transactions (Note 5)
Proceeds from sales
Class A shares (Note 2) 48,203,493 33,397,264
Class B shares 20,583,946 13,301,146
Class Y shares 240,961 463,955
Reinvestment of distributions at net asset value
Class A shares 102,820,314 52,201,141
Class B shares 2,497,834 272,845
Class Y shares 431,686 236,233
Payments for redemptions
Class A shares (86,725,639) (65,523,965)
Class B shares (Note 2) (3,679,610) (737,685)
Class Y shares (3,496,216) (928,668)
---------- --------
Increase (decrease) in net assets from capital share transactions 80,876,769 32,682,266
---------- ----------
Total increase (decrease) in net assets 164,025,216 173,417,389
Net assets at beginning of year 853,959,660 680,542,271
----------- -----------
Net assets at end of year $1,017,984,876 $853,959,660
============== ============
Undistributed net investment income $ 573,806 $ 681,392
-------------- ------------
See accompanying notes to financial statements.
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
Notes to financial statements
IDS Equity Select 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 has 10 billion authorized shares of capital stock. The Fund invests
primarily in moderate growth stocks that generally pay dividends and debt
securities. The Fund offers Class A, Class B and Class Y shares. Class A
shares are sold with a front-end sales charge. Class B shares may be
subject to a contingent deferred sales charge and such shares
automatically convert to Class A shares during the ninth calendar year of
ownership. Class Y shares have no sales charge and are offered only to
qualifying institutional investors.
All classes of shares have identical voting, dividend, liquidation and
other rights, and the same terms and conditions, except that the level of
distribution fee, transfer agency fee and service fee (class specific
expenses) differs among classes. Income, expenses (other than class
specific expenses) and realized and unrealized gains or losses on
investments are allocated to each class of shares based upon its relative
net assets.
Significant accounting policies followed by the Fund are summarized below:
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increase and decrease in
net assets from operations during the period. Actual results could differ
from those estimates.
Valuation of securities
All securities are valued at the close of each business day. Securities
traded on national securities exchanges or included in national market
systems are valued at the last quoted sales price. Debt securities are
generally traded in the over-the-counter market and are valued at a price
deemed best to reflect fair value as quoted by dealers who make markets in
these securities or by an independent pricing service. Securities for
which market quotations are not readily available are valued at fair value
according to methods selected in good faith by the board. Short-term
securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current
interest rates; those maturing in 60 days or less are valued at amortized
cost.
Option transactions
In order to produce incremental earnings, protect gains, and facilitate
buying and selling of securities for investment purposes, the Fund may buy
and 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 Fund also may
buy and sell put and call options and write covered call options on
portfolio securities and may write cash-secured put options. The risk in
writing a call option is that the Fund gives up the opportunity of profit
if the market price of the security increases. The risk in writing a put
option is that the Fund may incur a loss if the market price of the
security decreases and the option is exercised. The risk in buying an
option is that the Fund pays a premium whether or not the option is
exercised. The Fund also has the additional risk of not being able to
enter into a closing transaction if a liquid secondary market does not
exist.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The
Fund will realize a gain or loss upon expiration or closing of the option
transaction. When an option is exercised, the proceeds on sales for a
written call option, the purchase cost for a written put option or the
cost of a security for a purchased put or call option is adjusted by the
amount of premium received or paid.
Futures transactions
In order to gain exposure to or protect itself from changes in the market,
the Fund may buy and sell financial futures contracts traded on any U.S.
or foreign exchange. The Fund 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 Fund is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin)
are made or received by the Fund each day. The variation margin payments
are equal to the daily changes in the contract value and are recorded as
unrealized gains and losses. The Fund recognizes a realized gain or loss
when the contract is closed or expires.
Foreign currency translations and
foreign currency contracts
Securities and other assets and liabilities denominated in foreign
currencies are translated daily into U.S. dollars at the closing rate of
exchange. Foreign currency amounts related to the purchase or sale of
securities and income and expenses are translated at the exchange rate on
the transaction date. The effect of changes in foreign exchange rates on
realized and unrealized security gains or losses is reflected as a
component of such gains or losses. In the statement of operations, net
realized gains or losses from foreign currency transactions may arise from
sales of foreign currency, closed forward contracts, exchange gains or
losses realized between the trade date and settlement dates on securities
transactions, and other translation gains or losses on dividends, interest
income and foreign withholding taxes.
The Fund may enter into forward foreign currency exchange contracts for
operational purposes and to protect against adverse exchange rate
fluctuation. The net U.S. dollar value of foreign currency underlying all
contractual commitments held by the Fund and the resulting unrealized
appreciation and/or depreciation are determined using foreign currency
exchange rates from an independent pricing service. The Fund is subject to
the credit risk that the other party will not complete the obligations of
the contract.
Federal taxes
Since the Fund's policy is to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to shareholders, no provision for
income or excise taxes is required.
Net investment income (loss) and net realized gains (losses) may differ
for financial statement and tax purposes primarily because of the deferral
of losses on certain futures contracts, the recognition of certain foreign
currency gains (losses) as ordinary income (loss) for tax purposes, and
losses deferred due to "wash sale" transactions. The character of
distributions made during the year from net investment income or net
realized gains may differ from their ultimate characterization for federal
income tax purposes. Also, due to the timing of dividend distributions,
the fiscal year in which amounts are distributed may differ from the year
that the income or realized gains (losses) were recorded by the Fund.
On the statement of assets and liabilities, as a result of permanent
book-to-tax differences, undistributed net investment income has been
decreased by $3,979, and accumulated net realized gain has been increased
by $3,979.
Dividends to shareholders
Dividends from net investment income, declared and paid each calendar
quarter, are reinvested in additional shares of the Fund at net asset
value or payable in cash. Capital gains, when available, are distributed
along with the last income dividend of the calendar year.
Other
Security transactions are accounted for on the date securities are
purchased or sold. Dividend income is recognized on the ex-dividend date
and interest income, including level-yield amortization of premium and
discount, is accrued daily.
2
Expenses and
sales charges
Effective March 20, 1995, the Fund entered into agreements with American
Express Financial Corporation (AEFC) for managing its portfolio, providing
administrative services and serving as transfer agent. Under its
Investment Management Services Agreement, AEFC determines which securities
will be purchased, held or sold. The management fee is a percentage of the
Fund's average daily net assets in reducing percentages from 0.53% to
0.40% annually. The fee is adjusted upward or downward by a performance
incentive adjustment based on the Fund's average daily net assets over a
rolling twelve-month period as measured against the change in the Lipper
Growth and Income Fund Index. The maximum adjustment is 0.08% of the
Fund's average daily net assets after deducting 1% from the performance
difference. If the performance difference is less than 1%, the adjustment
will be zero. The adjustment increased the fee by $39,949 for the year
ended Nov. 30, 1997.
Under an Administrative Services Agreement, the Fund pays AEFC a fee for
administration and accounting services at a percentage of the Fund's
average daily net assets in reducing percentages from 0.04% to 0.02%
annually. Additional administrative service expenses paid by the Fund are
office expenses, consultants' fees and compensation of officers and
employees. Under this agreement, the Fund also pays taxes, audit and
certain legal fees, registration fees for shares, compensation of board
members, corporate filing fees, organizational expenses, and any other
expenses properly payable by the Fund, and approved by the board.
Under a separate Transfer Agency Agreement, American Express Client
Service Corporation (AECSC) maintains shareholder accounts and records.
The Fund pays AECSC an annual fee per shareholder account for this service
as follows:
o Class A $15
o Class B $16
o Class Y $15
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 for Class A and Class B shares and commencing on May 9, 1997, the
fee is calculated at a rate of 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 $839,813 for Class A and $15,357 for Class B
for the year ended Nov. 30, 1997. The Fund also pays custodian fees to
American Express Trust Company, an affiliate of AEFC.
During the year ended Nov. 30, 1997, the Fund's custodian and transfer
agency fees were reduced by $81,202 as a result of earnings credits from
overnight cash balances.
3
Securities
transactions
Cost of purchases and proceeds from sales of securities (other than
short-term obligations) aggregated $550,582,206 and $608,347,041,
respectively, for the year ended Nov. 30, 1997. Realized gains and losses
are determined on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $135,987
for the year ended Nov. 30, 1997.
4
Lending of portfolio
securities
At Nov. 30, 1997, securities valued at $1,818,412 were on loan to brokers.
For collateral, the Fund received U.S. government securities valued at
$1,907,568. Income from securities lending amounted to $247,784 for the
year ended Nov. 30, 1997. The risks to the Fund of securities lending are
that the borrower may not provide additional collateral when required or
return the securities when due.
5
Capital share
transactions
Transactions in shares of capital stock for the years indicated are as
follows:
Year ended Nov. 30, 1997
Class A Class B Class Y
Sold 3,394,107 1,462,440 17,921
Issued for reinvested 8,158,272 199,990 34,316
distributions
Redeemed (6,172,167) (260,727) (253,855)
---------- -------- --------
Net increase (decrease) 5,380,212 1,401,703 (201,618)
Year ended Nov. 30, 1996
Class A Class B Class Y
Sold 2,598,052 1,025,364 36,969
Issued for reinvested 4,499,539 23,715 20,329
distributions
Redeemed (5,154,984) (57,140) (73,661)
---------- ------- -------
Net increase (decrease) 1,942,607 991,939 (16,363)
6
Options contracts
written
The number of contracts and premium amounts associated with covered call
options contracts written as follows:
Year ended Nov. 30, 1997
Contracts Premium
Balance Nov. 30, 1996 -- --
Opened 500 $ 385,987
Expired (500) (385,987)
---- --------
Balance Nov. 30, 1997 -- --
See Summary of significant accounting policies.
7
Financial
highlights
"Financial highlights" showing per share data and selected information is
presented on pages 6 and 7 of the prospectus.
(This annual report is not part of the prospectus.)
<PAGE>
Investments in securities
IDS Equity Select Fund, Inc. (Percentages represent value of
Nov. 30, 1997 investments compared to net assets)
Common stocks (94.7%)
Issuer Shares Value(a)
Aerospace & defense (1.6%)
General Motors Cl H 60,000 $ 4,020,000
Howmet Intl 280,000(b) 4,270,000
Precision Castparts 140,000 8,312,500
Total 16,602,500
Automotive & related (1.3%)
Danaher 225,000 13,218,750
Banks and savings & loans (6.8%)
BankBoston 60,000 5,347,500
First Union 280,000 13,650,000
KeyCorp 215,000 14,499,062
Norwest 409,200 15,319,425
Wachovia 53,700 4,134,900
Washington Mutual 235,000 16,244,375
Total 69,195,262
Beverages & tobacco (2.1%)
Coca-Cola 120,000 7,500,000
Philip Morris 310,000 13,485,000
Total 20,985,000
Building materials & construction (5.8%)
Martin Marietta Materials 500,000 17,312,500
Sherwin-Williams 412,100 11,770,606
Tyco Intl 760,000 29,830,000
Total 58,913,106
Chemicals (3.7%)
Betz Laboratories 175,000 10,653,125
Culligan Water Technology 140,000(b) 6,282,500
Praxair 110,000 4,833,125
USA Waste Service 490,000(b) 16,200,625
Total 37,969,375
Communications equipment & services (1.7%)
ADC Telecommunications 240,000(b) 8,925,000
Motorola 135,000 8,488,125
Total 17,413,125
Computers & office equipment (8.0%)
Adaptec 275,000(b) 13,612,500
Cisco Systems 140,000(b) 12,075,000
Compaq Computer 302,500(b) 18,887,344
Computer Associates Intl 127,500 6,637,969
Hewlett-Packard 125,000 7,632,812
Parametric Technology 212,900(b) 10,764,756
Solectron 310,000(b) 11,295,625
Total 80,906,006
Electronics (1.8%)
AMP 123,400 5,360,188
Applied Materials 101,000(b) 3,333,000
Intel 130,000 10,091,250
Total 18,784,438
Energy (1.6%)
Mobil 80,000 5,755,000
Tosco 316,700 10,312,544
Total 16,067,544
Energy equipment & services (3.0%)
Bayard Drilling Technologies40,000(b) 735,000
Schlumberger 180,000 14,816,250
Transocean Offshore 320,000 15,180,000
Total 30,731,250
Financial services (3.2%)
CIT Group Cl A 146,800(b) 4,459,050
Franklin Resources 95,000 8,538,125
Morgan Stanley 132,000 7,169,250
Travelers Group 240,000 12,120,000
Total 32,286,425
Food (3.1%)
ConAgra 290,000(d) 10,421,875
General Mills 15,400 1,139,600
Quaker Oats 190,000 10,070,000
Sara Lee 190,200 10,056,825
Total 31,688,300
Furniture & appliances (1.0%)
Sunbeam 230,000 10,134,375
Health care (8.5%)
ALZA 349,000(b) 9,313,937
American Home Products 130,000 9,083,750
Baxter Intl 220,000 11,137,500
Guidant 330,000 21,202,500
Immunex 145,000(b) 8,283,125
Johnson & Johnson 110,000 6,923,125
Merck 70,000 6,619,375
Sybron Intl 325,000(b) 14,300,000
Total 86,863,312
Health care services (3.2%)
Service Corp Intl 386,000 14,113,125
Tenet Healthcare 570,000(b) 18,061,875
Total 32,175,000
Household products (1.1%)
Gillette 120,000 11,077,500
Industrial equipment & services (5.3%)
AGCO 290,000 7,938,750
Deere & Co 165,000 9,044,063
Illinois Tool Works 290,000 15,895,625
Thermo Electron 420,000 15,461,250
UCAR Intl 135,000(b) 5,391,562
Total 53,731,250
Insurance (3.1%)
Progressive Corp Ohio 95,000 9,690,000
SunAmerica 305,000 12,352,500
UNUM 204,800 9,715,200
Total 31,757,700
Leisure time & entertainment (2.4%)
Brunswick 158,300 5,293,156
Carnival Cl A 190,000 10,271,875
Marriot Intl 117,000 8,475,188
Total 24,040,219
Media (4.7%)
Belo (AH) Cl A 230,000 11,341,875
Chancellor Media 220,000(b) 13,213,750
Comcast Cl A 320,000 8,960,000
Gannett 130,000 7,548,125
Scholastic 166,000(b) 6,339,125
Total 47,402,875
Metals (1.1%)
Aluminum Co of America 170,400 11,459,400
Multi-industry conglomerates (2.8%)
Emerson Electric 85,000 4,675,000
General Electric 69,500 5,125,625
Westinghouse Electric 420,000 12,600,000
Xerox 80,000 6,215,000
Total 28,615,625
Paper & packaging (0.9%)
Fort James 235,000 9,194,375
Real estate investment trust (0.5%)
CCA Prison 149,000(b) 5,308,125
Restaurants & lodging (1.4%)
HFS 200,000(b) 13,725,000
Retail (8.1%)
Albertson's 75,000 3,328,125
CVS 83,800 5,562,225
Dollar General 200,000 7,525,000
Federated Dept Stores 285,000(b) 12,985,313
Kohl's 245,000(b) 17,731,875
Rite Aid 240,000 15,780,000
Safeway 320,000(b) 19,440,000
Total 82,352,538
Textiles & apparel (0.5%)
Unifi 140,000 5,320,000
Transportation (0.7%)
Wisconsin Central 240,000(b) 7,230,000
Utilities -- telephone (2.3%)
BellSouth 270,000 14,782,500
WorldCom 270,000(b) 8,640,000
Total 23,422,500
Foreign (3.4%)(c)
ACE 170,000 16,872,500
Gulf Indonesia Resources 22,900(b) 516,681
SmithKline Beecham ADR 230,000 11,413,750
Telecommunicacoes Brasileiras-
Telebras ADR 59,500 6,210,313
Total 35,013,244
Total common stocks
(Cost: $666,493,038) $963,584,119
Bond (0.4%)
Issuer Coupon Maturity Principal Value(a)
rate year amount
Energy equipment & services (0.4%)
Diamond Offshore Drilling
Cv Sub Nts 3.125% 2007 $3,800,000 $3,819,000
Total bond
(Cost $3,800,000) $3,819,000
See accompanying notes to investments in securities.
(This annual report is not part of the prospectus.)
<PAGE>
Short-term securities (6.0%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agency (1.0%)
Federal Home Loan Mtge Corp Disc Nts
12-11-97 5.47% $ 5,000,000 $ 4,990,917
12-11-97 5.50 5,000,000 4,990,850
12-22-97 5.51 600,000 597,895
Total 10,579,662
Commercial paper (4.4%)
Ameritech
12-24-97 5.57 1,600,000 1,593,833
AT&T
12-01-97 5.56 6,400,000 6,398,030
Bell Atlantic Financial Services
12-30-97 5.58 1,500,000 1,492,831
BHP Finance
12-02-97 5.54 7,900,000 7,896,373
BOC Group
12-15-97 5.60 4,600,000(e) 4,588,592
Ciesco LP
12-04-97 5.55 7,500,000 7,494,240
Deutsche Bank Financial
12-01-97 5.54 3,400,000 3,398,957
Gateway Fuel
12-18-97 5.60 5,900,000 5,882,625
Lincoln Natl
12-08-97 5.55 500,000(e) 499,248
May Dept Stores
12-09-97 5.56 1,000,000 998,461
Pitney Bowes Credit
12-19-97 5.56 4,100,000 4,087,381
Total 44,330,571
Letter of credit (0.6%)
Bank of America-
Formosa Plastics
12-23-97 5.59 5,700,000 5,678,834
Total short-term securities
(Cost: $60,589,132) $60,589,067
Total investments in securities
(Cost: $730,882,170)(f) $1,027,992,186
<PAGE>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars.
(d) Security is partially or fully on loan. See Note 4 to the financial
statements.
(e) Commercial paper sold within terms of 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.
(f) At Nov. 30, 1997, the cost of securities for federal income tax purposes was
$730,882,170 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation..........................................$306,843,976
Unrealized depreciation............................................(9,733,960)
----------
Net unrealized appreciation......................................$297,110,016
(This annual report is not part of the prospectus.)
<PAGE>
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:
- Independent auditors' report dated Jan. 2, 1998
- Statement of assets and liabilities, Nov. 30, 1997
- Statement of operations, year ended Nov. 30, 1997
- Statements of changes in net assets, for the years
ended Nov. 30, 1997 and Nov. 30, 1996
- Notes to financial statements
- Investments in securities, Nov. 30, 1997
- Notes to investments in securities
(b) EXHIBITS:
1. Copy of Articles of Incorporation, as amended October 17, 1988, filed
electronically as Exhibit 1 to Post-Effective Amendment No. 64 to
Registration Statement 2-13188, is incorporated herein by reference.
2. Copy of By-laws, as amended January 12, 1989, filed electronically as
Exhibit 2 to Post-Effective Amendment No. 69 to Registration Statement
No. 2-13188, are incorporated herein by reference.
3. Not Applicable.
4. Copy of stock certificate, filed as Exhibit 4 to Post-Effective
Amendment No. 55 to Registration Statement No. 2-13188, is incorporate
herein by reference.
5. Copy of Investment Management Services Agreement between Registrant and
American Express Financial Corporation, dated March 20, 1995, filed
electronically as Exhibit 5 to Post-Effective Amendment No. 85 to
Registration Statement No.2-13188, is incorporated herein by reference.
6. Copy of Distribution Agreement between Registrant and American Expres
Financial Advisors Inc., dated March 20, 1995, filed electronically as
Exhibit 6 to Post-Effective Amendment No. 85 to Registration Statement
No. 2-13188, is incorporated herein by reference.
7. All employees are eligible to participate in a profit sharing plan.
Entry into the plan is Jan. 1 or July 1. The Registrant contributes
each year an amount up to 15 percent of their annual salaries, the
maximum deductible amount permitted under Section 404(a) of the
Internal Revenue Code.
<PAGE>
8(a). Copy of Custodian Agreement between Registrant and American Express
Trust Company, dated March 20, 1995, filed electronically as Exhibit
8(a) to Post-Effective Amendment No. 85 to Registration Statement
No. 2-13188, is incorporated herein by reference.
8(b). Copy of Custody Agreement between Morgan Stanley Trust Company and IDS
Bank and Trust, dated May, 1993, filed electronically as Exhibit 8(b)
to Post-Effective Amendment No. 85 to Registration Statement
No. 2-13188, is incorporated herein by reference.
8(c). Copy of Custodian Agreement Amendment between IDS International Fund,
Inc. and American Express Trust Company, dated October 9, 1997, filed
electronically on or about December 23, 1997 as Exhibit 8(c) to IDS
International Fund, Inc.'s Post-Effective Amendment No. 26 to
Registration Statement No. 2-92309, is incorporated herein by
reference. Registrant's Custodian Agreement Amendment differs from the
one incorporated by reference only by the fact that Registrant is one
executing party.
9(a). Copy of Agreement of Merger, dated April 10, 1986, filed electronically
as Exhibit 9 to Post-Effective Amendment No. 58 to Registration
Statement No. 2-13188, is incorporated herein by reference.
9(b). Copy of Transfer Agency Agreement between Registrant and American
Express Client Service Corporation, dated January 1, 1998, is filed
electronically herewith.
9(c). Copy of License Agreement, dated January 25, 1988, filed electronically
as Exhibit 9(c) to Post-Effective Amendment No. 69 to Registration
Statement No. 2-13188, is incorporated herein by reference.
9(d). Copy of Shareholder Service Agreement between Registrant and American
Express Financial Advisors Inc., dated March 20, 1995, filed
electronically as Exhibit 9(d) to Post-Effective Amendment No. 85 to
Registration Statement No. 2-13188, is incorporated herein by
reference.
9(e). Copy of Administrative Services Agreement between Registrant and
American Express Financial Corporation, dated March 20, 1995, filed
electronically as Exhibit 9(e) to Post-Effective Amendment No. 85 to
Registration Statement No. 2-13188, is incorporated herein by
reference.
9(f). Copy of Class Y Shareholder Service Agreement between IDS Precious
Metals Fund, Inc. and American Express Financial Advisors Inc., dated
May 9, 1997, filed electronically on or about May 27, 1997 as Exhibit
9(e) to IDS Precious Metals Fund, Inc.'s Post-Effective Amendment No.
30 to Registration Statement No. 2-93745, is incorporated herein by
reference. Registrant's Class Y Shareholder Service Agreement differs
from the one incorporated by reference only by the fact that Registrant
is one executing party.
<PAGE>
10. Opinion and consent of counsel as to the legality of the securities
being registered is filed electronically herewith.
11. Independent Auditors' Consent is filed electronically herewith.
12. None.
13. Not Applicable.
14. Forms of Keogh, IRA and other retirement plans, filed as Exhibits 14(a)
through 14(n) to IDS Growth Fund, Inc., Post-Effective Amendment No. 34
to Registration Statement No. 2-38355 on Sept. 8, 1986, are
incorporated herein by reference.
15. Copy of Plan and Agreement of Distribution between Registrant an
American Express Financial Advisors Inc., dated March 20, 1995, filed
electronically as Exhibit 15 to Post-Effective Amendment No. 85 to
Registration Statement No. 2-13188, is incorporated herein by
reference.
16. Copy of schedule for computation of each performance quotation provided
in the Registration Statement in response to Item 22(b), filed as
Exhibit 16 to Post-Effective Amendment No. 76 to Registration
Statement No. 2-13188, is incorporated herein by reference.
17. Financial Data Schedules are filed electronically herewith.
18. Copy of plan pursuant to Rule 18f-3 under the 1940 Act, is filed
electronically herewith.
19(a). Directors' Power of Attorney to sign Amendments to this Registration
Statement, dated January 7, 1998, is filed electronically herewith.
19(b). Officers' Power of Attorney to sign Amendments to this Registration
Statement, dated November 1, 1995, filed electronically as Exhibit
19(b) to Post-Effective Amendment No. 84 to Registration Statement
No. 2-13188, is incorporated herein by reference.
Item 25. Persons Controlled by or Under Common Control with Registrant.
None.
<PAGE>
Item 26. Number of Holders of Securities.
(1) (2)
Number of Record
Holders as of
Title of Class Jan. 13, 1998
Common Stock
Class A 42,477
Class B 4,521
Class Y 4
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>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, IDS Equity Select Fund, Inc., certifies
that it meets all of the requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis and State of Minnesota on the 26th day of January, 1998.
IDS EQUITY SELECT FUND, INC.
By /s/ William R. Pearce**
William R. Pearce, Chief Executive Officer
By ______________________________________
Matthew N. Karstetter, Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in the
capacities indicated on the 26th day of January, 1998.
Signature Capacity
/s/ William R. Pearce* Chairman of the Board
William R. Pearce
/s/ H. Brewster Atwater, Jr.* Director
H. Brewster Atwater, Jr.
/s/ Lynne V. Cheney* Director
Lynne V. Cheney
/s/ William H. Dudley* Director
William H. Dudley
/s/ David R. Hubers* Director
David R. Hubers
<PAGE>
Signature Capacity
/s/ Heinz F. Hutter* Director
Heinz F. Hutter
/s/ Anne P. Jones* Director
Anne P. Jones
/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* Director
C. Angus Wurtele
*Signed pursuant to Directors' Power of Attorney dated January 8, 1997, filed
electronically as Exhibit 19(a) to Registrant's Post-Effective Amendment No. 85,
by:
____________________________________
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. 84,
by:
____________________________________
Leslie L. Ogg
<PAGE>
CONTENTS OF THIS
POST-EFFECTIVE AMENDMENT NO. 86
TO REGISTRATION STATEMENT NO. 2-13188
This Post-Effective Amendment comprises the following papers and documents:
The facing sheet.
The cross reference sheet.
Part A.
The prospectus.
Part B.
Statement of Additional Information.
Financial statements.
Part C.
Other information.
The signatures.
IDS EQUITY SELECT FUND, INC.
FILE NO.2-13188/811-772
EXHIBIT INDEX
EXHIBIT 9(b): Transfer Agency Agreement, dated Jan. 1, 1998.
EXHIBIT 10: Opinion and consent of counsel.
EXHIBIT 11: Independent Auditors' Consent.
EXHIBIT 17: Financial Data Schedules.
EXHIBIT 18: Plan pursuant to Rule 18f-3
EXHIBIT 19(a): Directors' Power of Attorney, dated Jan. 7, 1998.
<PAGE>
TRANSFER AGENCY AGREEMENT
AGREEMENT dated as of January 1, 1998, between IDS Equity Select Fund, Inc., a
Minnesota corporation, (the "Company" or "Fund"), and American Express Client
Service Corporation (the "Transfer Agent"), a Minnesota corporation.
In consideration of the mutual promises set forth below, the Company and the
Transfer Agent agree as follows:
1. Appointment of the Transfer Agent. The Company hereby appoints the
Transfer Agent, as transfer agent for its shares and as shareholder
servicing agent for the Company, and the Transfer Agent accepts such
appointment and agrees to perform the duties set forth below.
2. Compensation. The Company will compensate the Transfer Agent for the
performance of its obligations as set forth in Schedule A. Schedule A
does not include out-of-pocket disbursements of the Transfer Agent for
which the Transfer Agent shall be entitled to bill the Company
separately.
The Transfer Agent will bill the Company monthly. The fee provided for
hereunder shall be paid in cash by the Company to the Transfer Agent
within five (5) business days after the last day of each month.
Out-of-pocket disbursements shall include, but shall not be limited to,
the items specified in Schedule B. Reimbursement by the Company for
expenses incurred by the Transfer Agent in any month shall be made as
soon as practicable after the receipt of an itemized bill from the
Transfer Agent.
Any compensation jointly agreed to hereunder may be adjusted from time
to time by attaching to this Agreement a revised Schedule A, dated and
signed by an officer of each party.
3. Documents.The Company will furnish from time to time such certificates,
documents or opinions as the Transfer Agent deems to be appropriate or
necessary for the proper performance of its duties.
4. Representations of the Company and the Transfer Agent.
(a) The Company represents to the Transfer Agent that all
outstanding shares are validly issued, fully paid and
non-assessable by the Company. When shares are hereafter
issued in accordance with the terms of the Company's Articles
of Incorporation and its By-laws, such shares shall be validly
issued, fully paid and non-assessable by the Company.
(b) The Transfer Agent represents that it is registered under
Section 17A(c) of the Securities Exchange Act of 1934. The
Transfer Agent agrees to maintain the necessary facilities,
equipment and personnel to perform its duties and obligations
under this agreement and to comply with all applicable laws.
<PAGE>
5. Duties of the Transfer Agent. The Transfer Agent shall be responsible,
separately and through its subsidiaries or affiliates, for the
following functions:
(a) Sale of Fund Shares.
(1) On receipt of an application and payment, wired
instructions and payment, or payment identified as
being for the account of a shareholder, the Transfer
Agent will deposit the payment, prepare and present
the necessary report to the Custodian and record the
purchase of shares in a timely fashion in accordance
with the terms of the Fund's prospectus. All shares
shall be held in book entry form and no certificate
shall be issued unless the Fund is permitted to do so
by its prospectus and the purchaser so requests.
(2) On receipt of notice that payment was dishonored, the
Transfer Agent shall stop redemptions of all shares
owned by the purchaser related to that payment, place
a stop payment on any checks that have been issued to
redeem shares of the purchaser and take such other
action as it deems appropriate.
(b) Redemption of Fund Shares. On receipt of instructions to
redeem shares in accordance with the terms of the Fund's
prospectus, the Transfer Agent will record the redemption of
shares of the Fund, prepare and present the necessary report
to the Custodian and pay the proceeds of the redemption to the
shareholder, an authorized agent or legal representative upon
the receipt of the monies from the Custodian.
(c) Transfer or Other Change Pertaining to Fund Shares. On receipt
of instructions or forms acceptable to the Transfer Agent to
transfer the shares to the name of a new owner, change the
name or address of the present owner or take other legal
action, the Transfer Agent will take such action as is
requested.
(d) Exchange of Fund Shares. On receipt of instructions to
exchange the shares of the Fund for the shares of another fund
in the IDS MUTUAL FUND GROUP or other American Express
Financial Corporation product in accordance with the terms of
the prospectus, the Transfer Agent will process the exchange
in the same manner as a redemption and sale of shares.
(e) Right to Seek Assurance. The Transfer Agent may refuse to
transfer, exchange or redeem shares of the Fund or take any
action requested by a shareholder until it is satisfied
that the requested transaction or action is legally authorize
or until it is satisfied there is no basis for any claims
adverse to the transaction or action. It may rely on the
provisions of the Uniform Act for the Simplification of
Fiduciary Security Transfers or the Uniform Commercial Code.
The Company shall indemnify the Transfer Agent for any act
done or omitted to be done in reliance on such laws or for
refusing to transfer, exchange or redeem shares or taking any
requested action if it acts on a good faith belief that the
transaction or action is illegal or unauthorized.
<PAGE>
(f) Shareholder Records, Reports and Services.
(1) The Transfer Agent shall maintain all shareholder
accounts, which shall contain all required tax,
legally imposed and regulatory information; shall
provide shareholders, and file with federal and state
agencies, all required tax and other reports
pertaining to shareholder accounts; shall prepare
shareholder mailing lists; shall cause to be printed
and mailed all required prospectuses, annual reports,
semiannual reports, statements of additional
information (upon request), proxies and other
mailings to shareholders; and shall cause proxies to
be tabulated.
(2) The Transfer Agent shall respond to all valid
inquiries related to its duties under this Agreement.
(3) The Transfer Agent shall create and maintain all
records in accordance with all applicable laws, rules
and regulations, including, but not limited to, the
records required by Section 31(a) of the Investment
Company Act of 1940.
(g) Dividends and Distributions. The Transfer Agent shall prepare
and present the necessary report to the Custodian and shall
cause to be prepared and transmitted the payment of income
dividends and capital gains distributions or cause to be
recorded the investment of such dividends and distributions in
additional shares of the 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 Company. The Transfer Agent will provide reports
pertaining to the services provided under this Agreement as
the Company may request to ascertain the quality and level of
services being provided or as required by law.
(k) Other Duties. The Transfer Agent may perform other duties for
additional compensation if agreed to in writing by the parties
to this Agreement.
6. Ownership and Confidentiality of Records. The Transfer Agent agrees
that all records prepared or maintained by it relating to the services
to be performed by it under the terms of this Agreement are the
property of the Company and may be inspected by the Company or any
person retained by the Company at reasonable times. The Company and
Transfer Agent agree to protect the confidentiality of those records.
<PAGE>
7. Action by Board and Opinion of Counsel. The Transfer Agent may rely on
resolutions of the Board of Directors (the "Board") or the Executive
Committee of the Board and on opinion of counsel for the Company.
8. Duty of Care. It is understood and agreed that, in furnishing the
Company with the services as herein provided, neither the Transfer
Agent, nor any officer, 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 Company, it shall be
accompanied by a vote of the Board, certified by the Secretary,
electing to terminate this Agreement and designating a successor
transfer agent or transfer agents. Upon such termination and at the
expense of the Company, the Transfer Agent will deliver to such
successor a certified list of shareholders of the 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 Company, and will
cooperate in the transfer of such duties and responsibilities,
including provisions for assistance from the Transfer Agent's personnel
in the establishment of books, records and other data by such successor
or successors.
10. Amendment. This Agreement may not be amended or modified in any manner
except by a written agreement executed by both parties.
11. Subcontracting. The Company agrees that the Transfer Agent may
subcontract for certain of the services described under this Agreement
with the understanding that there shall be no diminution in the quality
or level of the services and that the Transfer Agent remains fully
responsible for the services. Except for out-of-pocket expenses
identified in Schedule B, the Transfer Agent shall bear the cost of
subcontracting such services, unless otherwise agreed by the parties.
<PAGE>
12. Miscellaneous.
(a) This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable
without the written consent of the other party.
(b) This Agreement shall be governed by the laws of the State of
Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers as of the day and year written above.
IDS EQUITY SELECT FUND, INC.
By: /s/ Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS CLIENT SERVICE CORPORATION
By: /s/ Barry J. Murphy
Barry J. Murphy
President
<PAGE>
Schedule A
IDS EQUITY SELECT FUND, INC.
FEE
The annual per account fee for services under this agreement, accrued daily and
payable monthly, is as follows:
Class A Class B Class Y
$15.00 $16.00 $15.00
<PAGE>
Schedule B
OUT-OF-POCKET EXPENSES
The Company shall reimburse the Transfer Agent monthly for the following
out-of-pocket expenses:
o typesetting, printing, paper, envelopes, postage and return postage
for proxy soliciting material, and proxy tabulation costs
o printing, paper, envelopes and postage for dividend notices, dividend
checks, records of account, purchase confirmations, exchange
confirmations and exchange prospectuses, redemption confirmations,
redemption checks, confirmations on changes of address and any other
communication required to be sent to shareholders
o typesetting, printing, paper, envelopes and postage for prospectuses,
annual and semiannual reports, statements of additional information,
supplements for prospectuses and statements of additional information
and other required mailings to shareholders
o stop orders
o outgoing wire charges
o other expenses incurred at the request or with the consent of the
Company
<PAGE>
January 26, 1998
IDS Equity Select Fund, Inc.
IDS Tower 10
Minneapolis, Minnesota 55440-0010
Gentlemen:
I have examined the Articles of Incorporation and the By-Laws of the Company and
all necessary certificates, permits, minute books, documents and records of the
Company, and the applicable statutes of the State of Minnesota, and it is my
opinion:
(a) That the Company is a corporation duly organized and existing under the
laws of the State of Minnesota with an authorized capital stock of
10,000,000,000 shares, all of $.01 par value, and that such shares may
be issued as full or fractional shares;
(b) That all such authorized shares are, under the laws of the State of
Minnesota, redeemable as provided in the Articles of Incorporation of
the Company and upon redemption shall have the status of authorized
shares and unissued shares;
(c) That the Company registered on December 14, 1978 an indefinite number
of shares pursuant to Rule 24f-2; and
(d) That shares which were sold at not less than their par value and in
accordance with applicable federal and state securities laws were
legally issued, fully paid and nonassessable.
I hereby consent that the foregoing opinion may be used in connection with this
Post-Effective Amendment.
Very truly yours,
Leslie L. Ogg
Attorney at Law
901 S. Marquette Ave., Suite 2810
Minneapolis, MN 55402-3268
<PAGE>
Independent auditor's consent
The board and shareholders
IDS Equity Select Fund, Inc.:
We consent to the use of our report incorporated herein by reference and to the
references to our Firm under the headings "Financial highlights" in Part A and
"INDEPENDENT AUDITORS" in Part B of the Registration Statement.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January , 1998
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> IDS EQUITY SELECT FUND CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 730882170
<INVESTMENTS-AT-VALUE> 1027992186
<RECEIVABLES> 2263614
<ASSETS-OTHER> 2340472
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1032596272
<PAYABLE-FOR-SECURITIES> 12587139
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2024257
<TOTAL-LIABILITIES> 14611396
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 561641479
<SHARES-COMMON-STOCK> 61949708
<SHARES-COMMON-PRIOR> 56569496
<ACCUMULATED-NII-CURRENT> 574241
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 158659140
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 297110016
<NET-ASSETS> 976255568
<DIVIDEND-INCOME> 8501720
<INTEREST-INCOME> 2636074
<OTHER-INCOME> 0
<EXPENSES-NET> 7746301
<NET-INVESTMENT-INCOME> 3391493
<REALIZED-GAINS-CURRENT> 158662690
<APPREC-INCREASE-CURRENT> 33083694
<NET-CHANGE-FROM-OPS> 195137877
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3486817)
<DISTRIBUTIONS-OF-GAINS> (105561837)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3394107
<NUMBER-OF-SHARES-REDEEMED> (6,172,167)
<SHARES-REINVESTED> 8158272
<NET-CHANGE-IN-ASSETS> 164025216
<ACCUMULATED-NII-PRIOR> 681392
<ACCUMULATED-GAINS-PRIOR> 108487236
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4783641
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7827503
<AVERAGE-NET-ASSETS> 886747040
<PER-SHARE-NAV-BEGIN> 14.71
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 2.93
<PER-SHARE-DIVIDEND> (0.06)
<PER-SHARE-DISTRIBUTIONS> (1.87)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.76
<EXPENSE-RATIO> 0.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> IDS EQUITY SELECT FUND CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 730882170
<INVESTMENTS-AT-VALUE> 1027992186
<RECEIVABLES> 2263614
<ASSETS-OTHER> 2340472
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1032596272
<PAYABLE-FOR-SECURITIES> 12587139
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2024257
<TOTAL-LIABILITIES> 14611396
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 561641479
<SHARES-COMMON-STOCK> 2650080
<SHARES-COMMON-PRIOR> 1248377
<ACCUMULATED-NII-CURRENT> 574241
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 158659140
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 297110016
<NET-ASSETS> 385024
<DIVIDEND-INCOME> 8501720
<INTEREST-INCOME> 2636074
<OTHER-INCOME> 0
<EXPENSES-NET> 7746301
<NET-INVESTMENT-INCOME> 3391493
<REALIZED-GAINS-CURRENT> 158662690
<APPREC-INCREASE-CURRENT> 33083694
<NET-CHANGE-FROM-OPS> 195137877
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3544)
<DISTRIBUTIONS-OF-GAINS> (2505546)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1462440
<NUMBER-OF-SHARES-REDEEMED> (260,727)
<SHARES-REINVESTED> 199990
<NET-CHANGE-IN-ASSETS> 164025216
<ACCUMULATED-NII-PRIOR> 681392
<ACCUMULATED-GAINS-PRIOR> 108487236
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4783641
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7827503
<AVERAGE-NET-ASSETS> 29042424
<PER-SHARE-NAV-BEGIN> 14.63
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> 2.85
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.87)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.60
<EXPENSE-RATIO> 1.59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE>6
<SERIES>
<NUMBER> 3
<NAME> IDS EQUITY SELECT FUND CLASS Y
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 730882170
<INVESTMENTS-AT-VALUE> 1027992186
<RECEIVABLES> 2263614
<ASSETS-OTHER> 2340472
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1032596272
<PAYABLE-FOR-SECURITIES> 12587139
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2024257
<TOTAL-LIABILITIES> 14611396
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 561641479
<SHARES-COMMON-STOCK> 24415
<SHARES-COMMON-PRIOR> 226033
<ACCUMULATED-NII-CURRENT> 574241
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 158659140
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 297110016
<NET-ASSETS> 41344284
<DIVIDEND-INCOME> 8501720
<INTEREST-INCOME> 2636074
<OTHER-INCOME> 0
<EXPENSES-NET> 7746301
<NET-INVESTMENT-INCOME> 3391493
<REALIZED-GAINS-CURRENT> 158662690
<APPREC-INCREASE-CURRENT> 33083694
<NET-CHANGE-FROM-OPS> 195137877
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8283)
<DISTRIBUTIONS-OF-GAINS> (423403)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17921
<NUMBER-OF-SHARES-REDEEMED> (253855)
<SHARES-REINVESTED> 34316
<NET-CHANGE-IN-ASSETS> 164025216
<ACCUMULATED-NII-PRIOR> 681392
<ACCUMULATED-GAINS-PRIOR> 108487236
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7827503
<AVERAGE-NET-ASSETS> 1818789
<PER-SHARE-NAV-BEGIN> 14.72
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 2.93
<PER-SHARE-DIVIDEND> (0.07)
<PER-SHARE-DISTRIBUTIONS> (1.87)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.77
<EXPENSE-RATIO> 0.7
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
May 9, 1997
Plan under Section 18f-3(d)
Filed pursuant to Item 24(b)(18) of Form N-1A
Separate Arrangements
Each class of shares will represent interests in the same portfolio of
investments of the Fund and be identical except those differences that relate to
(a) the impact of the disproportionate payments made under the Rule 12b-1 plan;
(b) the impact of the disproportionate payments made because of service fees;
(c) the differences in class expenses including transfer agent fees and any
other expense determined by the board of directors to be a class expense; and
(d) the difference in voting rights on the 12b-1 plan, exchange privileges and
class designations. The current classes of shares are as follows:
Class A shares - 5% initial sales charge waived or reduced for certain
purchases.
Class B shares - contingent deferred sales charge ranging from 5% down
to 0% after six years.
Class Y shares - no sales charge
Expense Allocation Procedures
American Express Financial Corporation, as the Fund's administrator, on a daily
basis shall allocate the income, expenses, and realized and unrealized gains and
losses of the Fund on the basis of the relative percentage of net assets of each
class of shares, except class specific expenses for service fees, 12b-1
distribution fees, and transfer agent fees which shall be paid directly by each
class as follows:
Class A and Class B service fee - 17.5 basis points
Class B distribution fee - 75 basis points
Class B transfer agent fee - an additional $1 for each shareholder
account
Class Y service fee - 10.0 basis points
Should at any time an expense of a class be waived or reimbursed, American
Express Financial Corporation first shall determine that such waiver or
reimbursement would not result in another class subsidizing the class, is fair
and equitable to all classes and does not operate to the detriment of another
class and then shall monitor the implementation and operation to assure the
waiver or reimbursement operates consistent with the determination. The board of
directors shall monitor the actions of American Express Financial Corporation.
<PAGE>
Exchange Privileges
Shares of a class may be exchanged for shares of the same class of another fund
in the IDS MUTUAL FUND GROUP.
Conversion Privileges
Class B shares including a proportionate amount of shares acquired through
reinvestment of distributions shall convert after eight years into Class A
shares at relative net asset values without the imposition of any fee.
<PAGE>
DIRECTORS/TRUSTEES POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as directors and trustees of the below listed
open-end, diversified investment companies that previously have filed
registration statements and amendments thereto pursuant to the requirements of
the Securities Act of 1933 and the Investment Company Act of 1940 with the
Securities and Exchange Commission:
1933 Act 1940 Act
Reg. Number Reg. Number
IDS Bond Fund, Inc. 2-51586 811-2503
IDS California Tax-Exempt Trust 33-5103 811-4646
IDS Discovery Fund, Inc. 2-72174 811-3178
IDS Equity Select Fund, Inc. 2-13188 811-772
IDS Extra Income Fund, Inc. 2-86637 811-3848
IDS Federal Income Fund, Inc. 2-96512 811-4260
IDS Global Series, Inc. 33-25824 811-5696
IDS Growth Fund, Inc. 2-38355 811-2111
IDS High Yield Tax-Exempt Fund, Inc. 2-63552 811-2901
IDS International Fund, Inc. 2-92309 811-4075
IDS Investment Series, Inc. 2-11328 811-54
IDS Managed Retirement Fund, Inc. 2-93801 811-4133
IDS Market Advantage Series, Inc. 33-30770 811-5897
IDS Money Market Series, Inc. 2-54516 811-2591
IDS New Dimensions Fund, Inc. 2-28529 811-1629
IDS Precious Metals Fund, Inc. 2-93745 811-4132
IDS Progressive Fund, Inc. 2-30059 811-1714
IDS Selective Fund, Inc. 2-10700 811-499
IDS Special Tax-Exempt Series Trust 33-5102 811-4647
IDS Stock Fund, Inc. 2-11358 811-498
IDS Strategy Fund, Inc. 2-89288 811-3956
IDS Tax-Exempt Bond Fund, Inc. 2-57328 811-2686
IDS Tax-Free Money Fund, Inc. 2-66868 811-3003
IDS Utilities Income Fund, Inc. 33-20872 811-5522
hereby constitutes and appoints William R. Pearce and Leslie L. Ogg or either
one of them, as her or his attorney-in-fact and agent, to sign for her or him in
her or his name, place and stead any and all further amendments to said
registration statements filed pursuant to said Acts and any rules and
regulations thereunder, and to file such amendments with all exhibits thereto
and other documents in connection therewith with the Securities and Exchange
Commission, granting to either of them the full power and authority to do and
perform each and every act required and necessary to be done in connection
therewith.
<PAGE>
Dated the 7th day of January, 1998.
/s/ H. Brewster Atwater, Jr. /s/ William R. Pearce
H. Brewster Atwater, Jr. William R. Pearce
/s/ Lynne V. Cheney /s/ Alan K. Simpson
Lynne V. Cheney Alan K. Simpson
/s/ William H. Dudley /s/ Edson W. Spencer
William H. Dudley Edson W. Spencer
/s/ David R. Hubers /s/ John R. Thomas
David R. Hubers John R. Thomas
/s/ Heinz F. Hutter /s/ Wheelock Whitney
Heinz F. Hutter Wheelock Whitney
/s/ Anne P. Jones /s/ C. Angus Wurtele
Anne P. Jones C. Angus Wurtele
