<PAGE>
1997 ANNUAL REPORT
IDS
Equity Select
Fund
(prospectus enclosed)
(icon of) three pine trees
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 annual report includes a prospectus that describes in detail the Fund's
objective, investment policies, risks, sales charges, fees and other matters of
interest. Please read the prospectus carefully before you invest or send money.)
AMERICAN
EXPRESS
Financial
Advisors
Distributed by American Express Financial Advisors Inc.
<PAGE>
(icon of) three pine trees
Budding blue chips
When most people think of stocks, they tend to focus on the notable names in
American business -- the blue chips, as they're known. But there's another group
of companies that, though smaller and less well-known, boast impressive business
histories. These mid-size companies, which we call "budding blue chips," are the
foundation of Equity Select Fund. Often, they enjoy a dominant position in their
business. For an investor, this means an opportunity to participate in the
growth that's likely for these companies and the potential for rising stock
prices.
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(icon of) one open book inside of another
The purpose of this annual report is to tell investors how the Fund performed.
The prospectus, which is bound into the middle of this annual report, describes
the Fund in detail.
Contents
1997 annual report
From the chairman 4
From the portfolio manager 4
The Fund's ten largest holdings 6
Making the most of the Fund 7
The Fund's long-term performance 8
Independent auditors' report 9
Financial statements 10
Notes to financial statements 13
Investments in securities 23
IDS mutual funds 26
Federal income tax information 30
1998 prospectus
The Fund in brief 3p
Goals 3p
Investment policies and risks 3p
Manager and distributor 3p
Portfolio manager 3p
Alternative purchase arrangements 3p
Sales charge and Fund expenses 4p
Performance 6p
Financial highlights 6p
Total returns 8p
Investment policies and risks 10p
Facts about investments and their risks 10p
Alternative investment option 16p
Valuing Fund shares 17p
How to purchase, exchange or redeem shares 18p
Alternative purchase arrangements 18p
How to purchase shares 20p
How to exchange shares 23p
How to redeem shares 24p
Reductions and waivers of the sales charge 29p
Special shareholder services 34p
Services 34p
Quick telephone reference 34p
Distributions and taxes 35p
Dividend and capital gain distributions 35p
Reinvestments 36p
Taxes 36p
How to determine the correct TIN 38p
How the Fund is organized 39p
Shares 39p
Voting rights 39p
Shareholder meetings 39p
Board members and officers 39p
Investment manager 41p
Administrator and transfer agent 42p
Distributor 42p
About American Express Financial Corporation 44p
General information 44p
Appendix 45p
Descriptions of derivative instruments 45p
(This annual report is not part of the prospectus.)
<PAGE>
To our shareholders
From the chairman
If you're an experienced investor, you know that the past few years have been
unusually strong in many financial markets. Perhaps just as important, history
shows that bull markets don't last forever. Though they're often unpredictable,
declines - whether they're brief or long-lasting, moderate or substantial - are
always a possibility. We saw evidence of that in late October, when declines in
certain Asian markets spawned a sharp drop in several financial markets
worldwide, including the U.S.
That fact reinforces the need for investors to review periodically their
long-term goals and examine whether their investment program remains on track to
achieving them. Your quarterly investment statements are one part of that
monitoring process. The other is a meeting with your American Express financial
advisor. That becomes even more important if there's a major change in your
financial situation or in the financial markets.
William R. Pearce
(picture of) William R. Pearce
William R. Pearce
Chairman of the board
<PAGE>
From the portfolio manager
IDS Equity Select Fund enjoyed a productive fiscal year, as it took advantage of
a strong performance by the U.S. stock market. From December 1996 through
November 1997, investors in the Fund's Class A shares realized a total return of
23.6%. (A substantial portion of the return came in the form of a capital gain,
which was paid to shareholders in December 1996 and reduced the Fund's net asset
value by the same amount at that time.)
For most of the 12 months, stocks experienced highly favorable conditions. The
economy continued to grow at a solid pace; inflation remained low; corporate
profits were healthy; and long-term interest rates stayed within a comfortable
range. In that positive environment, the stock market mounted a powerful rally
that, aside from a brief retreat last spring when long-term interest rates
temporarily shot up, lasted until mid-summer. At that point, the advance began
to stall out, capped by a sharp decline in late October brought on by market
meltdowns in several Asian countries. Still, with the remarkable resilience it
has shown in recent years, the U.S. market rebounded in November to close the
period on a positive note.
More growth, large companies
As for the Fund, after becoming manager in January 1997, I made some changes to
its holdings. These include reducing the number of "cyclical" stocks (those of
companies whose fortunes tend to follow the direction of the economy) in favor
of growth stocks (those of companies with more consistent, above-average
earnings histories). In many cases, this approach led me toward more
consumer-product companies, as opposed to the industrial businesses that had
long been a staple of this Fund. On a broader scale, I also added more stocks of
larger companies. The portfolio is now split about evenly between stocks of
mid-size and large, well-established companies.
Looking at specific investments, the greatest areas of concentration were in
three stock sectors: technology, financial services and health care, each of
which made sizable contributions to Fund performance. Although they constituted
much smaller investments, holdings in the media, retailing and oil services
sectors also provided good gains. There were some laggards, of course, including
aerospace, beverage/tobacco and chemical stocks. Fortunately, they made up minor
portions of the portfolio. Also working in the Fund's favor was my decision to
maintain a relatively low level of cash reserves, which provided a meager return
compared with that of stocks as a whole.
As I write this report in mid-December, I think that consistent earnings growth
will be critical to stock performance in the new fiscal year. Therefore, I'm
emphasizing stocks of high-quality companies that appear most able to deliver
such results. In addition, when possible, I'm favoring stocks whose prices still
offer reasonable value. I expect that combination will provide the best
opportunity for gain in the period ahead.
Betty J. Tebault
(picture of) Betty J. Tebault
Betty J. Tegault
Portfolio manager
(This annual report is not part of the prospectus.)
<PAGE>
Class A
12-month performance
(All figures per share)
Net asset value (NAV)
Nov. 30, 1997 $15.76
Nov. 30, 1996 $14.71
Increase $ 1.05
Distributions
Dec. 1, 1996 - Nov. 30, 1997
From income $ 0.35
From capital gains $ 1.58
Total distribution $ 1.93
Total return* +23.6%**
Class B
12-month performance
(All figures per share)
Net asset value (NAV)
Nov. 30, 1997 $15.60
Nov. 30, 1996 $14.63
Increase $ 0.97
Distributions
Dec. 1, 1996 - Nov. 30, 1997
From income $ 0.29
From capital gains $ 1.58
Total distribution $ 1.87
Total return* +22.6%**
Class Y
12-month performance
(All figures per share)
Net asset value (NAV)
Nov. 30, 1997 $15.77
Nov. 30, 1996 $14.72
Increase $ 1.05
Distributions
Dec. 1, 1996 - Nov. 30, 1997
From income $ 0.36
From capital gains $ 1.58
Total distribution $ 1.94
Total return* +23.7%**
* The prospectus discusses the effect of sales charges, if any, on the various
classes.
** The total return is a hypothetical investment in the Fund with all
distributions reinvested.
(This annual report is not part of the prospectus.)
<PAGE>
The Fund's ten largest holdings
Percent Value
(of Fund's net assets) (as of Nov. 30, 1997)
Tyco Intl 2.93% $29,830,000
Guidant 2.08 21,202,500
Safeway 1.91 19,440,000
Compaq Computer 1.86 18,887,344
Tenet Healthcare 1.77 18,061,875
Kohl's 1.74 17,731,875
Martin Marietta Materials 1.70 17,312,500
ACE 1.66 16,872,500
Washington Mutual 1.60 16,244,375
USA Waste Service 1.59 16,200,625
(icon of) pie chart
The ten holdings listed here make up 18.84% of the Fund's net assets
(This annual report is not part of the prospectus.)
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Making the most of the Fund
Build your assets systematically
One of the best ways to invest in the Fund is by dollar-cost averaging -- a
time-tested strategy that can make market fluctuations work for you. To
dollar-cost average, simply invest a fixed amount of money regularly. You'll
automatically buy more shares when the Fund's share price is low, fewer shares
when it is high.
Using this strategy does not ensure a profit or avoid a loss if the market
declines, and requires that you be able to keep on investing on a regular basis,
even when the price of your shares falls or the market declines. Investing in
this manner can be an effective way to accumulate shares to meet your long-term
goals.
How dollar-cost averaging works
Month Amount Per-share Number of shares purchased
invested market price
Jan $100 $20 5.00 XXXXX
Feb 100 18 5.56 XXXXXx
March 100 17 5.88 XXXXXx
April 100 15 6.67 XXXXXXx
May 100 16 6.25 XXXXXXx
June 100 18 5.56 XXXXXx
July 100 17 5.88 XXXXXx
Aug 100 19 5.26 XXXXXx
Sept 100 21 4.76 XXXXx
Oct 100 20 5.00 XXXXX
(footnotes to table) By investing an equal number of dollars each
month...
(arrow in table pointing to April) you automatically buy more shares when the
per share market price is low...
(arrow in table pointing to September) and fewer shares when the per share
market price is high.
You have paid an average price of only $17.91 per share over the 10 months,
while the average market price actually was $18.10.
(This annual report is not part of the prospectus.)
<PAGE>
The Fund's long-term performance
Three ways to benefit from a mutual fund:
o your shares increase in value when the Fund's investments do well
o you receive capital gains when the gains on investments sold by the Fund
exceed losses
o you receive income when the Fund's stock dividends, interest and
short-term gains exceed its expenses.
All three make up your total return and you potentially can increase your
investment if, like most investors, you reinvest your dividends and
capital gain distributions to buy additional shares of the Fund or another
fund.
How your $10,000 has grown in IDS Equity Select Fund
$50,000
X
$43,558 Equity Select
Fund Class A
$40,000
X
S&P 500 Stock Index
$30,000
X
Lipper Growth & Income Fund Index
$20,000
$10,000
$9,500
'87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97
Average annual total return
(as of Nov. 30, 1997)
1 year Since 5 years 10 years
inception
Class A +17.38% --% +15.69% +15.84%
Class B +18.62% +25.39%* --% --%
Class Y +23.68% +27.45%* --% --%
*Inception date was March 20, 1995.
Assumes: o Holding period from 12/1/87 to 11/30/97. o Returns do not
reflect taxes payable on distributions. o Reinvestment of all income
and capital gain distributions for theFund, with a value of $23,274. Also
see "Performance" in the Fund's current prospectus.
Standard and Poor's 500 Stock Index (S&P 500), an unmanaged list of common
stocks, is frequently used as a general measure of market performance.
However, the S&P 500 companies are generally larger than those in which
the Fund invests.
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.
On the graph above you can see how the Fund's total returncompared to two
widely cited performance indexes, the S&P 500 and the Lipper Growth &
Income Fund Index. In comparing Equity Select Fund (Class A) to the two
indexes, you should take into account the fact that the Fund's performance
reflects the maximum sales charge of 5%, while such charges are
not reflected in the performance of the indexes.
Your investment and return values fluctuate so that your shares, when
redeemed, may be worth more or less than the original cost. Average annual
total return figures reflect the impact of the applicable sales charge up
to a maximum of 5%. This was a period of widely fluctuating security
prices. Past performance is no guarantee of future results.
(This annual report is not part of the prospectus.)
<PAGE>
The financial statements contained in Post-Effective Amendment #86 to
Registration Statement No. 2-13188 filed on or about January 27, 1998, are
incorporated herein by reference.
<PAGE>
IDS mutual funds
Global/International funds
Funds in this group seek capital growth and/or income by investing primarily in
foreign securities. Foreign investments may be subject to currency fluctuations
and political and economic risks of the countries in which the investments are
made. They are high risk mutual funds with a potential for high reward.
IDS Emerging Markets Fund
Invests in a Portfolio comprised primarily of stocks of companies in developing
countries throughout the world that are believed to offer growth potential.
Seeks to provide long-term growth of capital.
(icon of) world with countries
IDS Global Growth Fund
Invests in a Portfolio comprised primarily of stocks of companies throughout the
world that are positioned to meet market needs in a changing world economy.
These companies offer above-average potential for long-term growth.
(icon of) world
IDS International Fund
Invests primarily in common stocks of foreign companies that offer potential for
superior growth. The Fund may invest up to 20% of its assets in the U.S. market.
(icon of) three flags
IDS Global Balanced Fund
Invests in stocks and bonds in, for the most part, major markets throughout the
world, including the U.S. Seeks to provide a balance of growth of capital and
current income.
(icon of) scale of globes
IDS Global Bond Fund
Invests in a Portfolio comprised primarily of debt securities of U.S. and
foreign issuers to seek high total return through income and growth of capital.
(icon of) globe
Growth funds
Funds in this group seek capital growth, primarily from common stocks. They are
high risk mutual funds with a potential for high reward.
IDS Precious Metals Fund
Invests primarily in the securities of foreign or domestic companies that
explore for, mine and process or distribute gold and other precious metals. A
highly aggressive and speculative fund that seeks long-term growth of capital.
(icon of) cart of precious gems
IDS Discovery Fund
Invests in small- and medium-size, growth-oriented companies emphasizing
technological innovation and productivity enhancement. Buys and holds larger
growth-oriented stocks.
(icon of) ship
IDS Small Company Index Fund
Invests in all or a representative group of the equity securities comprising the
S&P SmallCap 600 Index, as it strives to provide long-term capital appreciation.
(icon of) building
IDS Strategy Aggressive Fund
Invests primarily in common stocks of companies that are selected for their
potential for above-average growth. Above-average means that their growth
potential is better, in the opinion of the portfolio's investment manager, than
the Standard & Poor's Corporation (S&P) 500 Stock Index.
(icon of) chess piece
IDS Research Opportunities Fund
Invests in a Portfolio comprised primarily of equity securities of companies
included in the S&P 500 Index that are believed to have strong growth potential.
The Portfolio is managed using a research methodology by the Research Department
of AEFC. Goal is long-term appreciation.
(icon of) magnifying glass
(This annual report is not part of the prospectus.)
IDS Growth Fund
Invests in a Portfolio comprised primarily of companies that have above-average
potential for long-term growth as a result of new management, marketing
opportunities or technological superiority.
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IDS New Dimensions Fund
Invests in a Portfolio comprised primarily of companies with
significant growth potential due to superiority in
technology, marketing or management. The Fund frequently
changes its industry mix.
(icon of) dimension
IDS Progressive Fund
Invests primarily in undervalued common stocks. The Fund holds stocks for the
long term with the goal of capital growth.
(icon of) shooting star
Growth & income funds
These funds focus on securities of medium to large, well-established companies
that offer long-term growth of capital and reasonable income from dividends and
interest. Foreign investments may be subject to currency fluctuations and
political and economic risks of the countries in which the investments are made.
IDS Equity Select Fund
Invests primarily in a combination of moderate growth stocks, higher-yielding
equities and bonds. Seeks growth of capital and income.
(icon of) three pine trees
IDS Blue Chip Advantage Fund
Invests in selected stocks from a major market index. Securities purchased are
those recommended by our research analysts as the best from each industry
represented on the index. Offers potential for long-term growth as well as
dividend income.
(icon of) ribbon
IDS Managed Allocation Fund
Invests in a Portfolio comprised primarily of U.S. equity securities, U.S. and
foreign debt securities, foreign equity securities and money market instruments.
The Fund provides diversification among these major investment categories and
has a target mix that represents the way the Fund's investments will be
allocated over the long term. Seeks maximum total return.
(icon of) gyroscope
IDS Stock Fund
Invests in a Portfolio comprised primarily of common stock of companies
representing many sectors of the economy. Seeks current income and growth of
capital.
(icon of) building with columns
IDS Equity Value Fund
Invests primarily in undervalued common stocks that offer potential for growth
of capital and income.
(icon of) three growing flowers
IDS Utilities Income Fund
Invests primarily in the stocks of public utility companies to seek high current
income and growth of income and capital with reduced volatility.
(icon of) light bulb
IDS Diversified Equity Income Fund
Invests in a Portfolio comprised primarily in high-yielding common stocks to
seek high current income and, secondarily, to benefit from the growth potential
offered by stock investments.
(icon of) two puzzle pieces
IDS Mutual
Invests in a Portfolio which seeks to balance between common stocks and senior
securities (preferred stocks and bonds). Seeks a balance of growth of capital
and current income.
(icon of) scale of justice
(This annual report is not part of the prospectus.)
Income funds
The funds in this group invest their assets primarily in corporate bonds or
government securities to seek interest income. Secondary objective is capital
growth. Risk varies by bond quality.
IDS Extra Income Fund
Invests in a Portfolio comprised mainly of long-term, high-yielding corporate
fixed-income securities in the lower rated, higher risk bond categories to seek
high current income. Secondary objective is capital growth.
(icon of) two coins
IDS Bond Fund
Invests mainly in corporate bonds, at least 50% in the higher rated, lower risk
bond categories, or the equivalent, and in government bonds.
(icon of) Greek column
IDS Selective Fund
Invests in a Portfolio comprised primarily of high-quality corporate bonds and
other highly rated debt instruments including government securities and
short-term investments. Seeks current income and preservation of capital.
(icon of) skyline
IDS Federal Income Fund
Invests in a Portfolio comprised primarily of securities issued or guaranteed as
to the timely payment of principal and interest by the U.S. government, its
agencies and instrumentalities. Seeks a high level of current income and safety
of principal consistent with its type of investments.
(icon of) shield with eagle head
Tax-exempt income funds
These funds provide tax-free income by investing in municipal bonds. The income
is generally free from federal income tax, but a portion of the income may be
subject to state and local taxes. Risk varies by bond quality.
IDS Tax-Exempt Bond Fund
Invests mainly in bonds and notes of state or local government units, with at
least 75% in the four highest rated, lowest risk bond categories.
(icon of) shield with Greek column
IDS Insured Tax-Exempt Fund
Invests primarily in municipal securities that are insured as to the timely
payment of principal and interest. The insurance feature minimizes credit risk
of the Fund but does not guarantee the market value of the Fund's shares.
(icon of) shield with star
IDS State Tax-Exempt Funds
(CA, MA, MI, MN, NY, OH)
Invests primarily in high- and medium-grade municipal securities to provide
income to residents of each respective state that is exempt from federal, state
and local income taxes. (New York is the only state that is exempt at the local
level.)
(icon of) shield with U.S. enclosed
IDS High Yield Tax-Exempt Fund
Invests in a Portfolio comprised primarily of medium- and lower-quality
municipal bonds and notes. Lower-quality securities generally involve greater
risk of principal and income.
(icon of) shield with basket of apples enclosed
IDS Intermediate Tax-Exempt Fund
Invests in mainly investment-grade bonds and other debt securities with
intermediate-term maturities issued by state and local government units. Goal is
to seek a high level of current income exempt from federal taxes.
(icon of) shield with tree enclosed
(This annual report is not part of the prospectus.)
Money market funds
These money market funds have three main goals: conservation of capital,
constant liquidity and the highest possible current income consistent with these
objectives. An investment in these funds is neither insured nor guaranteed by
the U.S. government, and there can be no assurance that these funds will be able
to maintain a stable net asset value of $1.00 per share. Very limited risk.
IDS Cash Management Fund
Invests in such money market securities as high quality commercial paper,
bankers' acceptances, certificates of deposit (CDs) and other bank securities.
(icon of) piggy bank
IDS Tax-Free Money Fund
Invests primarily in short-term bonds and notes issued by state and local
governments to seek high current income exempt from federal income taxes.
(icon of) shield with piggy bank enclosed
For more complete information about any of these funds, including charges and
expenses, you can obtain a prospectus by contacting your financial advisor or
writing to American Express Shareholder Service, P.O. Box 534, Minneapolis, MN
55440-0534. Read it carefully before you invest or send money.
(This annual report is not part of the prospectus.)
<PAGE>
Federal income tax information
IDS Equity Select Fund, Inc.
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its
fiscal year. Some of the dividends listed below were reported to you on
Form 1099-DIV, Dividends and Distributions, last January. Dividends paid
to you since the end of last year will be reported to you on a tax
statement sent next January. Shareholders should consult a tax advisor on
how to report distributions for state and local purposes.
IDS Equity Select Fund, Inc.
Fiscal year ended Nov. 30, 1997
Class A
Income distributions
taxable as dividend income, 100.00% qualifying for deduction by
corporations.
Payable date Per share
Dec. 27, 1996 $0.30120
March 27, 1997 0.01750
June 27, 1997 0.01623
Sept. 26, 1997 0.01247
Total $0.34740
Capital gain distribution
taxable for long-term capital gain.
Payable date Per share
Dec. 27, 1996 $1.58226
Total distributions $1.92966
The distribution of $1.88346 per share, payable Dec. 27, 1996, consisted
of $0.01021 from net investment income, $0.29099 from net short-term and
$1.58226 from net long-term capital gains.
(This annual report is not part of the prospectus.)
Class B
Income distributions
taxable as dividend income, 100.00% qualifying for deductions by
corporations.
Payable date Per share
Dec. 27, 1996 $0.29099
Capital gain distribution
taxable for long-term capital gain.
Payable date Per share
Dec. 27, 1996 $1.58226
Total distributions $1.87325
The distribution of $1.87325 per share, payable Dec. 27, 1996, consisted
of $0.29099 from net short-term and $1.58226 from net long-term capital
gains.
Class Y
Income distributions
taxable as dividend income, 100.00% qualifying for deduction by
corporations.
Payable date Per share
Dec. 27, 1996 $0.30710
March 27, 1997 0.02301
June 27, 1997 0.02013
Sept. 26, 1997 0.00663
Total $0.35687
Capital gain distribution
taxable for long-term capital gain.
Payable date Per share
Dec. 27, 1996 $1.58226
Total distributions $1.93913
The distribution of $1.88936 per share, payable Dec. 27, 1996, consisted
of $0.01611 from net investment income, $0.29099 from net short-term and
$1.58226 from net long-term capital gains.
(This annual report is not part of the prospectus.)
<PAGE>
Quick telephone reference
American Express Redemptions and exchanges, National/Minnesota
Financial Advisors dividend payments or 800-437-3133
Telephone Transaction reinvestments and automatic
Service payment arrangements Mpls./St. Paul area:
671-3800
TTY Service For the hearing impaired 800-846-4852
American Express Automated account information 800-862-7919
Financial Advisors (TouchTone(R) phones only),
Easy Access Line including current fund prices
and performance, account values
and recent account transactions
AMERICAN EXPRESS Financial Advisors
IDS Equity Select Fund
IDS Tower 10
Minneapolis, MN 55440-0010
<PAGE>
STATEMENT OF DIFFERENCES
Difference Description
1) The layout is different 1) Some of the layout in the
throughout the annual report. annual report to
shareholders is in two
columns.
2) Headings. 2) The headings in the
annual report are
placed in a blue strip
at the top of the page.
3) There are pictures, icons 3) Each picture, icon and
and graphs throughout the graph is described in
annual report. parentheses.
4) Footnotes for charts and 4) The footnotes for each
graphs are described at chart or graph are typed
the left margin. below the description of
the chart or graph.
