IDS Equity
Select Fund
1998 ANNUAL REPORT
(PROSPECTUS ENCLOSED)
The goal of IDS Equity Select Fund, Inc.
is growth of capital and income. The
Fund invests primarily in moderate growth
stocks that generally pay dividends.
(This annual report includes a prospectus that describes in detail the Fund's
objective, investment strategies, risks, sales charges, fees and other matters
of interest. Please read the prospectus carefully before you invest or send
money.)
AMERICAN
EXPRESS
Financial
Advisors
Distributed by American Express Financial Advisors Inc.
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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.
IDS EQUITY SELECT FUND (This annual report is not part of the prospectus.)
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Table of Contents
1998 ANNUAL REPORT
The purpose of this annual report is to tell investors how the Fund performed.
From the Chairman 4
From the Portfolio Manager 4
Fund Facts 6
The 10 Largest Holdings 7
Making the Most of the Fund 8
The Fund's Long-term Performance 9
Independent Auditors' Report 10
Financial Statements 11
Notes to Financial Statements 14
Investments in Securities 21
Federal Income Tax Information 27
1999 PROSPECTUS
The prospectus, which is bound into the middle of this annual report, describes
the Fund in detail.
The Fund 3p
Goal 3p
Investment Strategy 3p
Risks 4p
Past Performance 5p
Fees and Expenses 7p
Management 8p
Buying and Selling Shares 8p
Valuing Fund Shares 8p
Investment Options 9p
Purchasing Shares 10p
Sales Charges 13p
Exchanging/Selling Shares 17p
Distributions and Taxes 21p
Personalized Shareholder
Information 23p
About the Company 24p
Quick Telephone Reference 26p
Financial Highlights 27p
(This annual report is not part of the prospectus.) ANNUAL REPORT -- 1998
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From the Chairman
(picture of) William R. Pearce
William R. Pearce
Chairman of the board
If you're an experienced investor, you know that the past 12 months was a highly
volatile period in many financial markets. But history tells us that substantial
market moves are nothing new. Though they're often unpredictable, declines --
whether they're brief or long-lasting, moderate or substantial -- are always a
possibility.
The potential for such volatility 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.
(signature of) W.R. Pearce
William R. Pearce
From the Portfolio Manager
(picture of) Betty J. Tebault
Betty J. Tebault
Portfolio manager
IDS Equity Select Fund had a productive fiscal year, although its gain was
substantially reduced by a sharp downturn in the U.S. stock market late in the
period. For the 12 months -- December 1997 through November 1998 -- investors in
the Fund's Class A shares realized a total return of 9.96%. (A portion of the
return came in the form of a capital gain, which was paid to shareholders in
December 1997 and reduced the Fund's net asset value by the same amount at that
time.)
The period began with considerable uncertainty, as investors tried to sort out
the potential longer-term effects of a meltdown in Asian financial markets that
had taken place only weeks earlier. By February, though, they evidently had
decided that the U.S. companies would weather the storm relatively well, and,
with support from ongoing reports of subdued inflation and a growing economy,
they sent stocks soaring through March.
The environment changed dramatically in mid-summer, however. By that time, the
"Asian flu" had made its way to Russia and Latin America, re-igniting fear that
American companies' profits would decline as a result of reduced overseas
revenues. Investors reacted to this development with wholesale stock-selling
that drove the market down by nearly 20% through late September. The fiscal year
did end on a positive note, though, as stocks rebounded strongly in the
following two months, thanks chiefly to three interest-rate cuts by the Federal
Reserve.
LARGE-CAPS LEAD
Carrying on the tradition of recent years, large-capitalization stocks remained
at the forefront of the market's advances, a reflection of investors' preference
for the more-predictable earnings patterns and liquidity of large-cap issues.
For the Fund, this continued to be a mixed blessing, as its portfolio contained
a blend of large- and small/mid-cap stocks. Overall, the smaller issues, while
they made a positive contribution to performance, simply couldn't keep pace with
their bigger brethren. In addition, because of recent market conditions, it
became increasingly difficult to find small- and mid-cap stocks that pay
dividends.
Most productive for the Fund were its holdings among pharmaceutical, retailing,
grocery, insurance, telecommunications and brokerage stocks, with large-cap
names such as General Electric, Gillette, Coca-Cola, Travelers, Carnival Cruise
Lines and Federated Department Stores registering some of the greatest gains.
Technology, another fairly substantial area of investment for the Fund, proved
to be a mixed bag. Although several holdings performed well overall, steep drops
in a few stocks negated much of those gains. I increased the technology exposure
in the latter part of the year, taking advantage of low prices on some
high-quality stocks.
As we begin a new fiscal year, the biggest question confronting the stock market
is how strong corporate profits will be. In light of that, I have concentrated
the portfolio in a diverse mix of companies that appear best able to produce
solid profit growth and whose stock prices still offer reasonably good
investment value.
(signature of)
Betty J. Tebault
(This annual report is not part of the prospectus.) ANNUAL REPORT -- 1998
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Fund Facts
Class A -- 12-month performance
(All figures per share)
Net asset value (NAV)
Nov. 30, 1998 $14.59
Nov. 30, 1997 $15.76
Decrease $ 1.17
Distributions -- Dec. 1, 1997 - Nov. 30, 1998
From income $ 0.09
From capital gains $ 2.40
Total distribution $ 2.49
Total return* +9.96%**
Class B -- 12-month performance
(All figures per share)
Net asset value (NAV)
Nov. 30, 1998 $14.34
Nov. 30, 1997 $15.60
Decrease $ 1.26
Distributions -- Dec. 1, 1997 - Nov. 30, 1998
From income $ 0.06
From capital gains $ 2.40
Total distribution $ 2.46
Total return* +9.12%**
Class Y -- 12-month performance
(All figures per share)
Net asset value (NAV)
Nov. 30, 1998 $14.60
Nov. 30, 1997 $15.77
Decrease $ 1.17
Distributions -- Dec. 1, 1997 - Nov. 30, 1998
From income $ 0.10
From capital gains $ 2.40
Total distribution $ 2.50
Total return* +10.03%**
*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.
IDS EQUITY SELECT FUND (This annual report is not part of the prospectus.)
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The 10 Largest Holdings
Percent Value
(of net assets) (as of Nov. 30, 1998)
Tyco Intl 4.97% $55,881,393
Immunex 3.28 36,849,999
Safeway 2.87 32,215,624
Estee Lauder Cl A 2.17 24,357,781
Arterial Vascular Engineering 2.13 23,948,749
Cisco Systems 2.11 23,743,124
Martin Marietta Materials 1.96 22,062,650
Rite Aid 1.94 21,810,163
ACE 1.92 21,600,000
Fort James 1.76 19,758,125
For further detail about these holdings, please refer to the section entitled
"Investments in securities" herein.
(icon of) pie chart
The 10 holdings listed here
make up 25.11% of net assets
(This annual report is not part of the prospectus.) ANNUAL REPORT -- 1998
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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. The chart below shows how dollar-cost averaging works. In these
three hypothetical scenarios, you will see six months of share price
fluctuations.
This strategy does not ensure a profit or avoid a loss if the market declines.
But, if you can continue to invest regularly through changing market conditions
even when the price of your shares fall or the market declines, it can be an
effective way to accumulate shares to meet your long-term goals.
How dollar-cost averaging works
Jan Feb Mar Apr May Jun
$15 $16 $18 $20
$10 $10 $12 $14
$ 5
Accumulated shares* Average market Your average
price per share cost per share
42.25 $15 $14.20
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Jan Feb Mar Apr May Jun
$15
$10 $10 $8 $8 $10
$ 5 $5 $5
Accumulated shares* Average market Your average
price per share cost per share
85.0 $7.66 $7.05
- -------------------------------------------------------------------------------
Jan Feb Mar Apr May Jun
$15
$10 $10 $8 $6 $7
$ 5 $4 $4
Accumulated shares* Average market Your average
price per share cost per share
103.5 $6.50 $5.80
- -------------------------------------------------------------------------------
$100 invested per month. Total invested: $600
*Shares purchased is determined by dividing the amount invested per month by the
current share price.
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. 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.
IDS EQUITY SELECT FUND (This annual report is not part of the prospectus.)
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The Fund's Long-term Performance
How $10,000 has grown in IDS Equity Select Fund
$50,000
S&P 500 Index
$40,000
$30,000
$41,283
$20,000 Equity
Select Fund
$10,000 Lipper Growth & Income Class A
$9,500 Fund Index
'88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98
Average annual total return (as of Nov. 30, 1998)
1 year Since 5 years 10 years
inception*
Class A +4.46% --% +15.03% +15.23%
Class B +5.44% +20.99% --% --%
Class Y +10.03% +22.49% --% --%
*Inception date was March 20, 1995.
Assumes: Holding period from 12/1/88 to 11/30/98. Returns do not reflect taxes
payable on distributions. Reinvestment of all income and capital gain
distributions for the Fund, with a value of $24,145. Also see "Past Performance"
in the Fund's current prospectus.
On the graph above you can see how the Fund's total returncompared to two widely
cited performance indexes, the Standard & Poor's 500 Index (S&P 500 Index) 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.
S&P 500 Index, 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 & 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.
(This annual report is not part of the prospectus.) ANNUAL REPORT -- 1998
<PAGE>
The financial statements contained in Post-Effective Amendment #88 to
Registration Statement No. 2-13188 filed on or about January 26, 1999, are
incorporated herein by reference.
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Federal Income Tax Information
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. The dividends listed below were reported to you on Form 1099-DIV,
Dividends and Distributions. 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, 1998
Class A
Income distributions taxable as dividend income, 100.00% qualifying for
deduction by corporations.
Payable date Per share
Dec. 29, 1997 $0.07520
March 27, 1998 0.01053
June 26, 1998 0.00510
Sept. 25, 1998 0.00322
Total $0.09405
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 29, 1997 $2.39599
Total distributions $2.49004
The distribution of $2.47119 per share, payable Dec. 29, 1997, consisted of
$0.01375 derived from net investment income, $0.06145 from net short-term
capital gains (a total of $0.07520 taxable as dividend income) and $2.39599 from
net long-term capital gains.
The long-term capital gains distribution is divided into two rate categories:
28% -- $1.48456 and 20% -- $0.91143.
(This annual report is not part of the prospectus.) ANNUAL REPORT -- 1998
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Class B
Income distribution taxable as dividend income, 100.00% qualifying for
deductions by corporations.
Payable date Per share
Dec. 29, 1997 $0.06145
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 29, 1997 $2.39599
Total distributions $2.45744
The distribution of $2.45744 per share, payable Dec. 29, 1997, consisted of
$0.06145 derived from net short-term capital gains and $2.39599 from net
long-term capital gains.
The long-term capital gains distribution is divided into two rate categories:
28% -- $1.48456 and 20% -- $0.91143.
IDS EQUITY SELECT FUND (This annual report is not part of the prospectus.)
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Class Y
Income distributions taxable as dividend income, 100.00% qualifying for
deduction by corporations.
Payable date Per share
Dec. 29, 1997 $0.07806
March 27, 1998 0.01337
June 26, 1998 0.00804
Sept. 25, 1998 0.00577
Total $0.10524
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 29, 1997 $2.39599
Total distributions $2.50123
The distribution of $2.47405 per share, payable Dec. 29, 1997, consisted of
$0.01661 derived from net investment income, $0.06145 from net short-term
capital gains (a total of $0.07806 taxable as dividend income) and $2.39599 from
net long-term capital gains.
The long-term capital gains distribution is divided into two rate categories:
28% -- $1.48456 and 20% -- $0.91143.
(This annual report is not part of the prospectus.) ANNUAL REPORT -- 1998
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AMERICAN
EXPRESS
IDS Equity Select Fund Financial
IDS Tower 10 Advisors
Minneapolis, MN 55440-0010
S-6426 N (1/99)
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STATEMENT OF DIFFERENCES
Difference Description
1) The layout is different 1) Some of the layout in the
throughout the annual report. annual report to
shareholders is in two
columns.
2) There are pictures, icons 2) Each picture, icon and
and graphs throughout the graph is described in
annual report. parentheses.
