-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WYddPAsHo8DZ7FAZ6egdynlWxmh0il4jJt31KSwMV/88gF6xcAcYDMkUsNGeq4Ak QgitNqLPcTn7VY8pjtuesA== /in/edgar/work/20000803/0000820027-00-000685/0000820027-00-000685.txt : 20000921 0000820027-00-000685.hdr.sgml : 20000921 ACCESSION NUMBER: 0000820027-00-000685 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000531 FILED AS OF DATE: 20000803 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IDS SELECTIVE FUND INC CENTRAL INDEX KEY: 0000052407 STANDARD INDUSTRIAL CLASSIFICATION: [0000 ] IRS NUMBER: 410839316 STATE OF INCORPORATION: MN FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-00499 FILM NUMBER: 685417 BUSINESS ADDRESS: STREET 1: 80 SOUTH 8TH STREET STREET 2: T33/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55440 BUSINESS PHONE: 6123722772 FORMER COMPANY: FORMER CONFORMED NAME: INVESTORS SELECTIVE FUND INC DATE OF NAME CHANGE: 19841002 N-30D 1 0001.txt AXP SELECTIVE FUND, INC. AXP(SM) Selective Fund 2000 ANNUAL REPORT (PROSPECTUS ENCLOSED) American Express(R) Funds (icon of) clock AXP Selective Fund seeks to provide shareholders with current income and preservation of capital. AMERICAN EXPRESS (logo) (This annual report includes a prospectus that describes in detail the Fund's objective, investment strategy, risks, sales charges, fees and other matters of interest. Please read the prospectus carefully before you invest or send money.) A Quest for Quality Not all bonds are created equal. A bond's quality depends on the ability of its issuers to make the interest and principal payments owed to the bondholders. The quality is determined by independent rating agencies, which assign a credit rating (in the form of a letter grade) to each bond. Since its establishment in 1945, AXP Selective Fund has concentrated its investments in the four highest investment grades. Along the way, investors have enjoyed a steady stream of interest income with minimum risk to their principal. AXP SELECTIVE FUND Table of Contents 2000 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 (Fund) 11 Financial Statements (Fund) 12 Notes to Financial Statements (Fund) 15 Independent Auditors' Report (Portfolio) 21 Financial Statements (Portfolio) 22 Notes to Financial Statements (Portfolio) 25 Investments in Securities 30 Federal Income Tax Information 39 ANNUAL REPORT - 2000 (picture of) Arne H. Carlson Arne H. Carlson Chairman of the board From the Chairman The financial markets have always had their ups and downs, but in recent months volatility has become more frequent and intense. While no one can say with certainty what the markets will do, American Express Financial Corporation, the Fund's investment manager, expects economic growth to continue this year, accompanied by a modest rise in long-term interest rates. But no matter what transpires, this is a great time to take a close look at your goals and investments. We encourage you to: o Consult a professional investment advisor who can help you cut through mountains of data. o Set financial goals that extend beyond those achievable through retirement plans of your employer. o Learn as much as you can about your current investments. The portfolio manager's letter that follows provides a review of the Fund's investment strategies and performance. The annual report contains other valuable information as well. The Fund's prospectus describes its investment objectives and how it intends to achieve those objectives. As experienced investors know, information is vital to making good investment decisions. So, take a moment and decide again whether the Fund's investment objectives and management style fit with your other investments to help you reach your financial goals. And make it a practice on a regular basis to assess your investment options. On behalf of the Board, Arne H. Carlson (picture of) Ray Goodner Ray Goodner Portfolio manager From the Portfolio Manager The U.S. bond market struggled most of the past 12 months, as rising interest rates depressed bond prices for much of the period. AXP Selective Fund did manage to finish with a positive result, however, as its Class A shares produced a total return (excluding the sales charge) of 0.83% for the fiscal year -- June 1999 through May 2000. AXP SELECTIVE FUND With the economy continuing to grow at a rapid rate, unemployment at a record-low level and the price of oil more than doubling in a matter of months, the unwelcome specter of higher inflation made bond investors uneasy throughout the period. The Federal Reserve Board (the Fed) saw some threat to the still-tame inflation environment, too, as it raised short-term interest rates six times over the 12 months in an effort to cool off the economy and, ultimately, relieve potential upward pressure on prices. The end result was that interest rates across the maturity range crept higher from mid-1999 through last January, pushing down bond prices in the process. Compounding the situation was a heavy supply of corporate bonds, which further eroded support for the bond market. TREASURY BUY-BACK HELPS Some relief finally did arrive in the form of a bond buy-back program implemented by the U.S. Treasury. Prompted by a federal budget surplus, the department decided to retire in advance of maturity some $30 billion of its long-term debt. As it did so, yields on long-term Treasury issues fell considerably from February through April, driving up prices in the process. The rally benefited the Fund's long-term, high grade holdings. Given the largely difficult environment for most of the year, I maintained a defensive maturity structure in the portfolio. That centered on keeping a shorter-than-average duration to provide some protection against rising interest rates. (Duration, a function of the average maturity of the securities in the portfolio, affects the Fund's sensitivity to interest-rate changes. Generally, the longer the duration, the greater the sensitivity.) In addition, I held a higher-than-normal level of cash reserves. Looking at bond sectors, the biggest areas of investment were U.S. Treasury bonds, which gave the Fund a substantial performance boost late in the period, and mortgage-backed securities. The next-largest exposure was to high-grade corporate bonds. I also held some foreign bonds denominated in U.S. dollars. While they amounted to a modest portion of the portfolio, their strong price gains did benefit performance. Heading into the new fiscal year, it appears that economic growth is starting to moderate, which should limit the Federal Reserve's need to raise interest rates. If that outlook proves to be reasonably accurate, the bond market and the Fund should enjoy a better environment. In the meantime, I plan to stay with a largely conservative investment strategy to guard against a potential rise in inflation. Ray Goodner ANNUAL REPORT - 2000 Fund Facts Class A -- 12-month performance (All figures per share) Net asset value (NAV) May 31, 2000 $8.32 May 31, 1999 $8.96 Decrease $0.64 Distributions -- June 1, 1999 - May 31, 2000 From income $0.54 From capital gains $0.16 Total distributions $0.70 Total return* +0.83%** Class B -- 12-month performance (All figures per share) Net asset value (NAV) May 31, 2000 $8.32 May 31, 1999 $8.96 Decrease $0.64 Distributions -- June 1, 1999 - May 31, 2000 From income $0.47 From capital gains $0.16 Total distributions $0.63 Total return* +0.06%** Class Y -- 12-month performance (All figures per share) Net asset value (NAV) May 31, 2000 $8.32 May 31, 1999 $8.96 Decrease $0.64 Distributions -- June 1, 1999 - May 31, 2000 From income $0.55 From capital gains $0.16 Total distributions $0.71 Total return* +0.97%** *Returns do not include sales load. 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. AXP SELECTIVE FUND The 10 Largest Holdings Percent Value (of net assets) (as of May 31, 2000 ) Daimler-Benz North America 1.39% $18,168,591 7.38% 2006 Dayton Hudson 1.31 17,062,832 7.88% 2023 PDV America 1.18 15,453,454 7.88% 2003 New York Telephone 1.09 14,239,540 9.38% 2031 ARAMARK Services 1.07 13,958,025 6.75% 2004 Bayerische Landesbank 1.04 13,585,413 5.63% 2001 AETNA Services 1.00 13,010,907 6.38% 2003 SunAmerica .94 12,227,523 9.95% 2008 SAFECO Capital .93 12,177,960 8.07% 2037 Nationwide CSN Trust .91 11,900,453 9.88% 2025 Excludes U.S. Treasury and government agencies holdings. For further detail about these holdings, please refer to the section entitled "Investments in Securities." (icon of) pie chart The 10 holdings listed here make up 10.86% of net assets ANNUAL REPORT - 2000 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 falls 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 - ------------------------------------------------------------------------------- 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. AXP SELECTIVE FUND The Fund's Long-term Performance How $10,000 has growth in AXP Selective Fund $30,000 Lehman Brothers Aggregate Bond Index X $20,000 X $20,497 AXP Selective X Fund Class A Lipper Corporate Debt- A rated Index (The printed version of this chart contains a line graph with four lines corresponding to the three Indexes and Fund noted above.) $9,525 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 Average Annual Total Returns (as of May 31, 2000) 1 year 5 years 10 years (A) Since inception (B&Y) Class A -3.96% +4.34% +7.44% --% Class B -3.65% +4.42% --% +5.59%* Class Y +0.97% +5.50% --% +6.67%* * Inception date was March 20, 1995. Assumes: Holding period from 6/1/90 to 5/31/00. Returns do not reflect taxes payable on distributions. Reinvestment of all income and capital gain distributions for the Fund has a value of $11,514. Also see "Past Performance" in the Fund's current prospectus. On the graph above you can see how the Fund's total return compared to two widely cited performance indexes, the Lehman Brothers Aggregate Bond Index and the Lipper Corporate Debt - A rated Index. In comparing AXP Selective Fund (Class A) to these indexes, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the index. 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 4.75%. This was a period of widely fluctuating security prices. Past performance is no guarantee of future results. ANNUAL REPORT - 2000 Lehman Brothers Aggregate Bond Index, an unmanaged index, is made up of a representative list of government, corporate, asset-backed and mortgage-backed securities. The index is frequently used as a general measure of bond market performance. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. However, the securities used to create the indexmay not be representative of the bonds held in the Fund. Lipper Corporate Debt - A rated Index, an unmanaged index published by Lipper Inc., includes the 30 largest funds that are generally similar to the Fund, although some funds in the index may have somewhat different investment policies or objectives. AXP SELECTIVE FUND The financial statements contained in Post-Effective Amendment #90 to Registration Statement No. 2-10700 filed on or about July 25, 2000, are incorporated herein by reference. Federal Income Tax Information (Unaudited) 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 are 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 tax purposes. AXP Selective Fund, Inc. Fiscal year ended May 31, 2000 Class A Income distributions taxable as dividend income, 0.92% qualifying for deduction by corporations. Payable date Per share June 23, 1999 $0.03925 July 26, 1999 0.04760 Aug. 26, 1999 0.04495 Sept. 22, 1999 0.03712 Oct. 25, 1999 0.04410 Nov. 23, 1999 0.04581 Dec. 22, 1999 0.05836 Jan. 24, 2000 0.04762 Feb. 24, 2000 0.04395 March 23, 2000 0.03978 April 24, 2000 0.04885 May 24, 2000 0.04334 Total $0.54073 Capital gain distribution taxable as long-term capital gain. Payable date Per share Dec. 22, 1999 $0.15911 Total distributions $0.69984 The distribution of $0.21747 per share, payable Dec. 22, 1999, consisted of $0.04892 derived from net investment income, $0.00944 from net short-term capital gains (a total of $0.05836 taxable as dividend income) and $0.15911 from net long-term capital gains. ANNUAL REPORT - 2000 Class B Income distributions taxable as dividend income, 0.92% qualifying for deduction by corporations. Payable date Per share June 23, 1999 $0.03426 July 26, 1999 0.04149 Aug. 26, 1999 0.03930 Sept. 22, 1999 0.03220 Oct. 25, 1999 0.03809 Nov. 23, 1999 0.04058 Dec. 22, 1999 0.05309 Jan. 24, 2000 0.04184 Feb. 24, 2000 0.03851 March 23, 2000 0.03486 April 24, 2000 0.04319 May 24, 2000 0.03816 Total $0.47557 Capital gain distribution taxable as long-term capital gain. Payable date Per share Dec. 22, 1999 $0.15911 Total distributions $0.63468 The distribution of $0.21220 per share, payable Dec. 22, 1999, consisted of $0.04365 derived from net investment income, $0.00944 from net short-term capital gains (a total of $0.05309 taxable as dividend income) and $0.15911 from net long-term capital gains. AXP SELECTIVE FUND Class Y Income distributions taxable as dividend income, 0.92% qualifying for deduction by corporations. Payable date Per share June 23, 1999 $0.03981 July 26, 1999 0.04874 Aug. 26, 1999 0.04616 Sept. 22, 1999 0.03817 Oct. 25, 1999 0.04533 Nov. 23, 1999 0.04694 Dec. 22, 1999 0.05943 Jan. 24, 2000 0.04879 Feb. 24, 2000 0.04509 March 23, 2000 0.04084 April 24, 2000 0.05005 May 24, 2000 0.04442 Total $0.55377 Capital gain distribution taxable as long-term capital gain. Payable date Per share Dec. 22, 1999 $0.15911 Total distributions $0.71288 The distribution of $0.21854 per share, payable Dec. 22, 1999, consisted of $0.04999 derived from net investment income, $0.00944 from net short-term capital gains (a total of $0.05943 taxable as dividend income) and $0.15911 from net long-term capital gains. ANNUAL REPORT - 2000 This page left blank intentionally This page left blank intentionally This page left blank intentionally This page left blank intentionally This page left blank intentionally This page left blank intentionally American Express(R) Funds AXP Selective Fund 200 AXP Financial Center Minneapolis, MN 55474 AMERICAN EXPRESS (logo) S-6376 U (7/00) This report must be accompanied or preceded by the Fund's current prospectus. Distributed by American Express Financial Advisors Inc. Member NASD. American Express Company is separate from American Express Financial Advisors Inc. and is not a broker-dealer. 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. -----END PRIVACY-ENHANCED MESSAGE-----