-----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, TaMH+dpu3pcosA8qYwKI6oqTMIx42KZL5Hvkr68EF36IWRy2nSACtZW3ULoUqPOb aek64LvsGeFgJo/9DINP+w== 0000820027-96-000023.txt : 19960126 0000820027-96-000023.hdr.sgml : 19960126 ACCESSION NUMBER: 0000820027-96-000023 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19960125 EFFECTIVENESS DATE: 19960125 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IDS SELECTIVE FUND INC CENTRAL INDEX KEY: 0000052407 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 410839316 STATE OF INCORPORATION: MN FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-10700 FILM NUMBER: 96507044 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-00499 FILM NUMBER: 96507045 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 485BPOS 1 IDS SELECTIVE FUND, INC. PAGE 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Post-Effective Amendment No. 83 (File No. 2-10700) X and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 33 (File No. 811-499) X IDS SELECTIVE FUND IDS Tower 10, Minneapolis, MN 55440 Leslie L. Ogg - 901 S. Marquette Avenue, Suite 2810, Minneapolis, MN 55402-3268 (612) 330-9283 Approximate Date of Proposed Public Offering: It is proposed that this filing will become effective (check appropriate box) It is proposed that this filing will become effective (check appropriate box) immediately upon filing pursuant to paragraph (b) X on Jan. 29, 1996 pursuant to paragraph (b) of rule 485 60 days after filing pursuant to paragraph (a)(i) on (date) pursuant to paragraph (a)(i) of rule 485 75 days after filing pursuant to paragraph (a)(ii) on (date) pursuant to paragraph (a)(ii) of rule 485. If appropriate, check the following box: this post-effective amendment designates a new effective date for a previously filed post-effective amendment. The Registrant has registered an indefinite number or amount of securities under the Securities Act of 1933 pursuant to Section 24(f) of the Investment Company Act of 1940. Registrant's Rule 24f-2 Notice for its most recent fiscal year ended November 30, 1995 was filed on or about Jan. 22, 1996. PAGE 2 Cross reference sheet showing the location in its prospectus and the Statement of Additional Information of the information called for by the items enumerated in Parts A and B of Form N-1A. Negative answers omitted from prospectus are so indicated.
PART A PART B Section Section in Item No. in Prospectus Item No. Statement of Additional Information 1 Cover page of prospectus 10 Cover page of SAI 2(a) Sales charge and Fund expenses 11 Table of Contents (b) The Fund in brief (c) The Fund in brief 12 NA 3(a) Financial highlights 13(a) Additional Investment Policies; all (b) NA appendices except Dollar-Cost Averaging (c) Performance (b) Additional Investment Policies (d) Financial highlights (c) Additional Investment Policies (d) Portfolio Transactions 4(a) The Fund in brief; Investment policies and risks; How the Fund is organized 14(a) Directors and officers of the Fund;** (b) Investment policies and risks Directors and officers (c) Investment policies and risks (b) Directors and Officers (c) Directors and Officers 5(a) Directors and officers; Directors and officers of the Fund (listing) 15(a) NA (b)(i) Investment manager and transfer agent; (b) NA About American Express Financial (c) Directors and Officers Corporation -- General Information (b)(ii) Investment manager and transfer agent 16(a)(i) How the Fund is organized; About American (b)(iii) Investment manager and transfer agent Express Financial Corporation** (c) Portfolio manager (a)(ii) Agreements: Investment Management Services (d) Investment manager and transfer agent Agreement, Plan and Supplemental (e) Investment manager and transfer agent Agreement of Distribution (f) Distributor (a)(iii) Agreements: Investment Management Services Agreement (g) Investment manager and transfer agent; (b) Agreements: Investment Management Services Agreement About American Express Financial (c) NA Corporation -- General Information (d) Agreements: Administrative Services Agreement, Shareholder Service Agreement 5A(a) * (e) NA (b) * (f) Agreements: Distribution Agreement (g) NA 6(a) Shares; Voting rights (h) Custodian; Independent Auditors (b) NA (i) Agreements: Transfer Agency Agreement; Custodian (c) NA (d) Voting rights 17(a) Portfolio Transactions (e) Cover page; Special shareholder services (b) Brokerage Commissions Paid to Brokers Affiliated (f) Dividends and capital gains distributions; with American Express Financial Corporation Reinvestments (c) Portfolio Transactions (g) Taxes (d) Portfolio Transactions (h) Alternative sales arrangements; Special (e) Portfolio Transactions considerations regarding master/feeder structure 18(a) Shares; Voting rights** (b) NA 7(a) Distributor (b) Valuing Fund shares 19(a) Investing in the Fund (c) How to purchase, exchange or redeem shares (b) Valuing Fund Shares; Investing in the Fund (d) How to purchase shares (c) NA (e) NA (f) Distributor 20 Taxes 8(a) How to redeem shares 21(a) Agreements: Distribution Agreement (b) NA (b) Agreements: Distribution Agreement (c) How to purchase shares: Three ways to invest (c) NA (d) How to purchase, exchange or redeem shares: Redemption policies -- "Important..." 22(a) Performance Information (for money market funds only) 9 None (b) Performance Information (for all funds except money market funds) 23 Financial Statements *Designates information is located in annual report. **Designates location in prospectus. /TABLE PAGE 3 IDS Selective Fund Prospectus January 29, 1996 The goals of IDS Selective Fund, Inc. are current income and the preservation of capital by investing in investment-grade bonds. 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. The SAI, dated January 29, 1996, is incorporated here by reference. For a free copy, contact American Express Shareholder Service. 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. SHARES IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. INVESTMENTS IN THE FUND INVOLVE INVESTMENT RISK INCLUDING POSSIBLE LOSS OF PRINCIPAL. American Express Shareholder Service P.O. Box 534 Minneapolis, MN 55440-0534 612-671-3733 TTY: 800-846-4852 PAGE 4 The Fund in brief Goals Types of Fund investments and their risks Proposed conversion to master/feeder structure Manager and distributor Portfolio manager Alternative purchase arrangements Sales charge and Fund expenses Performance Financial highlights Total returns Yield Investment policies and risks Facts about investments and their risks Valuing Fund shares How to purchase, exchange or redeem shares Alternative purchase arrangements How to purchase shares How to exchange shares How to redeem shares Reductions and waivers of the sales charge Special shareholder services Services Quick telephone reference Distributions and taxes Dividend and capital gain distributions Reinvestments Taxes How to determine the correct TIN How the Fund is organized Shares Voting rights Shareholder meetings Special considerations regarding master/feeder structure Board members and officers Investment manager and transfer agent Distributor About American Express Financial Corporation General information Appendices Description of investment-grade corporate bond ratings Descriptions of derivative instruments PAGE 5 The Fund in brief Goals IDS Selective Fund (the Fund) seeks to provide shareholders with current income and preservation of capital by investing in investment-grade bonds. Because any investment involves risk, achieving this goal cannot be guaranteed. Only shareholders can change the goals. Types of Fund investments and their risks The Fund is a diversified mutual fund that invests at least 90% of its net assets in the four highest investment grades of corporate debt securities, certain unrated debt securities the portfolio manager believes have the same investment qualities, government securities, derivative instruments and money market securities. Other investments may include common and preferred stocks and convertible securities. The investments are both U.S. and foreign. Some of the Fund's investments may be considered speculative and involve additional investment risks. Proposed conversion to master/feeder structure Subject to certain contingencies, the Fund intends to invest all of its assets in the Quality Income Portfolio (the Portfolio) of Income Trust (the Trust) rather than directly investing in and managing its own portfolio of securities. The Portfolio will have the same investment objective as the Fund. The Fund anticipates this conversion will occur in early 1996. 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 $47 billion in assets for the IDS MUTUAL FUND GROUP. Shares of the Fund are sold through American Express Financial Advisors Inc., a wholly owned subsidiary of AEFC. After the Fund converts to the master/feeder structure, the Portfolio in which the Fund invests will be managed by AEFC with the same portfolio manager. Portfolio manager Ray Goodner joined AEFC in 1977 and serves as vice president and senior portfolio manager. He began his career in portfolio management in 1980. He has managed this Fund since 1985 and also has served as portfolio manager of IDS Global Bond Fund since 1989. 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 PAGE 6 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. Shareholder transaction expenses Class A Class B Class Y Maximum sales charge on purchases* (as a percentage of offering price).......5% 0% 0% Maximum deferred sales charge imposed on redemptions (as a percentage of original purchase price)....0% 5% 0% Annual Fund operating expenses** (% of average daily net assets): Class A Class B Class Y Management fee .51% .51% .51% 12b-1 fee .00% .75% .00% Other expenses*** .40% .41% .22% Total .91% 1.67% .73% *This charge may be reduced depending on your total investments in IDS funds. See "Reductions of the sales charge." **Expenses for Class A are based on actual expenses for the last fiscal year, restated to reflect current fees. Expenses for Class B and Class Y are based on actual annualized expenses for the period from March 20, 1995 to November 30, 1995. ***Other expenses include an administrative services fee, a shareholder services fee for Class A and Class B, a transfer agency fee and other non-advisory expenses. Example: Suppose for each year for the next 10 years, Fund expenses are as above and annual return is 5%. If you sold your shares at the end of the following years, for each $1,000 invested, you would pay total expenses of: 1 year 3 years 5 years 10 years Class A $59 $78 $ 98 $157 Class B $67 $93 $111 $178** Class B* $17 $53 $ 91 $178** Class Y $ 7 $23 $ 41 $ 91 *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. PAGE 7 This example does not represent actual expenses, past or future. Actual expenses may be higher or lower than those shown. Expense information in this table for Class A shares has been restated to reflect estimates of Fund expenses from changes in fees approved by shareholders in November 1994. 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. Performance Financial highlights
Performance Financial highlights IDS Selective Fund, Inc. Fiscal year ended Nov. 30, Per share income and capital changes* Class A 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 Net asset value, $8.57 $9.77 $9.20 $8.93 $8.41 $8.69 $8.44 $8.27 $9.03 $8.24 beginning of year Income from investment operations: Net investment income .59 .60 .63 .66 .69 .70 .72 .74 .77 .81 Net gains (losses) 1.08 (1.05) .69 .27 .52 (.30) .27 .17 (.71) .79 (both realized and unrealized) Total from investment 1.67 (.45) 1.32 .93 1.21 .40 .99 .91 .06 1.60 operations Less distributions: Dividends from net (.58) (.60) (.64) (.66) (.69) (.68) (.74) (.74) (.77) (.81) investment income Distributions from (.13) (.15) (.11) -- -- -- -- -- (.05) -- realized gains Total distributions (.71) (.75) (.75) (.66) (.69) (.68) (.74) (.74) (.82) (.81) Net asset value, $9.53 $8.57 $9.77 $9.20 $8.93 $8.41 $8.69 $8.44 $8.27 $9.03 end of year Ratios/supplemental data 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 Net assets, end of $1,490 $1,402 $1,737 $1,541 $1,403 $1,196 $1,167 $1,081 $1,101 $1,181 year (in millions) Ratio of expenses to .85% .72% .72% .74% .77% .76% .77% .74% .75% .66% average daily net assets Ratio of net income 6.59% 6.53% 6.57% 7.32% 7.94% 8.58% 8.42% 8.67% 8.80% 9.29% to average daily net assets Portfolio turnover rate 26% 30% 30% 62% 59% 54% 79% 86% 74% 108% (excluding short-term securities) Total return** 20.3% (4.7%) 14.8% 10.8% 15.0% 4.8% 12.3% 11.3% 0.6% 20.2% *For a share outstanding throughout the year. Rounded to the nearest cent. **Total return does not reflect payment of a sales charge. /TABLE PAGE 8
IDS Selective Fund, Inc. Performance Financial highlights Fiscal period ended Nov. 30, Per share income and capital changes* Class B** Class Y** 1995 1995 Net asset value, $8.78 $8.78 beginning of period Income from investment operations: Net investment income .40 .46 Net gains .75 .75 (both realized and unrealized) Total from investment 1.15 1.21 operations Less distributions: Dividends from net (.40) (.46) investment income Net asset value, $9.53 $9.53 end of period Ratios/supplemental data 1995 1995 Net assets, end of $72 $142 period (in millions) Ratio of expenses to 1.67%+ .73%+ average daily net assets Ratio of net income 5.68%+ 6.64%+ to average daily net assets Portfolio turnover rate 26% 26% (excluding short-term securities) Total return*** 13.1% 13.8% *For a share outstanding throughout the period. Rounded to the nearest cent. **Inception date was March 20, 1995 for Class B and Class Y. ***Total return does not reflect payment of a sales charge. +Adjusted to an annual basis.
The information in this table 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. 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. PAGE 9 Average annual total returns as of Nov. 30, 1995 Purchase 1 year 5 years 10 years made ago ago ago Selective: Class A +14.24% +9.73% +9.69% Lehman Aggregate Bond Index +18.05% +9.45% +9.78% Cumulative total returns as of Nov. 30, 1995 Purchase 1 year 5 years 10 years made ago ago ago Selective: Class A +14.24% +59.08% +152.16% Lehman Aggregate Bond Index +18.05% +57.05% +154.21% These examples show total returns from hypothetical investments in Class A shares of the Fund. These returns are compared to those of a popular index for the same periods. Total returns for Class A, Class B and Class Y for the period from March 20, 1995 to Nov. 30, 1995 were +7.95%, +8.09% and +13.76%, respectively. March 20, 1995 was the inception date for Class B and Class Y. Total return for Class A is shown for comparative purposes. 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 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. Lehman Aggregate Bond Index is made up of a representative list of government and corporate bonds as well as asset-backed and mortgage-backed securities. The index is frequently used as a general measure of bond market performance. However, the securities used to create the index may not be representative of the bonds held in the Fund. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. PAGE 10 Yield Yield is the net investment income earned per share for a specified time period, divided by the offering price at the end of the period. The Fund's annualized yield for the 30-day period ended Nov. 30, 1995, was 5.43% for Class A, 4.96% for Class B and 5.89% for Class Y. The Fund calculates this 30-day annualized yield by dividing: o net investment income per share deemed earned during a 30-day period by o the public offering price per share on the last day of the period, and o converting the result to a yearly equivalent figure. This yield calculation does not include any contingent deferred sales charge, ranging from 5% to 0% on Class B shares, which would reduce the yield quoted. The Fund's yield varies from day to day, mainly because share values and offering prices (which are calculated daily) vary in response to changes in interest rates. Net investment income normally changes much less in the short run. Thus, when interest rates rise and share values fall, yield tends to rise. When interest rates fall, yield tends to follow. Past yields should not be considered an indicator of future yields. Investment policies and risks The Fund invests in the four highest investment grades of marketable corporate debt securities, certain unrated debt securities the portfolio manager believes have the same investment qualities, government securities, derivative instruments and money market instruments. Under normal market conditions, at least 90% of the Fund's net assets will be in these investments. The remaining 10% of the Fund's net assets may be invested in common and preferred stocks and convertible securities. The investments are both U.S. and foreign. Subject to certain contingencies, the Fund intends in early 1996 to achieve its investment objective by investing all of its assets in the Portfolio of the Trust, which is a separate investment company. The Portfolio has the same investment objectives, policies and restrictions as the Fund. The board of the Fund believes that by investing all of its assets in the Portfolio, the Fund will be in a position to realize directly or indirectly certain economies of scale inherent in managing a larger asset base. When the Fund converts to the master/feeder structure, the policies described below will apply to both the Fund and the Portfolio. The various types of investments the portfolio manager uses to achieve investment performance are described in more detail in the next section and in the SAI. PAGE 11 Facts about investments and their risks Debt securities: The price of bonds generally falls as interest rates increase, and rises as interest rates decrease. The price of bonds also fluctuates if the credit rating is upgraded or downgraded. The Fund does not invest in securities considered by the investment manager to have investment qualities lower than investment grade. Securities that are subsequently downgraded in quality may continue to be held by the Fund and will be sold only when the Fund's investment manager believes it is advantageous to do so. For a description of investment-grade corporate bonds ratings, please see Appendix A to this prospectus. Common stocks: Common stocks are subject to market fluctuations. Stocks of larger, established companies that pay dividends may be less volatile than the stock market as a whole. Preferred stocks: If a company earns a profit, it generally must pay its preferred stockholders a dividend at a pre-established rate. Convertible securities: These securities generally are preferred stocks or bonds that can be exchanged for other securities, usually common stock, at prestated prices. When the trading price of the common stock makes the exchange likely, the convertible securities trade more like common stock. Foreign investments: Securities of foreign companies and governments may be traded in the United States, but often they are traded only on foreign markets. Frequently, there is less information about foreign companies and less government supervision of foreign markets. Foreign investments are subject to political and economic risks of the countries in which the investments are made, including the possibility of seizure or nationalization of companies, imposition of withholding taxes on income, establishment of exchange controls or adoption of other restrictions that might affect an investment adversely. If an investment is made in a foreign market, the local currency may be purchased using a forward contract in which the price of the foreign currency in U.S. dollars is established on the date the trade is made, but delivery of the currency is not made until the securities are received. As long as the 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. Derivative instruments: The portfolio manager may use derivative instruments in addition to securities to achieve investment performance. Derivative instruments include futures, options and forward contracts. Such instruments may be used to maintain cash reserves while remaining fully invested, to offset anticipated declines in values of investments, to facilitate trading, to reduce transaction costs, or to pursue higher investment returns. PAGE 12 Derivative instruments are characterized by requiring little or no initial payment and a daily change in price based on or derived from a security, a currency, a group of securities or currencies, or an index. A number of strategies or combination of instruments can be used to achieve the desired investment performance characteristics. A small change in the value of the underlying security, currency or index will cause a sizable gain or loss in the price of the derivative instrument. Derivative instruments allow the portfolio manager to change the investment performance characteristics very quickly and at lower costs. Risks include losses of premiums, rapid changes in prices, defaults by other parties, and inability to close such instruments. The 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. 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 Appendix B to this prospectus and the SAI. Securities and derivative instruments that are illiquid: A security or derivative 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. All securities and derivative instruments, however, can be sold in private sales, and many may be sold to other institutions and qualified buyers or on foreign markets. The portfolio manager will follow guidelines established by the board and consider relevant factors such as the nature of the security and the number of likely buyers when determining whether a security is illiquid. No more than 10% of the Fund's net assets will be held in securities and derivative instruments that are illiquid. Money market instruments: Short-term debt securities rated in the top two grades or the equivalent are used to meet daily cash needs and at various times to hold assets until better investment opportunities arise. Generally less than 25% of the 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. PAGE 13 Valuing Fund shares The public offering price is the net asset value (NAV) plus the sales charge for Class A. It is the NAV for Class B and Class Y. The NAV is the value of a single Fund share. The NAV usually changes daily, and is calculated at the close of business, normally 3 p.m. Central time, each business day (any day the New York Stock Exchange is open). NAV generally declines as interest rates increase and rises as interest rates decline. To establish the net assets, all securities are valued as of the close of each business day. In valuing assets: o Securities (except bonds) and assets with available market values are valued on that basis. o Securities maturing in 60 days or less are valued at amortized cost. o Bonds and assets without readily available market values are valued according to methods selected in good faith by the board. How to purchase, exchange or redeem shares Alternative purchase arrangements The Fund offers three different classes of shares - Class A, Class B and Class Y. The primary differences among the classes are in the sales charge structures and in their ongoing expenses. These differences are summarized in the table below. You may choose the class that best suits your circumstances and objectives.
Sales charge and distribution (12b-1) fee Service fee Other information Class A Maximum initial 0.175% of average Initial sales charge sales charge of daily net assets waived or reduced 5%; no 12b-1 fee for certain purchases Class B No initial sales 0.175% of average Shares convert to charge; maximum CDSC daily net assets Class A after eight of 5% declines to 0% years; CDSC waived in after six years; 12b-1 certain circumstances fee of 0.75% of average daily net assets Class Y None None Available only to certain qualifying institutional investors
PAGE 14 Conversion of Class B shares to Class A shares - Eight calendar years after Class B shares were originally purchased, Class B shares will convert to Class A shares and will no longer be subject to a distribution fee. The conversion will be on the basis of relative net asset values of the two classes, without the imposition of any sales charge. Class B shares purchased through reinvested dividends and distributions will convert to Class A shares in a pro rata portion as the Class B shares purchased other than through reinvestment. 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 sales charges and distribution fee (included in "Ongoing expenses") are structured so that you will have approximately the same total return at the end of eight years regardless of which class you chose. Sales charges on purchase or redemption If you purchase Class A If you purchase Class B shares shares o You will not have all o All of your money is of your purchase price invested in shares of invested. Part of your stock. However, you will purchase price will go pay a sales charge if you to pay the sales charge. redeem your shares within You will not pay a sales six years of purchase. charge when you redeem your shares. o You will be able to o No reductions of the take advantage of sales charge are reductions in the sales available for large charge. purchases. If your investments in IDS funds 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 If you purchase Class B shares shares o Your shares will have o The distribution and a lower expense ratio transfer agency fees for than Class B shares Class B will cause your because Class A does not shares to have a higher pay a distribution fee expense ratio and to pay and the transfer agency lower dividends than PAGE 15 fee for Class A is lower Class A shares. After than the fee for Class B. eight years, Class B As a result, Class A shares shares will convert to will pay higher dividends Class A shares and will than Class B shares. no longer be subject to higher fees. You should consider how long you plan to hold your shares and whether the accumulated higher fees and CDSC on Class B shares prior to conversion would be less than the initial sales charge on Class A shares. Also consider to what extent the difference would be offset by the lower expenses on Class A shares. To help you in this analysis, the example in the "Sales charge and Fund expenses" section of the prospectus illustrates the charges applicable to each class of shares. Class Y shares - Class Y shares are offered to certain institutional investors. Class Y shares are sold without a front- end sales charge or a CDSC and are not subject to either a service fee or a distribution fee. The following investors are eligible to purchase Class Y shares: o Qualified employee benefit plans* if the plan: - uses a daily transfer recordkeeping service offering participants daily access to IDS funds and has - at least $10 million in plan assets or - 500 or more participants; or - does not use daily transfer recordkeeping and has - at least $3 million invested in funds of the IDS MUTUAL FUND GROUP or - 500 or more participants. o Trust companies or similar institutions, and charitable organizations that meet the definition in Section 501(c)(3) of the Internal Revenue Code.* These must have at least $10 million invested in funds of the IDS MUTUAL FUND GROUP. o Nonqualified deferred compensation plans* whose participants are included in a qualified employee benefit plan described above. * Eligibility must be determined in advance by American Express Financial Advisors. To do so, contact your financial advisor. How to purchase shares If you're investing in this Fund for the first time, you'll need to set up an account. Your financial advisor will help you fill out and submit an application. Once your account is set up, you can choose among several convenient ways to invest. Important: When opening an account, you must provide AEFC with your correct Taxpayer Identification Number (Social Security or Employer Identification number). See "Distributions and taxes." PAGE 16 When you purchase shares for a new or existing account, the price you pay per share is determined at the close of business on the day your investment is received and accepted at the Minneapolis headquarters. Purchase policies: o Investments must be received and accepted in the Minneapolis headquarters on a business day before 3 p.m. Central time to be included in your account that day and to receive that day's share price. Otherwise your purchase will be processed the next business day and you will pay the next day's share price. o The minimums allowed for investment may change from time to time. o Wire orders can be accepted only on days when your bank, AEFC, the Fund and Norwest Bank Minneapolis are open for business. o Wire purchases are completed when wired payment is received and the Fund accepts the purchase. o AEFC and the Fund are not responsible for any delays that occur in wiring funds, including delays in processing by the bank. o You must pay any fee the bank charges for wiring. o The Fund reserves the right to reject any application for any reason. o If your application does not specify which class of shares you are purchasing, it will be assumed that you are investing in Class A shares.
Three ways to invest 1 By regular account Send your check and application Minimum amounts (or your name and account number Initial investment: $2,000 if you have an established account) Additional to: investments: $ 100 American Express Financial Advisors Inc. Account balances: $ 300* P.O. Box 74 Qualified retirement Minneapolis, MN 55440-0074 accounts: none Your financial advisor will help you with this process. 2 By scheduled Contact your financial advisor Minimum amounts investment plan to set up one of the following Initial investment: $100 scheduled plans: Additional investments: $100/mo. o automatic payroll deduction Account balances: none (on active plans of o bank authorization monthly payments) o direct deposit of Social Security check o other plan approved by the Fund PAGE 17 3 By wire If you have an established account, If this information is not you may wire money to: included, the order may be rejected and all money Norwest Bank Minneapolis received by the Fund, less Routing No. 091000019 any costs the Fund or AEFC Minneapolis, MN incurs, will be returned Attn: Domestic Wire Dept. promptly. Give these instructions: Minimum amounts Credit IDS Account #00-30-015 Each wire investment: $1,000 for personal account # (your account number) for (your name). *If your account balance falls below $300, you will be asked in writing to bring it up to $300 or establish a scheduled investment plan. If you don't do so within 30 days, your shares can be redeemed and the proceeds mailed to you.
How to exchange shares You can exchange your shares of the Fund at no charge for shares of the same class of any other publicly offered fund in the IDS MUTUAL FUND GROUP available in your state. Exchanges into IDS Tax-Free Money Fund must be made from Class A shares. For complete information, including fees and expenses, read the prospectus carefully before exchanging into a new fund. 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 create 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. A redemption is a taxable transaction. If your proceeds from your redemption are more or less than the cost of your shares, you will have a gain or loss, which can affect your tax liability. Redeeming shares held in an IRA or qualified retirement account may subject you to certain federal taxes, penalties and reporting requirements. Consult your tax advisor. PAGE 18
Two ways to request an exchange or redemption of shares 1 By letter Include in your letter: o the name of the fund(s) o the class of shares to be exchanged or redeemed o your account number(s) (for exchanges, both funds must be registered in the same ownership) o your Taxpayer Identification Number (TIN) o the dollar amount or number of shares you want to exchange or redeem o signature of all registered account owners o for redemptions, indicate how you want your money delivered to you o any paper certificates of shares you hold Regular mail: American Express Shareholder Service Attn: Redemptions P.O. Box 534 Minneapolis, MN 55440-0534 Express mail: American Express Shareholder Service Attn: Redemptions 733 Marquette Ave. Minneapolis, MN 55402 2 By phone American Express Telephone o The Fund and AEFC will honor any telephone exchange or redemption request believed to be Transaction Service: authentic and will use reasonable procedures to confirm that they are. This includes 800-437-3133 or asking identifying questions and tape recording calls. If reasonable 612-671-3800 procedures are not followed, the Fund or AEFC will be liable for any loss resulting from fraudulent requests. o Phone exchange and redemption privileges automatically apply to all accounts except custodial, corporate or qualified retirement accounts unless you request these privileges NOT apply by writing American Express Shareholder Service. Each registered owner must sign the request. o AEFC answers phone requests promptly, but you may experience delays when call volume is high. If you are unable to get through, use mail procedure as an alternative. o Acting on your instructions, your financial advisor may conduct telephone transactions on your behalf. o Phone privileges may be modified or discontinued at any time. Minimum amount Redemption: $100 Maximum amount Redemption: $50,000
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. PAGE 19 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 class 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.)
Three ways to receive payment when you redeem shares 1 By regular or express mail o Mailed to the address on record. o Payable to names listed on the account. NOTE: The express mail delivery charges you pay will vary depending on the courier you select. 2 By wire o Minimum wire redemption: $1,000. o Request that money be wired to your bank. o Bank account must be in the same ownership as the IDS fund account. NOTE: Pre-authorization required. For instructions, contact your financial advisor or American Express Shareholder Service. PAGE 20 3 By scheduled payout plan o Minimum payment: $50. o Contact your financial advisor or American Express Shareholder Service to set up regular payments to you on a monthly, bimonthly, quarterly, semiannual or annual basis. o Purchasing new shares while under a payout plan may be disadvantageous because of the sales charges.
Reductions and waivers of the sales charge Class A - initial sales charge alternative On purchases of Class A shares, you pay a 5% sales charge on the first $50,000 of your total investment and less on investments after the first $50,000: Total investment Sales charge as a percent of:* Public Net offering amount price invested Up to $50,000 5.0% 5.26% Next $50,000 4.5 4.71 Next $400,000 3.8 3.95 Next $500,000 2.0 2.04 $1,000,000 or more 0.0 0.00 * To calculate the actual sales charge on an investment greater than $50,000 and less than $1,000,000, amounts for each applicable increment must be totaled. See the SAI. Reductions of the sales charge on Class A shares Your sales charge may be reduced, depending on the totals of: o the amount you are investing in this Fund now, o the amount of your existing investment in this Fund, if any, and o the amount you and your immediate family (spouse or unmarried children under 21) are investing or have in other funds in the IDS MUTUAL FUND GROUP that carry a sales charge. 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 PAGE 21 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 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. o Purchases made within 30 days after a redemption of shares (up to the amount redeemed): - of a product distributed by American Express Financial Advisors in a qualified plan subject to a deferred sales charge or - in a qualified plan where American Express Trust Company has a recordkeeping, trustee, investment management or investment servicing relationship. Send the Fund a written request along with your payment, indicating the amount of the redemption and the date on which it occurred. o Purchases made with dividend or capital gain distributions from another fund in the IDS MUTUAL FUND GROUP that has a sales charge. o Purchases made through American Express Strategic Portfolio Service (total amount of all investments made in the Strategic Portfolio Service must be at least $50,000). PAGE 22 o Purchases made under the University of Texas System ORP. *Eligibility must be determined in advance by American Express Financial Advisors. To do so, contact your financial advisor. Class B - contingent deferred sales charge alternative Where a CDSC is imposed on a redemption, it is based on the amount of the redemption and the number of calendar years, including the year of purchase, between purchase and redemption. The following table shows the declining scale of percentages that apply to redemptions during each year after a purchase: If a redemption is The percentage rate made during the for the CDSC is: First year 5% Second year 4% Third year 4% Fourth year 3% Fifth year 2% Sixth year 1% Seventh year 0% If the amount you are redeeming reduces the current net asset value of your investment in Class B shares below the total dollar amount of all your purchase payments during the last six years (including the year in which your redemption is made), the CDSC is based on the lower of the redeemed purchase payments or market value. 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 23 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 American Express Financial Advisors, or a custodian-to-custodian transfer to a product not distributed by American Express Financial Advisors, the CDSC will not be waived), or - redeeming under an approved substantially equal periodic payment arrangement. For investors in Class A shares who have over $1 million invested in one year, the 1% CDSC on redemption of those shares will be waived in the same circumstances described for Class B. Special shareholder services Services To help you track and evaluate the performance of your investments, AEFC provides these services: Quarterly statements listing all of your holdings and transactions during the previous three months. Yearly tax statements featuring average-cost-basis reporting of capital gains or losses if you redeem your shares along with distribution information - which simplifies tax calculations. A personalized mutual fund progress report detailing returns on your initial investment and cash-flow activity in your account. It calculates a total return to reflect your individual history in owning Fund shares. This report is available from your financial advisor. Quick telephone reference American Express 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 PAGE 24 American Express Shareholder Service Fund performance, objectives and account inquiries 612-671-3733 TTY Service For the hearing impaired 800-846-4852 American Express Infoline Automated account information (TouchToneR phones only), including current Fund prices and performance, account values and recent account transactions National/Minnesota: 800-272-4445 Mpls./St. Paul area: 671-1630 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 income from dividends and interest is distributed to you monthly as dividends. Short-term capital gains are distributed at the end of the calendar year and included in net investment income. The Fund realizes long-term capital gains whenever it sells securities held for more than one year for a higher price than it paid for them. Net realized long-term capital gains, if any, are distributed at the end of the calendar year as capital gain distributions. Before they're distributed, net long-term capital gains are included in the value of each share. After they're 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. Class B shareholders will receive lower per share dividends than Class A and Class Y shareholders because expenses for Class B are higher than for Class A or Class Y. Class A shareholders will receive lower per share dividends than Class Y shareholders because expenses for Class A are higher than for Class Y. Reinvestments Dividends and capital gain distributions are automatically reinvested in additional shares in the same class of the Fund, unless: PAGE 25 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 any publicly available IDS fund for which you've previously opened an account. You pay no sales charge on shares purchased through reinvestment from this Fund into any IDS fund. The reinvestment price is the net asset value at close of business on the day the distribution is paid. (Your quarterly statement will confirm the amount invested and the number of shares purchased.) If you choose cash distributions, you will receive only those declared after your request has been processed. If the U.S. Postal Service cannot deliver the checks for the cash distributions, we will reinvest the checks into your account at the then-current net asset value and make future distributions in the form of additional shares. Taxes Distributions are subject to federal income tax and also may be subject to state and local taxes. Distributions are taxable in the year the Fund declares them regardless of whether you take them in cash or reinvest them. Each January, you will receive a tax statement showing the kinds and total amount of all distributions you received during the previous year. You must report distributions on your tax returns, even if they are reinvested in additional shares. Buying a dividend creates a tax liability. This means buying shares shortly before a capital gain distribution. You pay the full pre-distribution price for the shares, then receive a portion of your investment back as a distribution, which is taxable. Redemptions and exchanges subject you to a tax on any capital gain. If you sell shares for more than their cost, the difference is a capital gain. Your gain may be either short term (for shares held for one year or less) or long term (for shares held for more than one year). Your Taxpayer Identification Number (TIN) is important. As with any financial account you open, you must list your current and correct Taxpayer Identification Number (TIN) -- either your Social Security or Employer Identification number. The TIN must be certified under penalties of perjury on your application when you open an account at AEFC. PAGE 26 If you don't provide the TIN, or the TIN you report is incorrect, you could be subject to backup withholding of 31% of taxable distributions and proceeds from certain sales and exchanges. You also could be subject to further penalties, such as: o a $50 penalty for each failure to supply your correct TIN o a civil penalty of $500 if you make a false statement that results in no backup withholding o criminal penalties for falsifying information You also could be subject to backup withholding because you failed to report interest or dividends on your tax return as required. How to determine the correct TIN Use the Social Security or For this type of account: Employer Identification number of: Individual or joint account The individual or individuals listed on the account Custodian account of a minor The minor (Uniform Gifts/Transfers to Minors Act) A living trust The grantor-trustee (the person who puts the money into the trust) An irrevocable trust, pension The legal entity (not the trust or estate personal representative or trustee, unless no legal entity is designated in the account title) Sole proprietorship The owner Partnership The partnership Corporate The corporation Association, club or The organization tax-exempt organization 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. PAGE 27 How the Fund is organized The Fund is a diversified, open-end management investment company, as defined in the Investment Company Act of 1940. Originally incorporated on Feb. 10, 1945 in Nevada, the Fund changed its state of incorporation on June 13, 1986 by merging into a Minnesota corporation incorporated on April 7, 1986. The Fund headquarters are at 901 S. Marquette Ave., Suite 2810, Minneapolis, MN 55402- 3268. Shares The Fund is owned by its shareholders. The Fund issues shares in three classes - Class A, Class B and Class Y. Each class has different sales arrangements and bears different expenses. Each class represents interests in the assets of the Fund. Par value is one cent per share. Both full and fractional shares can be issued. The Fund no longer issues stock certificates. Voting rights As a shareholder, you have voting rights over the Fund's management and fundamental policies. You are entitled to one vote for each share you own. Shares of the Fund have cumulative voting rights. Each class has exclusive voting rights with respect to the provisions of the Fund's distribution plan that pertain to a particular class and other matters for which separate class voting is appropriate under applicable law. Shareholder meetings The Fund does not hold annual shareholder meetings. However, the board members may call meetings at their discretion, or on demand by holders of 10% or more of the outstanding shares, to elect or remove board members. Special considerations regarding master/feeder structure An investor in the Fund should be aware that, subject to certain contingencies, the Fund intends to achieve its investment objective in early 1996 by investing its assets in the Portfolio of the Trust, which has an identical investment objective to the Fund. This arrangement is commonly known as a master/feeder structure. The Trust is a separate investment company. Therefore, the Fund's interest in securities owned by the Portfolio will be indirect. The board has considered the advantages and disadvantages of investing the assets of the Fund in the Portfolio. The board believes that this approach offers opportunities for economies of scale. In determining to convert to a master/feeder structure, the board considered whether the aggregate of the fees of the Fund and the Portfolio will be more or less than if the Fund invested directly in the securities to be held by the Portfolio. The board PAGE 28 negotiated certain expense reimbursement arrangements with AEFC to mitigate the impact of increases in aggregate costs, and believes that any additional costs not covered by such arrangements will be outweighed by the anticipated benefits to the Fund and its shareholders of conversion to a master/feeder structure. The investment objective, policies and restrictions of the Portfolio are described under the captions "Investment policies and risks" and "Facts about investments and their risks." To date, AEFC has sponsored and advised only traditionally structured funds that invest directly in a portfolio of securities and retain their own investment manager. Funds that invest all their assets in interests in a separate investment company are a relatively new development in the mutual fund industry and may be subject to additional regulations and risks. In addition to selling units to the Fund, the Portfolio may sell units to other affiliated and non-affiliated mutual funds and to institutional investors. Such investors will invest in the Portfolio on the same terms and conditions and will pay a proportionate share of the Portfolio's expenses. However, the other investors investing in the Portfolio are not required to sell their shares at the same price as the Fund due to variations in sales commissions and other operating expenses. Therefore, investors in the Fund should be aware that these differences may result in differences in returns experienced by investors in the different funds that invest in the same Portfolio. The Fund may withdraw (completely redeem) all its assets from the Portfolio at any time if the board determines that it is in the best interest of the Fund to do so. In the event the Fund withdraws all of its assets from the Portfolio, the board would consider what action might be taken, including investing all assets of the Fund in another pooled investment entity or retaining an investment advisor to manage the Fund's assets in accordance with its investment objective. The investment objective of the Fund and its Portfolio can only be changed with the approval of a majority of the outstanding voting securities. If the objective of the Portfolio changes and shareholders of the Fund do not approve a parallel change in the Fund's investment objective, the Fund would seek an alternative investment vehicle for the Fund or retain an investment advisor on its behalf. Investors in the Fund should be aware that smaller funds investing in the Portfolio may be adversely affected by the actions of larger funds investing in the Portfolio. For example, if a large fund withdraws from the Portfolio, the remaining funds may experience higher prorated operating expenses, thereby producing lower returns. Additionally, the Portfolio may become less diverse, resulting in increased portfolio risk, and experience decreasing economies of scale. Institutional investors in the Portfolio that have a greater pro rata ownership than the Fund could have PAGE 29 effective voting control over the operation of the Portfolio. Certain changes in the Portfolio's fundamental objectives, policies and restrictions could require the Fund to redeem its interest in the Portfolio. Any such withdrawal could result in a distribution of in-kind portfolio securities (as opposed to cash distribution). If securities are distributed, the Fund could incur brokerage, tax or other charges in converting the securities to cash. In addition, a distribution in kind may result in a less diversified portfolio of investments or adversely affect the liquidity of the Fund. Wherever the Fund, as an investor in the Portfolio, is requested to vote on matters pertaining to the Portfolio, the Fund will hold a meeting of Fund shareholders. The Fund will vote its units in the Portfolio for or against such matters proportionately to the instructions to vote for or against such matters received from Fund shareholders. The Fund will vote shares for which it receives no voting instructions in the same proportion as the shares for which it receives voting instructions. See "Investment manager and transfer agent" for a complete description of the management and other expenses associated with the Fund's investment in the Portfolio. 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. The board members also serve on the boards of all of the other funds in the IDS MUTUAL FUND GROUP, except for Mr. Dudley, who is a board member of all publicly offered funds. Board members and officers of the Fund President and interested board member William R. Pearce President of all funds in the IDS MUTUAL FUND GROUP. Independent board members Lynne V. Cheney Distinguished fellow, American Enterprise Institute for Public Policy Research. Robert F. Froehlke Former president of all funds in the IDS MUTUAL FUND GROUP. Heinz F. Hutter Former president and chief operating officer, Cargill, Inc. PAGE 30 Anne P. Jones Attorney and telecommunications consultant. Donald M. Kendall Former chairman and chief executive officer, PepsiCo, Inc. Melvin R. Laird Senior counsellor for national and international affairs, The Reader's Digest Association, Inc. Lewis W. Lehr Former chairman and chief executive officer, Minnesota Mining and Manufacturing Company (3M). Edson W. Spencer Former chairman and chief executive officer, Honeywell, Inc. Wheelock Whitney Chairman, Whitney Management Company. C. Angus Wurtele Chairman of the board and chief executive officer, The Valspar Corporation. Interested board members who are officers and/or employees of AEFC William H. Dudley Executive vice president, AEFC. David R. Hubers President and chief executive officer, AEFC. John R. Thomas Senior vice president, AEFC. Officers who also are officers and/or employees of AEFC Peter J. Anderson Vice president of all funds in the IDS MUTUAL FUND GROUP. Melinda S. Urion Treasurer of all funds in the IDS MUTUAL FUND GROUP. Other officer Leslie L. Ogg Vice president, general counsel and secretary of all funds in the IDS MUTUAL FUND GROUP. Refer to the SAI for the board members' and officers' biographies. PAGE 31 Investment manager and transfer agent The Fund pays AEFC for managing its portfolio, providing administrative services and serving as transfer agent (handling shareholder accounts). Under its Investment Management Services Agreement, AEFC determines which securities will be purchased, held or sold (subject to the direction and control of the board). Under the current agreement, effective March 20, 1995, the Fund pays AEFC 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 $1.0 0.520% Next 1.0 0.495 Next 1.0 0.470 Next 3.0 0.445 Next 3.0 0.420 Over 9.0 0.395 Upon the implementation of the new fund structure, AEFC will provide these services to the Portfolio at the same annual rate currently paid by the Fund. For the fiscal year ended Nov. 30, 1995, under the current and prior agreements, the Fund paid AEFC a total investment management fee of 0.51% of its average daily net assets. Under the Agreement, the Fund also pays taxes, brokerage commissions and nonadvisory expenses. Under an Administrative Services Agreement, the Fund pays AEFC for administration and accounting services at an annual rate of 0.05% decreasing in gradual percentages to 0.025% as assets increase. In addition, under a separate Transfer Agency Agreement, AEFC maintains shareholder accounts and records. The Fund pays AEFC an annual fee per shareholder account for this service as follows: o Class A $15.50 o Class B $16.50 o Class Y $15.50 Distributor The Fund has an exclusive distribution agreement with American Express Financial Advisors, a wholly owned subsidiary of AEFC. Financial advisors representing American Express Financial Advisors provide information to investors about individual investment programs, the Fund and its operations, new account applications, and exchange and redemption requests. The cost of these services is paid partially by the Fund's sales charges. PAGE 32 Persons who buy Class A shares pay a sales charge at the time of purchase. Prior to March 20, 1995, the date when the Fund began offering more than one class of shares, the Fund paid an account- based distribution fee. That fee is part of Class A's total expenses shown below and was 0.01% of average daily net assets for the fiscal year ended Nov. 30, 1995. 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 plan) of 0.75% of the Fund's average daily net assets. For the fiscal period from March 20, 1995 to Nov. 30, 1995, the asset-based sales charge paid by Class B shareholders was 0.75% of 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 the Fund's average daily net assets attributable to Class A and Class B shares. Total expenses paid by the Fund's Class A shares for the fiscal year ended Nov. 30, 1995, restated to reflect current agreements, were 0.91% of its average daily net assets. Annualized expenses for Class B and Class Y were 1.67% and 0.73%, respectively, based on the period from March 20, 1995 (the inception date for Class B and Class Y) to Nov. 30, 1995. Total fees and expenses (excluding taxes and brokerage commissions) cannot exceed the most restrictive applicable state expense limitation. 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 publicly offered 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, 1995 were more than $127 billion. PAGE 33 American Express Financial Advisors serves individuals and businesses through its nationwide network of more than 175 offices and more than 7,800 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 American Express and AEFC. PAGE 34 Appendix A Description of investment-grade corporate bond ratings Bond ratings concern the quality of the issuing corporation. They are not an opinion of the market value of the security. Such ratings are opinions on whether the principal and interest will be repaid when due. A security's rating may change, which could affect its price. Ratings by Moody's Investors Service, Inc. are Aaa, Aa, A and Baa. Ratings by Standard & Poor's Corporation are AAA, AA, A and BBB. The following is a compilation of the two agencies' rating descriptions. For further information, see the SAI. Aaa/AAA - Judged to be of the best quality and carry the smallest degree of investment risk. Interest and principal are secure. Aa/AA - Judged to be high-grade although margins of protection for interest and principal may not be quite as good as Aaa or AAA rated securities. A - Considered upper-medium grade. Protection for interest and principal is deemed adequate but may be susceptible to future impairment. Baa/BBB - Considered medium-grade obligations. Protection for interest and principal is adequate over the short-term; however, these obligations may have certain speculative characteristics. Non-rated securities will be considered for investment when they possess a risk comparable to that of rated securities consistent with the Fund's objectives and policies. When assessing the risk involved in each non-rated security, the Fund will consider the financial condition of the issuer or the protection afforded by the terms of the security. Definitions of zero-coupon and pay-in-kind securities A zero-coupon security is a security that is sold at a deep discount from its face value and makes no periodic interest payments. The buyer of such a security receives a rate of return by gradual appreciation of the security, which is redeemed at face value on the maturity date. A pay-in-kind security is a security in which the issuer has the option to make interest payments in cash or in additional securities. The securities issued as interest usually have the same terms, including maturity date, as the pay-in-kind securities. PAGE 35 Appendix B 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 and 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. Asset-backed and mortgage-backed securities. Asset-backed securities include interests in pools of assets such as motor vehicle installment sale contracts, installment loan contracts, leases on various types of real and personal property, receivables from revolving credit (credit card) agreements or other categories of receivables. Mortgage-backed securities include collateralized mortgage obligations and stripped mortgage-backed securities. Interest and principal payments depend on payment of the underlying loans or mortgages. The value of these securities may also be affected by changes in interest rates, the market's perception of the issuers and the creditworthiness of the parties involved. The non-mortgage related asset-backed securities do not have the benefit of a security interest in the related collateral. Stripped mortgage-backed securities include interest only (IO) and principal only (PO) securities. Cash flows and yields on IOs and POs are extremely sensitive to the rate of principal payments on the underlying mortgage loans or mortgage-backed securities. Indexed securities. The value of indexed securities is linked to currencies, interest rates, commodities, indexes or other financial indicators. Most indexed securities are short- to intermediate- term fixed income securities whose values at maturity or interest rates rise or fall according to the change in one or more specified underlying instruments. Indexed securities may be more volatile than the underlying instrument itself. Inverse floaters. Inverse floaters are created by underwriters using the interest payment on securities. A portion of the interest received is paid to holders of instruments based on current interest rates for short-term securities. The remainder, minus a servicing fee, is paid to holders of inverse floaters. As interest rates go down, the holders of the inverse floaters receive PAGE 36 more income and an increase in the price for the inverse floaters. As interest rates go up, the holders of the inverse floaters receive less income and a decrease in the price for the inverse floaters. 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 37 STATEMENT OF ADDITIONAL INFORMATION FOR IDS SELECTIVE FUND Jan. 29, 1996 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, 1996, and it is to be used with the prospectus dated Jan. 29, 1996, and the Annual Report for the fiscal year ended Nov. 30, 1995. PAGE 38 TABLE OF CONTENTS Goals and Investment Policies........................See Prospectus Additional Investment Policies................................p. 3 Portfolio Transactions........................................p. 6 Brokerage Commissions Paid to Brokers Affiliated with American Express Financial Corporation........................p. 9 Performance Information.......................................p. 9 Valuing Fund Shares...........................................p. 11 Investing in the Fund.........................................p. 13 Redeeming Shares..............................................p. 17 Pay-out Plans.................................................p. 18 Taxes.........................................................p. 19 Agreements....................................................p. 20 Board Members and Officers....................................p. 23 Custodian.....................................................p. 28 Independent Auditors..........................................p. 28 Financial Statements..............................See Annual Report Prospectus....................................................p. 28 Appendix A: Description of Bond Ratings......................p. 29 Appendix B: Foreign Currency Transactions....................p. 32 Appendix C: Options and Interest Rate Futures Contracts......p. 37 Appendix D: Mortgage-Backed Securities.......................p. 43 Appendix E: Dollar-Cost Averaging............................p. 44 PAGE 39 ADDITIONAL INVESTMENT POLICIES Subject to certain contingencies, the Fund intends in early 1996 to achieve its goals by investing all of its assets in Quality Income Portfolio (the "Portfolio") of the Income Trust (the "Trust"), a separate investment company, rather than by directly investing in and managing its own portfolio of securities. The Portfolio has the same investment objectives, policies and restrictions as the Fund. Fundamental investment restrictions adopted by a Fund or Portfolio cannot be changed without the approval of a majority of the outstanding voting securities of the Fund or Portfolio, as defined in the Investment Company Act of 1940. Whenever a Fund is requested to vote on a change in the investment restrictions of the corresponding Portfolio, the Fund will hold a meeting of Fund shareholders and will cast the Fund's vote as instructed by the shareholders. These are investment policies in addition to those presented in the prospectus. The policies below are fundamental policies of the Fund and the Portfolio and may be changed only with shareholder approval. Unless holders of a majority of the outstanding voting securities agree to make the change, the Fund 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 PAGE 40 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. 'Make a loan of any part of its assets to American Express Financial Corporation (AEFC), to the board members and officers of AEFC or to its own board members and officers. 'Purchase securities of an issuer if the board members and officers of the Fund and of 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 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 such loans the Fund gets 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. 'Issue senior securities, except this restriction shall not be deemed to prohibit the Fund from borrowing from banks, using options or futures contracts, lending its securities or entering into repurchase agreements. Unless changed by the board, the Fund will not: 'Buy on margin or sell short, except it may enter into interest rate futures contracts. PAGE 41 '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 restriction, collateral arrangements for margin deposits on futures contracts are not deemed to be a pledge of assets. 'Invest more than 5% of its total assets in securities of companies, including any predecessors, that have a record of less than three years continuous operations. 'Invest more than 10% of its total assets in securities of investment companies. 'Invest in a company to control or manage it. 'Invest in exploration or development programs, such as oil, gas or mineral leases. 'Invest more than 5% of its net assets in warrants. Under one state's law no more than 2% of the Fund's net assets may be invested in warrants not listed on the New York or American Stock Exchange. '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 may no longer have readily available markets, loans and loan participations, repurchase agreements with maturities greater than seven days, non-negotiable fixed-time deposits, and over-the-counter options. For purposes of complying with Ohio law, the Fund will not invest more than 15% of its total assets in a combination of illiquid securities, 144A securities and securities of companies, including any predecessor, that have a record of less than three years continuous operations. 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. PAGE 42 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 maintain 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 the bankruptcy laws, the Fund's ability to liquidate the security involved could be impaired. 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 description of bond ratings, see Appendix A. For a discussion about foreign currency transactions, see Appendix B. For a discussion on options and interest rate futures contracts, see Appendix C. For a discussion on mortgage-backed securities, see Appendix D. PORTFOLIO TRANSACTIONS Subject to policies set by the board, AEFC is authorized to determine, consistent with the Fund's investment goal 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 most favorable execution except where otherwise authorized by the board. PAGE 43 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. Normally, the Fund's securities are traded on a principal rather than an agency basis. In other words, AEFC will trade directly with the issuer or with a dealer who buys or sells for its own account, rather than acting on behalf of another client. AEFC does not pay the dealer commissions. Instead, the dealer's profit, if any, is the difference, or spread, between the dealer's purchase and sale price for the security. On occasion, it may be desirable to compensate a broker for research services or for brokerage services by paying a commission that might not otherwise be charged or a commission in excess of the amount another broker might charge. The board has adopted a policy authorizing AEFC to do so to the extent authorized by law, if AEFC determines, in good faith, that such commission is reasonable in relation to the value of the brokerage or research services provided by a broker or dealer, viewed either in the light of that transaction or AEFC's overall responsibilities to the funds in the IDS MUTUAL FUND GROUP and other funds for which it acts as investment advisor. Research provided by brokers supplements AEFC's own research activities. Such services include economic data on, and analysis of, U.S. and foreign economies; information on specific industries; information about specific companies, including earnings estimates; purchase recommendations for stocks and bonds; portfolio strategy services; political, economic, business and industry trend assessments; historical statistical information; market data services providing information on specific issues and prices; and technical analysis of various aspects of the securities markets, including technical charts. Research services may take the form of written reports, computer software or personal contact by telephone or at seminars or other meetings. AEFC has obtained, and in the future may obtain, computer hardware from brokers, including but not limited to personal computers that will be used exclusively for investment decision-making purposes, which include the research, portfolio management and trading functions and other services to the extent permitted under an interpretation by the SEC. When paying a commission that might not otherwise be charged or a commission in excess of the amount another broker might charge, AEFC must follow procedures authorized by the board. To date, three procedures have been authorized. One procedure permits AEFC to direct an order to buy or sell a security traded on a national securities exchange to a specific broker for research services it has provided. The second procedure permits AEFC, in order to 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 PAGE 44 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 assured the Fund that under all three procedures the amount of commission paid will be reasonable and competitive in relation to the value of the brokerage services performed or research provided. All other transactions shall be placed on the basis of obtaining the best available price and the most favorable execution. In so doing, if in the professional opinion of the person responsible for selecting the broker or dealer, several firms can execute the transaction on the same basis, consideration will be given by such person to those firms offering research services. Such services may be used by AEFC in providing advice to all the funds in the IDS MUTUAL FUND GROUP even though it is not possible to relate the benefits to any particular fund or account. Each investment decision made for the 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 of its subsidiaries. When the Fund buys or sells the same security as another 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 $8,745 for the fiscal year ended Nov. 30, 1995, $54,600 for fiscal year 1994, and $7,120 for fiscal year 1993. Substantially all firms through whom transactions were executed provide research services. No transactions were directed to brokers because of research services they provided to the Fund. PAGE 45 As of the fiscal year ended Nov. 30, 1995, 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 End of Name of Issuer Fiscal Year BankAmerica $9,410,754 First Chicago 8,658,953 Merrill Lynch 699,217 Solomon Brothers 13,993,502 The portfolio turnover rate was 26% in the fiscal year ended Nov. 30, 1995, and 30% in fiscal year 1994. 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 the 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. AEFC may direct brokerage to compensate an affiliate. AEFC will receive research on South Africa from New Africa Advisors, a wholly-owned subsidiary of Sloan Financial Group. AEFC owns 100% of IDS Capital Holdings Inc. which in turn owns 40% of Sloan Financial Group. New Africa Advisors will send research to AEFC and in turn AEFC will direct trades to a particular broker. The broker will have an agreement to pay New Africa Advisors. All transactions will be on a best execution basis. Compensation received will be reasonable for the services rendered. No brokerage commissions were paid to brokers affiliated with AEFC for the three most recent fiscal years. PERFORMANCE INFORMATION The Fund may quote various performance figures to illustrate past performance. Average annual total return and current yield quotations used by the Fund are based on standardized methods of computing performance as required by the SEC. An explanation of the methods used by the Fund to compute performance follows below. PAGE 46 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: P(1+T)n = ERV where: P = a hypothetical initial payment of $1,000 T = average annual total return n = number of years ERV = ending redeemable value of a hypothetical $1,000 payment, made at the beginning of a period, at the end of the period (or fractional portion thereof) Aggregate total return The Fund may calculate aggregate total return for a class for certain periods representing the cumulative change in the value of an investment in the Fund over a specified period of time according to the following formula: ERV - P P where: P = a hypothetical initial payment of $1,000 ERV = ending redeemable value of a hypothetical $1,000 payment, made at the beginning of a period, at the end of the period (or fractional portion thereof) Annualized yield The Fund may calculate an annualized yield for a class by dividing the net investment income per share deemed earned during a period by the net asset value per share on the last day of the period and annualizing the results. Yield is calculated according to the following formula: Yield = 2[(a-b + 1)6 - 1] cd where: a = dividends and interest earned during the period b = expenses accrued for the period (net of reimbursements) c = the average daily number of shares outstanding during the period that were entitled to receive dividends d = the maximum offering price per share on the last day of the period PAGE 47 The Fund's annualized yield was 5.43% for Class A, 4.96% for Class B and 5.89% for Class Y for the 30-day period ended Nov. 30, 1995. The Fund's yield, calculated as described above according to the formula prescribed by the SEC, is a hypothetical return based on market value yield to maturity for the Fund's securities. It is not necessarily indicative of the amount which was or may be paid to the Fund's shareholders. Actual amounts paid to Fund shareholders are reflected in the distribution yield. Distribution yield Distribution yield is calculated according to the following formula: D divided by POP F equals DY 30 30 where: D = sum of dividends for 30-day period POP = sum of public offering price for 30-day period F = annualizing factor DY = distribution yield The Fund's distribution yield was 5.71% for Class A, 5.27% for Class B and 6.19% for Class Y for the 30-day period ended Nov. 30, 1995. 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, Mutual Fund Forecaster, Newsweek, The New York Times, Personal Investor, Stanger Report, Sylvia Porter's Personal Finance, USA Today, U.S. News and World Report, The Wall Street Journal and Wiesenberger Investment Companies Service. VALUING FUND SHARES The value of an individual share for each class is determined by using the net asset value before shareholder transactions for the day. On Dec. 1, 1995, the first business day following the end of the fiscal year, the computation looked like this:
Net assets before Shares outstanding Net asset value shareholder transactions at end of previous day of one share Class A $1,493,571,723 divided by 156,460,478 equals $9.55 Class B 71,886,420 7,530,528 9.55 Class Y 141,912,279 14,864,594 9.55
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): PAGE 48 'Securities, except bonds other than convertibles, traded on a securities exchange for which a last-quoted sales price is readily available are valued at the last-quoted sales price on the exchange where such security is primarily traded. 'Securities traded on a securities exchange for which a last-quoted sales price is not readily available are valued at the mean of the 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 Fund's board. 'Short-term securities maturing more than 60 days from the valuation date are valued at the readily available market price or approximate market value based on current interest rates. Short- term securities maturing in 60 days or less that originally had maturities of more than 60 days at acquisition date are valued at amortized cost using the market value on the 61st day before maturity. Short-term securities maturing in 60 days or less at acquisition date are valued at amortized cost. Amortized cost is an approximation of market value determined by systematically increasing the carrying value of a security if acquired at a discount, or reducing the carrying value if acquired at a premium, so that the carrying value is equal to maturity value on the maturity date. 'Securities without a readily available market price, bonds other than convertibles and other assets are valued at fair value as determined in good faith by the board. The board is responsible for selecting methods it believes provide fair value. When PAGE 49 possible, bonds are valued by a pricing 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 New York Stock Exchange, AEFC and the Fund will be closed on the following holidays: New Year's Day, Presidents' Day, Good Friday, 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 plus a sales charge, if applicable. For Class B and Class Y, there is no initial sales charge so the public offering price is the same as the net asset value. For Class A, the public offering price for an investment of less than $50,000, made Dec. 1, 1995, was determined by dividing the net asset value of one share, $9.55, by 0.95 (1.00- 0.05 for a maximum 5% sales charge) for a public offering price of $10.05. The sales charge is paid to American Express Financial Advisors by the person buying the shares. Class A - Calculation of the Sales Charge Sales charges are determined as follows: Within each increment, sales charge as a percentage of: Public Net Amount of Investment Offering Price Amount Invested First $ 50,000 5.0% 5.26% Next 50,000 4.5 4.71 Next 400,000 3.8 3.95 Next 500,000 2.0 2.04 $1,000,000 or more 0.0 0.00 Sales charges on an investment greater than $50,000 and less than $1,000,000 are calculated for each increment separately and then totaled. The resulting total sales charge, expressed as a percentage of the public offering price and of the net amount invested, will vary depending on the proportion of the investment at different sales charge levels. For example, compare an investment of $60,000 with an investment of $85,000. The $60,000 investment is composed of $50,000 that incurs a sales charge of $2,500 (5.0% x $50,000) and $10,000 that incurs a sales charge of $450 (4.5% x $10,000). The total sales charge of $2,950 is 4.92% of the public offering price and 5.17% of the net amount invested. PAGE 50 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% More than 50,000 to 100,000 5.00-4.50 5.26-4.71 More than 100,000 to 500,000 4.50-3.80 4.71-3.95 More than 500,000 to 999,999 3.80-2.00 3.95-2.04 $1,000,000 or more 0.00 0.00
The initial sales charge is waived for certain qualified plans that meet the requirements described in the prospectus. Participants in these qualified plans may be subject to a deferred sales charge on certain redemptions. The deferred sales charge on certain redemptions will be waived if the redemption is a result of a participant's death, disability, retirement, attaining age 59 1/2, loans or hardship withdrawals. The deferred sales charge varies depending on the number of participants in the qualified plan and total plan assets as follows: Deferred Sales Charge Number of Participants Total Plan Assets 1-99 100 or more Less than $1 million 4% 0% $1 million or more 0% 0% _________________________________________________________ Class A - Reducing the Sales Charge Sales charges are based on the total amount of your investments in the Fund. The amount of all prior investments plus any new purchase is referred to as your "total amount invested." For example, suppose you have made an investment of $20,000 and later decide to invest $40,000 more. Your total amount invested would be $60,000. As a result, $10,000 of your $40,000 investment qualifies for the lower 4.5% sales charge that applies to investments of more than $50,000 and up to $100,000. PAGE 51 The total amount invested includes any shares held in the Fund in the name of a member of your immediate family (spouse and unmarried children under 21). 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 $25,000 in IDS Growth Fund and $5,000 in this 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 52 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 E. 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 one fund but cannot be split to make purchases in two or more funds. Automatic directed dividends are available between accounts of any ownership except: Between a non-custodial account and an IRA, or 401(k) plan account or other qualified retirement account of which American Express Trust Company acts as custodian; Between two American Express Trust Company custodial accounts with different owners (for example, you may not exchange dividends from your IRA to the IRA of your spouse); Between different kinds of custodial accounts with the same ownership (for example, you may not exchange dividends from your IRA to your 401(k) plan account, although you may exchange dividends from one IRA to another IRA). PAGE 53 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 its 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 (the 1940 Act), as amended, declares a period of emergency to exist. Should the Fund stop selling shares, the board may make a deduction from the value of the assets held by the Fund to cover the cost of future liquidations of the assets so as to distribute fairly these costs among all shareholders. The Fund has elected to be governed by Rule 18f-1 under the 1940 Act, which obligates the Fund to redeem shares in cash, with respect to any one shareholder during any 90-day period, up to the lesser of $250,000 or 1% of the net assets of the Fund at the beginning of the period. Although redemptions in excess of this limitation would normally be paid in cash, the Fund reserves the right to make these payments in whole or in part in securities or other assets in case of an emergency, or if the payment of a redemption in cash would be detrimental to the existing shareholders of the Fund as determined by the board. In these circumstances, the securities distributed would be valued as set forth in the prospectus. Should the Fund distribute securities, a shareholder may incur brokerage fees or other transaction costs in converting the securities to cash. PAGE 54 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 or call American Express Shareholder Service, P.O. Box 534, Minneapolis, MN 55440-0534, 612-671-3733. 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 55 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 sale and subsequent purchase of shares. Under the tax laws, if this exchange is done within 91 days, any sales charge waived on Class A shares on a subsequent purchase of shares applies to the new shares acquired in the exchange. Therefore, you cannot create a tax loss or reduce a tax gain attributable to the sales charge when exchanging shares within 91 days. Retirement Accounts If you have a nonqualified investment in the Fund and you wish to move part or all of those shares to an IRA or qualified retirement account in the Fund, you can do so without paying a sales charge. However, this type of exchange is considered a sale of shares and may result in a gain or loss for tax purposes. In addition, this type of exchange may result in an excess contribution under IRA or qualified plan regulations if the amount exchanged plus the amount of the initial sales charge applied to the amount exchanged exceeds annual contribution limitations. For example: If you were to exchange $2,000 in Class A shares from a nonqualified account to an IRA without considering the 5% ($100) initial sales charge applicable to that $2,000, you may be deemed to have exceeded current IRA annual contribution limitations. You should consult your tax advisor for further details about this complex subject. Net investment income dividends received should be treated as dividend income for federal income tax purposes. Corporate shareholders are generally entitled to a deduction equal to 70% of that portion of the Fund's dividend that is attributable to dividends the Fund received from domestic (U.S.) securities. For the fiscal year ended Nov. 30, 1995, none of the Fund's net investment income dividends qualified for the corporate deduction. Capital gain distributions received by individual and corporate shareholders, if any, should be treated as long-term capital gains regardless of how long they owned their shares. Short-term capital PAGE 56 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: Assets Annual rate at (billions) each asset level First $1.0 0.520% Next 1.0 0.495 Next 1.0 0.470 Next 3.0 0.445 Next 3.0 0.420 Over 9.0 0.395 On Nov. 30, 1995, the daily rate applied to the Fund's net assets was equal to 0.510% on an annual basis. The fee is calculated for each calendar day on the basis of net assets as of the close of business two business days prior to the day for which the calculation is made. The management fee is paid monthly. Under the prior and current agreements, the total amount paid was $7,840,014 for the fiscal year ended Nov. 30, 1995, $8,228,895 for fiscal year 1994, and $8,932,798 for fiscal year 1993. PAGE 57 Under the current 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; Fund 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 prior and current agreements, the Fund paid nonadvisory expenses of $731,046 for the fiscal year ended Nov. 30, 1995, $734,701 for fiscal year 1994, and $778,877 for fiscal year 1993. Administrative Services Agreement The Fund has an Administrative Services Agreement with AEFC. Under this agreement, the Fund pays AEFC for providing administration and accounting services. The fee is calculated as follows: Assets Annual rate (billions) each asset level First $1.0 0.050% Next 1.0 0.045 Next 1.0 0.040 Next 3.0 0.035 Next 3.0 0.030 Over 9.0 0.025 On Nov. 30, 1995, the daily rate applied to the Fund's net assets was equal to 0.048% on an annual basis. The fee is calculated for each calendar day on the basis of net assets as of the close of business two business days prior to the day for which the calculation is made. Under the agreement, the Fund paid fees of $532,177 for the fiscal period ended Nov. 30, 1995. Transfer Agency Agreement The Fund has a Transfer Agency Agreement with AEFC. This agreement governs AEFC's responsibility for administering and/or performing transfer agent functions, for acting as service agent in connection with dividend and distribution functions and for performing shareholder account administration agent functions in connection with the issuance, exchange and redemption or repurchase of the Fund's shares. Under the agreement, AEFC will earn a fee from the Fund determined by multiplying the number of shareholder accounts at the end of the day by a rate determined for each class per year and dividing by the number of days in the year. The rate for Class A and Class Y is $15.50 per year and for Class B is $16.50 per year. The fees paid to AEFC may be changed from time to time upon agreement of the parties without shareholder approval. Under the agreement, the Fund paid fees of $1,720,171 for the fiscal year ended Nov. 30, 1995. PAGE 58 Distribution Agreement Under a Distribution Agreement, sales charges deducted for distributing Fund shares are paid to American Express Financial Advisors daily. These charges amounted to $3,880,191 for the fiscal year ended Nov. 30, 1995. After paying commissions to personal financial advisors, and other expenses, the amount retained was $776,038. The amounts were $3,861,526 and $1,385,907 for fiscal year 1994, and $7,381,370 and $2,611,931 for fiscal year 1993. Additional information about commissions and compensation for the fiscal year ended Nov. 30, 1995, is contained in the following table:
(1) (2) (3) (4) (5) Net Compensation Name of Underwriting on Redemption Principal Discounts and and Brokerage Other Underwriter Commissions Repurchases Commissions Compensation AEFC None None None* $369,089** American Express Financial Advisors $3,880,191 None None None
*For further information see "Brokerage Commissions Paid to Brokers Affiliated with AEFC." **Distribution fees paid pursuant to the Plan and Agreement of Distribution. Shareholder Service Agreement The Fund pays a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.175% of the Fund's average daily net assets attributable to Class A and Class B shares. Plan and Agreement of Distribution For Class B shares, to help American Express Financial Advisors defray the cost of distribution and servicing, not covered by the sales charges received under the Distribution Agreement, the Fund and American Express Financial Advisors entered into a Plan and Agreement of Distribution (Plan). These costs cover almost all aspects of distributing the Fund's shares except compensation to the sales force. A substantial portion of the costs are not specifically identified to any one fund in the IDS MUTUAL FUND GROUP. Under the Plan, American Express Financial Advisors is paid a fee at an annual rate of 0.75% of the Fund's average daily net assets attributable to Class B shares. PAGE 59 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 or by American Express Financial Advisors. The Plan (or any agreement related to it) will terminate in the event of its assignment, as that term is defined in the Investment Company Act of 1940, as amended. 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, 1995, under the prior and current agreements, the Fund paid fees of $177,140. Total fees and expenses Total fees and nonadvisory expenses cannot exceed the most restrictive applicable state limitation. Currently, the most restrictive applicable state expense limitation, subject to exclusion of certain expenses, is 2.5% of the first $30 million of the Fund's average daily net assets, 2% of the next $70 million and 1.5% of average daily net assets over $100 million, on an annual basis. At the end of each month, if the fees and expenses of the Fund exceed this limitation for the Fund's fiscal year in progress, AEFC will assume all expenses in excess of the limitation. AEFC then may bill the Fund for such expenses in subsequent months up to the end of that fiscal year, but not after that date. No interest charges are assessed by AEFC for expenses it assumes. The Fund paid total fees and nonadvisory expenses of $12,966,820 for the fiscal year ended Nov. 30, 1995. BOARD MEMBERS AND OFFICERS The following is a list of the Fund's board members who, except for Mr. Dudley, also are board members of all other funds in the IDS MUTUAL FUND GROUP. Mr. Dudley is a board member of all publicly offered funds. All shares have cumulative voting rights with respect to the election of board members. PAGE 60 Lynne V. Cheney' Born in 1941. American Enterprise Institute for Public Policy Research (AEI) 1150 17th St., N.W. Washington, D.C. Distinguished Fellow AEI. Former Chair of National Endowment of the Humanities. Director, The Reader's Digest Association Inc., Lockheed-Martin, the Interpublic Group of Companies, Inc. (advertising), and FPL Group, Inc. (holding company for Florida Power and Light). William H. Dudley** Born in 1932. 2900 IDS Tower Minneapolis, MN Executive vice president and director of AEFC. Robert F. Froehlke+ Born in 1922. 1201 Yale Place Minneapolis, MN Former president of all funds in the IDS MUTUAL FUND GROUP. Director, the ICI Mutual Insurance Co., Institute for Defense Analyses, Marshall Erdman and Associates, Inc. (architectural engineering) and Public Oversight Board of the American Institute of Certified Public Accountants. David R. Hubers+** Born in 1943. 2900 IDS Tower Minneapolis, MN President, chief executive officer and director of AEFC. Previously, senior vice president, finance and chief financial officer of AEFC. Heinz F. Hutter+' Born in 1929. P.O. Box 5724 Minneapolis, MN President and chief operating officer, Cargill, Incorporated (commodity merchants and processors) from February 1991 to September 1994. Executive vice president from 1981 to February 1991. Anne P. Jones Born in 1935. 5716 Bent Branch Rd. Bethesda, MD PAGE 61 Attorney and telecommunications consultant. Former partner, law firm of Sutherland, Asbill & Brennan. Director, Motorola, Inc. and C-Cor Electronics, Inc. Donald M. Kendall' Born in 1921. PepsiCo, Inc. Purchase, NY Former chairman and chief executive officer, PepsiCo, Inc. Melvin R. Laird Born in 1922. Reader's Digest Association, Inc. 1730 Rhode Island Ave., N.W. Washington, D.C. Senior counsellor for national and international affairs, The Reader's Digest Association, Inc. Chairman of the board, COMSAT Corporation, former nine-term congressman, secretary of defense and presidential counsellor. Director, Martin Marietta Corp., Metropolitan Life Insurance Co., The Reader's Digest Association, Inc., Science Applications International Corp., Wallace Reader's Digest Funds and Public Oversight Board (SEC Practice Section, American Institute of Certified Public Accountants). Lewis W. Lehr' Born in 1921. 3050 Minnesota World Trade Center 30 E. Seventh St. St. Paul, MN Former chairman of the board and chief executive officer, Minnesota Mining and Manufacturing Company (3M). Director, Jack Eckerd Corporation (drugstores). Advisory Director, Peregrine Inc. (microelectronics). William R. Pearce+* Born in 1927. 901 S. Marquette Ave. Minneapolis, MN President of all funds in the IDS MUTUAL FUND GROUP since June 1993. Former vice chairman of the board, Cargill, Incorporated (commodity merchants and processors). Edson W. Spencer+ Born in 1926. 4900 IDS Center 80 S. 8th St. Minneapolis, MN PAGE 62 President, Spencer Associates Inc. (consulting). Chairman of the board, Mayo Foundation (healthcare). Former chairman of the board and chief executive officer, Honeywell Inc. Director, Boise Cascade Corporation (forest products) and CBS Inc. Member of International Advisory Councils, Robert Bosch (Germany) and NEC (Japan). John R. Thomas** Born in 1937. 2900 IDS Tower Minneapolis, MN Senior vice president and director of AEFC. Wheelock Whitney+ Born in 1926. 1900 Foshay Tower 821 Marquette Ave. Minneapolis, MN Chairman, Whitney Management Company (manages family assets). C. Angus Wurtele' Born in 1934. Valspar Corporation Suite 1700 Foshay Tower Minneapolis, MN Chairman of the board and chief executive officer, The Valspar Corporation (paints). Director, Bemis Corporation (packaging), Donaldson Company (air cleaners & mufflers) and General Mills, Inc. (consumer foods). + Member of executive committee. ' Member of joint audit committee. * Interested person by reason of being an officer and employee of the Fund. **Interested person by reason of being an officer, board member, employee and/or shareholder of AEFC or American Express. The board also has appointed officers who are responsible for day- to-day business decisions based on policies it has established. In addition to Mr. Pearce, who is president, the Fund's other officers are: Leslie L. Ogg Born in 1938. 901 S. Marquette Ave. Minneapolis, MN Vice president, general counsel and secretary of all funds in the IDS MUTUAL FUND GROUP. PAGE 63 Officers who also are officers and/or employees of AEFC Peter J. Anderson Born in 1942. IDS Tower 10 Minneapolis, MN Vice president-investments of all funds in the IDS MUTUAL FUND GROUP. Director and senior vice president-investments of AEFC. Melinda S. Urion Born in 1953. IDS Tower 10 Minneapolis, MN Treasurer of all funds in the IDS MUTUAL FUND GROUP. Director, senior vice president and chief financial officer of AEFC. Director, executive vice president and controller of IDS Life Insurance Company. Members of the board who are not officers of the Fund or of AEFC receive an annual fee of $1,700. They also receive attendance and other fees, the cost of which the Fund shares with the other funds in the IDS MUTUAL FUND GROUP. These fees include attendance of meetings of the Board, $1,000; meetings of the Contracts Committee, $750; meetings of the Audit, Executive or Investment Review Committees, $500; meetings of the Personnel Committee, $300; out- of-state, $500; and Chair of the Contracts Committee, $5,000. Expenses for attending those meetings are also reimbursed. Upon retirement, or earlier if for approved reasons, the independent board members receive monthly payments equal to 1/2 of the annual fee divided by 12 for as many months as the board member served on the board up to 120 months or until the date of death. There are no death benefits and the plan is not funded. During the fiscal year ended Nov. 30, 1995, the members of the board, for attending up to 27 meetings, received the following compensation:
Compensation Table Pension or Estimated Aggregate Retirement annual Total cash compensation benefits benefit compensation from the accrued as upon from the IDS Board member Fund Fund expenses retirement MUTUAL FUND GROUP Lynne V. Cheney $2,320 $ 440 $1,000 $70,000 Robert F. Froehlke 2,347 1,476 1,000 71,100 Heinz F. Hutter 2,255 736 483 67,500 Anne P. Jones 2,346 393 1,000 71,000 Donald M. Kendall 2,192 1,111 1,000 65,000 Melvin R. Laird 2,346 887 1,000 71,000 Lewis W. Lehr 2,326 246 975 70,200 Edson W. Spencer 2,403 254 533 73,500 Wheelock Whitney 2,322 682 1,000 70,100 C. Angus Wurtele 2,216 726 992 66,000
On Nov. 30, 1995, the Fund's board members and officers as a group owned less than 1% of the outstanding shares. During the fiscal PAGE 64 year ended Nov. 30, 1995, no board member or officer earned more than $60,000 from this Fund. All board members and officers as a group earned $44,287, including $6,951 of retirement plan benefits, from this Fund. CUSTODIAN The Fund's securities and cash are held by First Bank National Association, 180 E. Fifth St., St. Paul, MN 55101-1631, through a custodian agreement. The custodian is permitted to deposit some or all of its securities in central depository systems as allowed by federal law. INDEPENDENT AUDITORS The financial statements contained in the Annual Report to shareholders for the fiscal year ended Nov. 30, 1995, 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 1995 Annual Report to shareholders, pursuant to Section 30(d) of the Investment Company Act of 1940, as amended, are hereby incorporated in this SAI by reference. No other portion of the Annual Report, however, is incorporated by reference. PROSPECTUS The prospectus for IDS Selective Fund dated Jan. 29, 1996, is hereby incorporated in this SAI by reference. PAGE 65 APPENDIX A DESCRIPTION OF BOND RATINGS These ratings concern the quality of the issuing corporation. They are not an opinion of the market value of the security. Such ratings are opinions on whether the principal and interest will be repaid when due. A security's rating may change which could affect its price. Ratings by Moody's Investors Service, Inc. are Aaa, Aa, A, Baa, Ba, B, Caa, Ca, and C. Bonds rated: Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aaa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risk appear somewhat larger than the Aaa securities. A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment some time in the future. Baa are considered as medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. PAGE 66 Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Ratings by Standard & Poor's Corporation are AAA, AA, A, BBB, BB, B, CCC, CC, C and D. AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A has a strong capacity to pay interest and repay principal, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher-rated categories. BBB is regarded as having adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher-rated categories. BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating. B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating. CCC has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, it is not likely to have the capacity to pay PAGE 67 interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating. CC typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating. C typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC- rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. D is in payment default. The D rating category is used when interest payments or principal payments are not made on the due date, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. Non-rated securities will be considered for investment when they possess a risk comparable to that of rated securities consistent with the Fund's objectives and policies. When assessing the risk involved in each non-rated security, the Fund will consider the financial condition of the issuer or the protection afforded by the terms of the security. PAGE 68 APPENDIX B 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 69 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. PAGE 70 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 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. PAGE 71 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. 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. PAGE 72 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 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 73 APPENDIX C OPTIONS AND INTEREST RATE 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 interest rate futures contracts traded on any U.S. or foreign exchange. The Fund also may buy or write put and call options on these futures. Options in the over-the-counter market will be purchased only when the investment manager believes a liquid secondary market exists for the options and only from dealers and institutions the investment manager believes present a minimal credit risk. Some options are exercisable only on a specific date. In that case, or if a liquid secondary market does not exist, the 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 (in the case of a put) that would be required upon exercise. The price paid by the buyer for an option is called a premium. In addition the buyer generally pays a broker a commission. The writer receives a premium, less a commission, at the time the option is written. The cash received is retained by the writer whether or not the option is exercised. A writer of a call option may have to sell the security for a below-market price if the market price rises above the exercise price. A writer of a put option may have to pay an above-market price for the security if its market price decreases below the exercise price. Options can be used to produce incremental earnings, protect gains and facilitate buying and selling securities for investment purposes. The use of options and futures contracts may benefit the 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 PAGE 74 market. It is anticipated the trading technique will be utilized only to effect a transaction when the price of the security plus 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 subsequent sale (in the case of a call) or purchase (in the case of a put) of the underlying security. Even then the price change in the underlying security does not ensure a profit since prices in the option market may not reflect such a change. Writing covered options. The 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 goal. '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 write options only as permitted under federal or state laws or regulations, such as those that limit the amount of total assets subject to the options. While no limit has been set by the Fund, it will conform to the requirements of those states. For example, California limits the writing of options to 50% of the assets of a fund. Net premiums on call options closed or premiums on expired call options are treated as short-term capital gains. Since the Fund is taxed as a regulated investment company under the Internal Revenue Code, any gains on options and other securities held less than three months must be limited to less than 30% of its annual gross income. PAGE 75 If a covered call option is exercised, the security is sold by the Fund. The Fund will recognize a capital gain or loss based upon the difference between the proceeds and the security's basis. Options on many securities are listed on options exchanges. If the Fund writes listed options, it will follow the rules of the options exchange. Options are valued at the close of the New York Stock Exchange. An option listed on a national exchange, Chicago Board Options Exchange (CBOE) or NASDAQ will be valued at the last-quoted sales price or, if such a price is not readily available, at the mean of the last bid and asked prices. FUTURES CONTRACTS. A futures contract is an agreement between two parties to buy and sell a security for a set price on a future date. They have been established by boards of trade which have been designated contracts markets by the Commodity Futures Trading Commission (CFTC). Futures contracts trade on these markets in a manner similar to the way a stock trades on a stock exchange, and the boards of trade, through their clearing corporations, guarantee performance of the contracts. Currently, there are futures contracts based on such debt securities as long-term U.S. Treasury bonds, Treasury notes, GNMA modified pass-through mortgage-backed securities, three-month U.S. Treasury bills and bank certificates of deposit. While futures contracts based on debt securities do provide for the delivery and acceptance of securities, such deliveries and acceptances are very seldom made. Generally, the futures contract is terminated by entering into an offsetting transaction. An offsetting transaction for a futures contract sale is effected by the Fund entering into a futures contract purchase for the same aggregate amount of the specific type of financial instrument and same delivery date. If the price in the sale exceeds the price in the offsetting purchase, the Fund immediately is paid the difference and realizes a gain. If the offsetting purchase price exceeds the sale price, the Fund pays the difference and realizes a loss. Similarly, closing out a futures contract purchase is effected by the Fund entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, the Fund realizes a gain, and if the offsetting sale price is less than the purchase price, the Fund realizes a loss. At the time a futures contract is made, a good-faith deposit called initial margin is set up within a segregated account at the Fund's custodian bank. The initial margin deposit is approximately 1.5% of a contract's face value. Daily thereafter, the futures contract is valued and the payment of variation margin is required so that each day the Fund would pay out cash in an amount equal to any decline in the contract's value or receive cash equal to any increase. At the time a futures contract is closed out, a nominal commission is paid, which is generally lower than the commission on a comparable transaction in the cash markets. The purpose of a futures contract, in the case of a portfolio holding long-term debt securities, is to gain the benefit of changes in interest rates without actually buying or selling long- term debt securities. For example, if the Fund owned long-term PAGE 76 bonds and interest rates were expected to increase, it might enter into futures contracts to sell securities which would have much the same effect as selling some of the long-term bonds it owned. Futures contracts are based on types of debt securities referred to above, which have historically reacted to an increase or decline in interest rates in a fashion similar to the debt securities the Fund owns. If interest rates did increase, the value of the debt securities in the portfolio would decline, but the value of the Fund's futures contracts would increase at approximately the same rate, thereby keeping the net asset value of the Fund from declining as much as it otherwise would have. If, on the other hand, the Fund held cash reserves and interest rates were expected to decline, the Fund might enter into interest rate futures contracts for the purchase of securities. If short-term rates were higher than long-term rates, the ability to continue holding these cash reserves would have a very beneficial impact on the Fund's earnings. Even if short-term rates were not higher, the Fund would still benefit from the income earned by holding these short-term investments. At the same time, by entering into futures contracts for the purchase of securities, the Fund could take advantage of the anticipated rise in the value of long-term bonds without actually buying them until the market had stabilized. At that time, the futures contracts could be liquidated and the Fund's cash reserves could then be used to buy long-term bonds on the cash market. The Fund could accomplish similar results by selling bonds with long maturities and investing in bonds with short maturities when interest rates are expected to increase or by buying bonds with long maturities and selling bonds with short maturities when interest rates are expected to decline. But by using futures contracts as an investment tool, given the greater liquidity in the futures market than in the cash market, it might be possible to accomplish the same result more easily and more quickly. Successful use of futures contracts depends on the investment manager's ability to predict the future direction of interest rates. If the investment manager's prediction is incorrect, the Fund would have been better off had it not entered into futures contracts. OPTIONS ON FUTURES CONTRACTS. Options on futures contracts give the holder a right to buy or sell futures contracts in the future. Unlike a futures contract, which requires the parties to the contract to buy and sell a security on a set date, an option on a futures contract merely entitles its holder to decide on or before a future date (within nine months of the date of issue) whether to enter into such a contract. If the holder decides not to enter into the contract, all that is lost is the amount (premium) paid for the option. Furthermore, because the value of the option is fixed at the point of sale, there are no daily payments of cash to reflect the change in the value of the underlying contract. However, since an option gives the buyer the right to enter into a contract at a set price for a fixed period of time, its value does change daily and that change is reflected in the net asset value of the Fund. PAGE 77 RISKS. There are risks in engaging in each of the management tools described above. The risk the Fund assumes when it buys an option is the loss of the premium paid for the option. Purchasing options also limits the use of monies that might otherwise be available for long-term investments. The risk involved in writing options on futures contracts the Fund owns, or on securities held in its portfolio, is that there could be an increase in the market value of such contracts or securities. If that occurred, the option would be exercised and the asset sold at a lower price than the cash market price. To some extent, the risk of not realizing a gain could be reduced by entering into a closing transaction. The Fund could enter into a closing transaction by purchasing an option with the same terms as the one it had previously sold. The cost to close the option and terminate the Fund's obligation, however, might be more or less than the premium received when it originally wrote the option. Furthermore, the Fund might not be able to close the option because of insufficient activity in the options market. A risk in employing futures contracts to protect against the price volatility of portfolio securities is that the prices of securities subject to futures contracts may not correlate perfectly with the behavior of the cash prices of the Fund's securities. The correlation may be distorted because the futures market is dominated by short-term traders seeking to profit from the difference between a contract or security price and their cost of borrowed funds. Such distortions are generally minor and would diminish as the contract approached maturity. Another risk is that the Fund's investment manager could be incorrect in anticipating as to the direction or extent of various interest rate movements or the time span within which the movements take place. For example, if the Fund sold futures contracts for the sale of securities in anticipation of an increase in interest rates, and interest rates declined instead, the Fund would lose money on the sale. 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 Revenue Code may PAGE 78 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. Less than 30% of its gross income must be derived from sales of securities held less than three months. The IRS has ruled publicly that an exchange-traded call option is a security for purposes of the 50%-of-assets test and that its issuer is the issuer of the underlying security, not the writer of the option, for purposes of the diversification requirements. In order to avoid realizing a gain within the three-month period, the Fund may be required to defer closing out a contract beyond the time when it might otherwise be advantageous to do so. The Fund also may be restricted in purchasing put options for the purpose of hedging underlying securities because of applying the short sale holding period rules with respect to such underlying securities. Accounting for futures contracts will be according to generally accepted accounting principles. Initial margin deposits will be recognized as assets due from a broker (the 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 79 APPENDIX D 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. If prepayments of principal on an IO 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 80 APPENDIX E 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 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 through changing market conditions 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 81 Independent auditors' report ___________________________________________________________________ The board of directors and shareholders IDS Selective Fund, Inc.: We have audited the accompanying statement of assets and liabilities, including the schedule of investments in securities, of IDS Selective Fund, Inc. as of November 30, 1995, 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 ended November 30, 1995, and the financial highlights for each of the years in the ten-year period ended November 30, 1995. These financial statements and the financial highlights are the responsibility of fund management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. 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 Selective Fund, Inc. at November 30, 1995, and the results of its operations for the year then ended and the changes in its net assets for each of the years in the two-year period ended November 30, 1995, 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 5, 1996 PAGE 82
Statement of assets and liabilities IDS Selective Fund, Inc. Nov. 30, 1995 ______________________________________________________________________________________________________________ Assets ______________________________________________________________________________________________________________ Investments in securities, at value (Note 1) (identified cost $1,577,445,592) $1,704,527,689 Dividends and accrued interest receivable 25,165,945 Unrealized appreciation on foreign currency contracts held, at value (Notes 1 and 7) 304,273 U.S. government securities held as collateral (Note 5) 101,344,419 _____________________________________________________________________________________________________________ Total assets 1,831,342,326 _____________________________________________________________________________________________________________ Liabilities ____________________________________________________________________________________________________________ Disbursements in excess of cash on demand deposit 2,637,754 Dividends payable to shareholders 839,673 Payable for investment securities purchased 9,972,000 Payable upon return of securities loaned (Note 5) 113,650,169 Accrued investment management services fee 47,253 Accrued distribution fee 2,893 Accrued service fee 14,850 Accrued transfer agency fee 8,693 Accrued administrative services fee 4,445 Other accrued expenses 318,555 _____________________________________________________________________________________________________________ Total liabilities 127,496,285 _____________________________________________________________________________________________________________ Net assets applicable to outstanding capital stock $1,703,846,041 _____________________________________________________________________________________________________________ Represented by _____________________________________________________________________________________________________________ Capital stock -- authorized 10,000,000,000 shares of $.01 par value $ 1,788,556 Additional paid-in capital 1,564,600,147 Undistributed net investment income 2,530,909 Accumulated net realized gain (Note 1) 7,530,072 Unrealized appreciation of investments and on translation of assets and liabilities in foreign currencies (Note 7) 127,396,357 _____________________________________________________________________________________________________________ Total -- representing net assets applicable to outstanding capital stock $1,703,846,041 _____________________________________________________________________________________________________________ Net assets applicable to outstanding shares: Class A $1,490,495,781 Class B $ 71,739,925 Class Y $ 141,610,335 Net asset value per share of outstanding capital stock: Class A shares 156,460,478 $ 9.53 Class B shares 7,530,528 $ 9.53 Class Y shares 14,864,594 $ 9.53 See accompanying notes to financial statements. PAGE 83 Financial statements Statement of operations IDS Selective Fund, Inc. Year ended Nov. 30, 1995 _____________________________________________________________________________________________________________ Investment income _____________________________________________________________________________________________________________ Income: Interest $112,694,319 Dividends 186,975 _____________________________________________________________________________________________________________ Total income 112,881,294 _____________________________________________________________________________________________________________ Expenses (Note 2): Investment management services fee 7,840,014 Distribution fee Class A 191,949 Class B 177,140 Transfer agency fee 1,718,092 Incremental transfer agency fee - Class B 2,079 Service fee Class A 1,733,052 Class B 41,271 Administrative services fee 532,177 Compensation of directors 31,068 Compensation of officers 13,219 Custodian fees 171,801 Postage 138,514 Registration fees 163,000 Reports to shareholders 153,745 Audit fees 35,000 Administrative 11,072 Other 26,435 _____________________________________________________________________________________________________________ Total expenses 12,979,628 Earnings credit on cash balances (Note 2) (12,808) _____________________________________________________________________________________________________________ Total net expenses 12,966,820 _____________________________________________________________________________________________________________ Investment income -- net 99,914,474 _____________________________________________________________________________________________________________ Realized and unrealized gain (loss) -- net _____________________________________________________________________________________________________________ Net realized gain on security and foreign currency transactions (including gain of $60,129 from foreign currency transactions) (Note 3) 7,691,662 Net realized loss on closed option contracts written (Note 8) (46,720) _____________________________________________________________________________________________________________ Net realized gain on investments and foreign currency 7,644,942 Net change in unrealized appreciation or depreciation of investments and on translation of assets and liabilities in foreign currencies (Note 7) 173,013,840 _____________________________________________________________________________________________________________ Net gain on investments and foreign currency 180,658,782 _____________________________________________________________________________________________________________ Net increase in net assets resulting from operations $280,573,256 _____________________________________________________________________________________________________________ See accompanying notes to financial statements. /TABLE PAGE 84
Financial statements Statements of changes in net assets IDS Selective Fund, Inc. Year ended Nov. 30, _____________________________________________________________________________________________________________ Operations and distributions 1995 1994 _____________________________________________________________________________________________________________ Investment income -- net $ 99,914,474 $ 102,344,658 Net realized gains on investments and foreign currency 7,644,942 21,139,491 Net change in unrealized appreciation or depreciation of investments 173,013,840 (202,860,707) and on translation of assets and liabilities in foreign currencies _____________________________________________________________________________________________________________ Net increase (decrease) in net assets resulting from operations 280,573,256 (79,376,558) _____________________________________________________________________________________________________________ Distributions to shareholders from: Net investment income Class A (91,687,959) (102,415,375) Class B (1,325,265) -- Class Y (5,767,587) -- Excess distribution of net investment income Class A -- (378,787) Net realized gains Class A (20,000,191) (26,487,582) Excess distribution of realized gains (Note 1) Class A -- (42,963) _____________________________________________________________________________________________________________ Total distributions (118,781,002) (129,324,707) _____________________________________________________________________________________________________________ Capital share transactions (Note 4) _____________________________________________________________________________________________________________ Proceeds from sales Class A shares (Note 2) 207,511,368 196,126,624 Class B shares 74,256,461 -- Class Y shares 146,334,859 -- Reinvestment of distributions at net asset value Class A shares 83,864,001 99,112,296 Class B shares 1,205,720 -- Class Y shares 5,694,035 -- Payments for redemptions Class A shares (352,508,286) (421,007,405) Class B shares (Note 2) (6,231,036) -- Class Y shares (20,194,720) -- _____________________________________________________________________________________________________________ Increase (decrease) in net assets from capital share transactions 139,932,402 (125,768,485) _____________________________________________________________________________________________________________ Total increase (decrease) in net assets 301,724,656 (334,469,750) Net assets at beginning of year 1,402,121,385 1,736,591,135 _____________________________________________________________________________________________________________ Net assets at end of year (including undistributed net investment income of $2,530,909 and $(378,787)) $1,703,846,041 $1,402,121,385 _____________________________________________________________________________________________________________ See accompanying notes to financial statements.
PAGE 85 Notes to financial statements IDS Selective Fund, Inc. ___________________________________________________________________ 1. Summary of significant accounting policies The Fund is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. The Fund offers Class A, Class B and Class Y shares. Class A shares are sold with a front-end sales charge. Class B shares, which the Fund began offering on March 20, 1995, may be subject to a contingent deferred sales charge. Class B shares automatically convert to Class A after eight years. Class Y shares, which the Fund also began offering on March 20, 1995, 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: Valuation of securities All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price; securities for which market quotations are not readily available, including illiquid securities, are valued at fair value according to methods selected in good faith by the board of directors. Determination of fair value involves, among other things, reference to market indexes, matrixes and data from independent brokers. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost. Option transactions In order to produce incremental earnings, protect gains, and facilitate buying and selling of securities for investment purposes, the Fund may buy or 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 PAGE 86 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 futures contracts traded on any U.S. or foreign exchange. The Fund also may buy or 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, PAGE 87 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 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. The effect on dividend distributions of certain book-to- tax differences is presented as "excess distributions" in the statement of changes in net assets. 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 increased by $1,776,033 and accumulated net realized gain has been decreased by $1,776,033. Dividends to shareholders Dividends from net investment income, declared daily and payable monthly, are reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the last income dividend of the calendar year. Other Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend PAGE 88 date. For U.S. dollar denominated bonds, interest income includes level-yield amortization of premium and discount. For foreign bonds, except for issue discount, the Fund does not amortize premium and discount. ___________________________________________________________________ 2. Expenses and sales charges Under terms of a prior agreement that ended March 19, 1995, the Fund paid AEFC a fee for managing its investments, recordkeeping and other specified services. The fee was a percentage of the Fund's average daily net assets consisting of a group asset charge in reducing percentages from 0.46% to 0.32% annually on the combined net assets of all non-money market funds in the IDS MUTUAL FUND GROUP and an individual annual asset charge of 0.13% of average daily net assets. Also under the terms of a prior agreement, the Fund paid AEFC a distribution fee at an annual rate of $6 per shareholder account and a transfer agency fee at an annual rate of $15.50 per shareholder account. Effective March 20, 1995, when the Fund began offering multiple classes of shares, the Fund entered into agreements with AEFC for managing it's portfolio, providing administrative services and serving as transfer agent as follows: 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 0.52% to 0.395% annually. Under an Administrative Services Agreement, the Fund pays AEFC for administration and accounting services at a percentage of the Fund's average daily net assets in reducing percentages from 0.05% to 0.025% annually. Under a separate Transfer Agency Agreement, AEFC maintains shareholder accounts and records. The Fund pays AEFC an annual fee per shareholder account for this service as follows: o Class A $15.50 o Class B $16.50 o Class Y $15.50 Also effective March 20, 1995, the Fund entered into agreements with American Express Financial Advisors Inc. for distribution and shareholder servicing-related services as follows: 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 PAGE 89 servicing agents. The fee is calculated at a rate of 0.175% of the Fund's average daily net assets attributable to Class A and Class B shares. AEFC will assume and pay any expenses (except taxes and brokerage commissions) that exceed the most restrictive applicable state expense limitation. Sales charges received by American Express Financial Advisors Inc. for distributing Fund shares were $3,869,488 for Class A and $10,703 for Class B for the year ended Nov. 30, 1995. During the year ended Nov. 30, 1995, the Fund's custodian and transfer agency fees were reduced by $12,808 as a result of earnings credits from overnight cash balances. The Fund has a retirement plan for its independent directors. Upon retirement, directors receive monthly payments equal to one-half of the retainer fee for as many months as they served as directors up to 120 months. There are no death benefits. The plan is not funded but the Fund recognizes the cost of payments during the time the directors serve on the board. The retirement plan expense amounted to $6,951 for the year ended Nov. 30, 1995. ___________________________________________________________________ 3. Securities transactions Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $663,127,751 and $358,130,085, respectively, for the year ended Nov. 30, 1995. Realized gains and losses are determined on an identified cost basis. ___________________________________________________________________ 4. Capital share transactions Transactions in shares of capital stock for the years indicated are as follows:
Year ended Nov. 30, 1995 Year ended 11/30/94 Class A Class B* Class Y* Class A ________________________________________________________________________________________ Sold 23,080,473 8,072,716 16,445,854 21,519,839 Issued for reinvested 9,414,149 129,691 618,114 10,813,989 distributions Redeemed (39,632,200) (671,879) (2,199,374) (46,537,712) _________________________________________________________________________________________ Net increase (decrease) (7,137,578) 7,530,528 14,864,594 (14,203,884) _________________________________________________________________________________________ *Inception date was March 20, 1995. PAGE 90 ___________________________________________________________________ 5. Lending of portfolio securities At Nov. 30, 1995, securities valued at $112,466,340 were on loan to brokers. For collateral, the Fund received $12,305,750 in cash and U.S. government securities valued at $100,344,419. Income from securities lending amounted to $214,506 for the year ended Nov. 30, 1995. 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. ___________________________________________________________________ 6. Illiquid Securities At Nov. 30, 1995, investments in securities included issues that are illiquid. The Fund currently limits investments in illiquid securities to 10% of the net assets, at market value, at the time of purchase. The aggregate value of such securities at Nov. 30, 1995 was $8,175,257 representing 0.5% of the net assets. Pursuant to guidelines adopted by the Fund's board of directors, certain unregistered securities are determined to be liquid and are not included within the 10% limitation specified above. ___________________________________________________________________ 7. Foreign currency contract At Nov. 30, 1995, the Fund had entered into one foreign currency exchange contract that obligates the Fund to deliver currency at a specified future date. The unrealized appreciation and/or depreciation on this contract is included in the accompanying financial statements. The terms of the open contract are as follows:
Currency to be Currency to be Unrealized Exchange date delivered received appreciation ______________________________________________________________________________ Feb. 12, 1996 22,567,167 $15,963,194 $304,273 Deutsche Mark U.S. Dollar
___________________________________________________________________ 8. Option contracts written The number of contracts and premium amounts associated with covered call option contracts written is as follows: Fiscal year ended Nov. 30, 1995 _____________________________ Contracts Premium ___________________________________________ Balance Nov. 30, 1994 -- $ -- Opened 800 619,220 Closed (800) (619,220) ___________________________________________ Balance Nov. 30, 1995 -- $ -- PAGE 91 ___________________________________________________________________ 9. Financial highlights "Financial highlights" showing per share data and selected information is presented on pages 7 and 8 of the prospectus. PAGE 92
Investments in securities IDS Selective Fund, Inc. (Percentages represent value of Nov. 30, 1995 investments compared to net assets) _____________________________________________________________________________________________________________________________ Bonds (94.9%) _____________________________________________________________________________________________________________________________ Issuer Coupon Maturity Principal Value(a) rate year amount _____________________________________________________________________________________________________________________________ U.S. government obligations (32.4%) U.S. Treasury 6.875% 1999 $ 60,000,000 (b) $ 62,699,400 7.25 1996-04 42,000,000 43,708,980 7.50 2001-16 143,300,000 162,442,950 8.00 2021 35,000,000 (b) 42,710,150 8.625 1997 50,745,000 53,387,292 Resolution Funding Corp Zero Coupon 7.61 2017 79,000,000 (c) 19,638,610 7.89 2016 70,900,000 (b,c) 18,911,502 7.98 2016 47,000,000 (c) 12,494,480 8.11 2016 35,073,000 (c) 9,025,686 8.12 2004 7,899,000 (c) 4,764,519 8.18 2005 13,000,000 (c) 7,231,510 8.19 2014 48,000,000 (c) 14,953,440 8.20 2005 38,048,000 (c) 21,862,761 8.27 2014 10,000,000 (c) 3,016,700 8.35 2006 48,000,000 (c) 25,711,680 8.94 2006 25,000,000 (c) 13,594,500 8.95 2006 68,000,000 (c) 35,345,040 _____________ Total 551,499,200 _____________________________________________________________________________________________________________________________ Mortgage-backed securities (10.8%) Federal Home Loan Mtge Corp 7.50 2024 19,396,175 19,747,634 8.00 2016-25 13,907,684 14,311,795 8.50 2017-22 12,567,105 13,075,767 9.00 2020-21 7,202,398 7,530,859 Collateralized Mtge Obligation 8.50 2019 11,168,731 11,265,117 Federal Housing Admin 7.43 2024 9,327,094 9,609,822 Federal Natl Mtge Assn 6.50 2023 13,670,900 13,389,017 10.00 2002 148 156 Collateralized Mtge Obligation 8.00 2021 13,219,009 13,536,530 8.50 2019 5,130,888 5,346,334 Principal Only 9.50 2018 1,715,073 (e) 1,372,058 9.89 2020 2,629,671 (e) 2,198,983 Trust Series Z 6.00 2024 18,876,409 (d) 15,464,876 Govt Natl Mtge Assn 8.00 1922-24 37,436,004 38,757,869 9.00 1924-25 10,968,374 11,575,035 Collateralized Mtge Obligation Trust 7.75 2012 2,526,810 2,567,820 Prudential Bache Collateralized Mtge Obligation 7.965 2019 4,061,637 4,188,320 WestAm Collateralized Mtge Obligation 8.95 2018 123,406 122,695 ______________ Total 184,060,531 _____________________________________________________________________________________________________________________________ Financial (10.1%) Banks and savings & loans (3.5%) BankAmerica Sub Nts 7.50 2002 8,810,000 9,410,754 Boatmen's Bancshares Sub Nts 9.25 2001 8,950,000 10,360,788 See accompanying notes to investments in securities. PAGE 93 First Bank System 6.875 2007 8,550,000 8,753,319 First Chicago Sr Nts 9.00 1999 7,900,000 8,658,953 NCNB Sub Nts 9.125 2001 10,000,000 11,433,600 Standard Credit Card 8.625 2002 10,000,000 10,417,188 ______________ Total 59,034,602 _____________________________________________________________________________________________________________________________ Financial services (5.5%) Aristar Sr Deb 8.875 1998 10,520,000 11,225,261 Beneficial 9.125 1998 10,000,000 10,676,500 General Electric Capital Reset Nt 8.65 2018 15,000,000 (f) 15,173,100 General Motors Acceptance 5.95 1998 8,000,000 8,010,800 7.00 2000 14,300,000 14,810,224 Greyhound Financial 7.95 1999 9,600,000 10,184,160 Salomon 7.75 2000 5,000,000 5,200,550 8.91 1998 8,400,000 8,792,952 SunAmerica 9.95 2012 8,000,000 10,039,360 ______________ Total 94,112,907 _____________________________________________________________________________________________________________________________ Insurance (1.1%) Berkley (WR) 8.70 2022 10,000,000 11,556,000 Nationwide Trust Credit Sensitive Nt 9.875 2025 6,500,000 (g) 7,560,475 _____________ Total 19,116,475 _____________________________________________________________________________________________________________________________ Industrial (11.5%) Aerospace & defense (0.7%) United Technologies 8.875 2019 10,000,000 12,366,100 _____________________________________________________________________________________________________________________________ Automotive & related (1.1%) Ford Capital 9.00 1996 9,700,000 9,851,029 General Motors 8.875 2003 7,050,000 8,038,763 ____________ Total 17,889,792 _____________________________________________________________________________________________________________________________ Beverages & tobacco (0.6%) Philip Morris 8.10 1996 10,000,000 10,166,300 _____________________________________________________________________________________________________________________________ Chemicals (0.7%) Dow Chemical 8.85 2021 10,000,000 12,068,400 _____________________________________________________________________________________________________________________________ Ecological services & equipment (0.5%) Browning-Ferris Inds 9.25 % 2021 7,000,000 8,887,270 ____________________________________________________________________________________________________________________________ Electronics (0.3%) Harris 10.375 2018 3,900,000 4,374,084 _____________________________________________________________________________________________________________________________ Energy (2.3%) PDV Amer 7.875 2003 16,500,000 15,693,810 Texaco Capital Gtd Deb 7.50 2043 12,000,000 12,786,960 USX 9.375 2022 9,200,000 10,787,920 ______________ Total 39,268,690 _____________________________________________________________________________________________________________________________ Energy Equipment and Services (0.5%) Foster Wheeler 6.75 2005 8,000,000 8,045,520 _____________________________________________________________________________________________________________________________ Health care (0.8%) Schering-Plough Zero Coupon 7.31 1996 15,000,000 (c,g) 14,197,800 PAGE 94 _____________________________________________________________________________________________________________________________ Industrial equipment & services (1.3%) Case 7.25 2005 10,000,000 10,428,400 Deere 8.95 2019 10,000,000 12,048,000 _____________ Total 22,476,400 _____________________________________________________________________________________________________________________________ Media (1.4%) Tele-communications Sr Deb 7.875 2013 5,000,000 5,015,750 9.875 2022 5,000,000 5,980,950 Time Warner Entertainment 8.375 2033 12,000,000 12,671,520 _____________ Total 23,668,220 _____________________________________________________________________________________________________________________________ Paper & packaging (1.3%) Georgia-Pacific 8.625 2025 10,000,000 11,032,000 Credit Sensitive Nt 9.85 1997 10,000,000 10,528,400 _____________ 21,560,400 _____________________________________________________________________________________________________________________________ Transportation (1.1%) AMR 9.75 2021 2,500,000 2,945,550 10.00 2021 8,000,000 9,614,480 10.20 2020 5,000,000 6,106,450 ______________ Total 18,666,480 _____________________________________________________________________________________________________________________________ Utilities (11.8%) Electric (8.8%) Arizona Public Service 1st Mtge 8.75 2024 5,000,000 5,753,600 Sale Lease-Backed Obligation 8.00 2015 9,000,000 9,495,270 Cajun Electric Power Cooperative Mtge Trust 8.92 2019 4,960,000 5,532,930 Commonwealth Edison 6.50 2000 9,000,000 9,066,780 8.375 2023 10,000,000 10,762,400 Long Island Lighting 9.625 2024 10,000,000 10,280,200 Ohio Edison 8.75 2022 11,000,000 12,433,850 Public Service Electric & Gas 1st Mtge 8.50 2022 13,720,000 14,627,852 RGS Funding Sale Lease-Backed Obligation 9.82 2022 9,941,260 12,721,133 Salton Sea Funding 7.84 2010 10,000,000 (g) 10,359,800 San Diego Gas & Electric 1st Mtge 9.625 2020 9,950,000 11,877,912 Southern California Edison 1st Mtge 8.875 2023 21,000,000 21,856,170 Texas Utilities Electric 1st Mtge 9.75 2021 13,000,000 15,136,290 ______________ Total 149,904,187 _____________________________________________________________________________________________________________________________ Telephone (3.0%) BellSouth Telecommunications 7.00 1995 10,000,000 10,317,800 GTE 10.25 2020 2,000,000 2,357,480 GTE South 1st Mtge 9.375 2030 13,975,000 14,698,905 New York Tel 9.375 2031 7,000,000 8,232,630 Pacific Bell 8.50 2031 15,000,000 16,230,600 ______________ Total 51,837,415 _____________________________________________________________________________________________________________________________ Foreign (17.2%)(h) ABN Amro Bank (U.S. Dollar) 7.75 2023 12,000,000 12,844,560 Alcan Aluminum (U.S. Dollar) 8.875 2022 9,600,000 11,052,288 PAGE 95 Austria Republic Euro (U.S. Dollar) 10.00 1998 5,000,000 5,455,450 Bank of China (U.S. Dollar) 8.25 2014 7,100,000 6,999,890 Bundes Republic (U.S. Dollar) 7.50 2004 20,000,000 15,022,200 City of Helsinki Sr Nts (U.S.Dollar) 8.00 2006 2,000,000 (i) 1,967,500 8.65 2006 1,500,000 (i) 1,500,525 8.75 2006 1,500,000 (i) 1,511,175 9.00 2007 1,650,000 (i) 1,669,057 9.15 2006 1,500,000 (i) 1,527,000 Euratom Euro (U.S. Dollar) 7.75 1997 6,100,000 6,233,407 Government of Australia (U.S. Dollar) 6.686 2004 6,600,000 5,159,550 Guang Dong Enterprise (U.S. Dollar) 8.75 2003 15,000,000 (g) 14,193,000 Intl Bank Reconstruction & Development (U.S. Dollar) 12.375 2002 6,000,000 8,148,840 Intl Finance Euro (U.S. Dollar) 8.25 1996 8,000,000 8,110,000 Japan Finance (U.S. Dollar) 9.25 1998 25,950,000 28,232,043 KFW Intl Finance (U.S. Dollar) 8.50 1999 10,000,000 10,979,700 Kingdom of Denmark Euro (U.S. Dollar) 7.25 1996 8,000,000 8,088,720 Korea Electric Power (U.S. Dollar) 7.75 2013 14,000,000 14,653,800 8.00 2002 9,000,000 9,742,050 Magna Intl (U.S. Dollar) 5.00 2002 2,500,000 2,559,375 Peoples Republic China (U.S. Dollar) 6.50 2004 7,000,000 (b) 6,834,450 Petronas (U.S. Dollar) 7.75 2015 10,000,000 (g) 10,715,400 Poland (U.S. Dollar) 3.25 2014 11,500,000 (f) 7,424,688 Province of Quebec (U.S. Dollar) 11.00 2015 6,550,000 7,934,539 Republic of Columbia (U.S. Dollar) 7.25 2004 13,400,000 12,956,594 Republic of Italy (U.S. Dollar) 6.875 2023 23,200,000 22,082,456 Rodamco (U.S. Dollar) 7.30 2005 10,000,000 10,521,400 Telekom Malaysia (U.S. Dollar) 7.875 2025 10,000,000 (g) 10,873,100 Tokyo Electric Power Euro (U.S. Dollar) 6.125 2003 21,500,000 21,297,685 United Kingdom Treasury (U.S. Dollar) 12.248 2003 4,400,000 6,976,376 ______________ Total 293,266,818 _____________________________________________________________________________________________________________________________ Total bonds (Cost: $1,489,385,046) $1,616,467,591 _____________________________________________________________________________________________________________________________
PAGE 96
Short-term securities (5.1%) _____________________________________________________________________________________________________________________________ Issuer Annualized Amount Value(a) yield on payable at date of maturity purchase _____________________________________________________________________________________________________________________________ U.S. government agency (0.1%) Federal Home Loan Mtge Disc Note 12-20-95 5.70% $2,200,000 $ 2,193,416 _____________________________________________________________________________________________________________________________ Commercial paper (5.0%) Avco Financial Services 12-08-95 5.74 4,600,000 4,594,893 01-24-96 5.75 4,800,000 4,758,960 CAFCO 12-22-95 5.75 6,000,000 5,979,980 Commerzbank U.S. Finance 12-20-95 5.76 5,800,000 5,782,460 Exxon Asset Management 01-10-96 5.73 4,500,000 (j) 4,471,600 Lincoln Natl 12-01-95 5.75 2,100,000 (j) 2,100,000 12-21-95 5.76 4,800,000 (j) 4,784,720 Merrill Lynch 12-08-95 5.78 700,000 699,217 Motorola 12-28-95 5.75 1,400,000 1,393,994 Natl Bank Detroit Canada 12-13-95 5.75 4,800,000 4,790,848 Pfizer 12-07-95 5.74 4,100,000 (j) 4,096,105 Reed Elsevier 01-02-96 5.78 5,700,000 (j) 5,670,917 SAFECO Credit 01-30-96 5.76 900,000 891,003 Siemens 12-15-95 5.73 4,800,000 4,789,360 12-28-95 5.75 1,600,000 1,593,148 Toyota Motor Credit 12-01-95 5.73 1,900,000 1,900,000 12-15-95 5.75 6,900,000 6,884,651 12-18-95 5.76 5,600,000 5,584,847 Wachovia Bank 12-07-95 5.75 9,500,000 9,499,998 12-12-95 5.75 5,600,000 5,599,981 _____________ Total 85,866,682 _______________________________________________________________________________________________________________________________ Total short-term securities (Cost: $88,060,546) $ 88,060,098 _____________________________________________________________________________________________________________________________ Total investments in securities (Cost: $1,577,445,592)(k) $1,704,527,689 PAGE 97 _____________________________________________________________________________________________________________________________ Notes to investments in securities _____________________________________________________________________________________________________________________________ (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Security is partially or fully on loan. See Note 5 to the financial statements. (c) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (d) This security is a collateralized mortgage obligation that pays no interest or principal during its initial accrual period until payment of previous series within the trust have been paid off. Interest is accrued at an effective yield; similar to a zero coupon bond. (e) Principal only represents securities that entitle holders to receive only principal payments on the underlying mortgages. The yield to maturity of a principal only is sensitive to the rate of principal payments on the underlying mortgage assets. A slow (rapid) rate of principal repayments may have an adverse (positive) effect on yield to maturity. Interest rate disclosed represents current yield based upon the current cost basis and estimated timing of future cash flows. (f) Interest rate varies to reflect current market conditions; rate shown is the effective rate on Nov. 30, 1995. (g) Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security has been determined to be liquid under guidelines established by the board of directors. (h) Foreign security values are stated in U.S. dollars. For debt securities, principal amounts are denominated in the currency indicated. (i) Identifies issues considered to be illiquid, (see Note 6 to the financial statements). Information concerning such security holdings at Nov. 30, 1995, is as follows: Security Acquisition Cost date City of Helsinki 02-07-95 $1,859,160 City of Helsinki 02-07-95 1,462,155 City of Helsinki 02-07-95 1,472,805 City of Helsinki 02-07-95 1,638,450 City of Helsinki 02-07-95 1,497,750 (j) Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This security has been determined to be liquid under guidelines established by the board of directors. (k) On Nov. 30, 1995, the cost of securities for federal income tax purposes was $1,575,054,413 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $131,511,677 Unrealized depreciation (2,038,401) ____________________________________________________________________________________________ Net unrealized appreciation $129,473,276 ____________________________________________________________________________________________
PAGE 98 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: o Independent Auditors' Report dated January 5, 1996 o Statement of Assets and Liabilities, November 30, 1995 o Statement of Operations, Year ended November 30, 1995 o Statement of Changes in Net Assets, for the two-year period ended November 30, 1994 and November 30, 1995 o Notes to Financial Statements o Investments in Securities, November 30, 1995 o Notes to Investments in Securities (b) EXHIBITS: 1. Articles of Incorporation, as amended October 17, 1988, filed electronically as Exhibit 1 to Registrant's Post-Effective Amendment No. 69 to Registration Statement No. 2-10700, is incorporated herein by reference. 2. By-laws, as amended January 12, 1989, filed electronically as Exhibit 2 to Registrant's Post-Effective Amendment No. 69 to Registration Statement No. 2-10700, is incorporated herein by reference. 3. Not Applicable. 4. Stock certificate, filed as Exhibit 3 to Registrant's Form N- 1Q for the calendar quarter ended September 30, 1979, is incorporated herein by reference. 5. Form of Investment Management and Services Agreement between Registrant and American Express Financial Corporation, dated March 20, 1995, filed electronically as Exhibit 5 to Registrant's Post-Effective Amendment No. 81 to Registration Statement No. 2-10700 is incorporated herein by reference. 6. Form of Distribution Agreement between Registrant and American Express Financial Advisors Inc., dated March 20, 1995, filed electronically as Exhibit 6 to Registrant's Post- Effective Amendment No. 81 to Registration Statement No. 2- 10700 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. 8. Form of Custodian Agreement between Registrant and First National Bank of Minneapolis, dated July 23, 1986, is filed electronically herewith. PAGE 99 9(a). Plan and Agreement of Merger dated April 10, 1986, filed as Exhibit 9 to Registrant's Post-Effective Amendment No. 62 to Registration Statement No. 2-10700, is incorporated herein by reference. 9(b). Form of Transfer Agency Agreement between the Registrant and American Express Financial Corporation, dated March 20, 1995, filed electronically as Exhibit 9(b) to Registrant's Post- Effective Amendment No. 81 to Registration Statement No. 2- 10700 is incorporated herein by reference. 9(c). Copy of License Agreement, dated January 25, 1988, between IDS Financial Corporation and Registrant, filed electronically as Exhibit 9(c) to Registrant's Post Effective Amendment No. 69 to Registration Statement No. 2-10700, is incorporated herein by reference. 9(d). Form of Shareholder Service Agreement between Registrant and American Express Financial Advisors Inc., dated March 20, 1995, filed electronically as Exhibit 9(d) to Registrant's Post-Effective Amendment No. 81 to Registration Statement No. 2-10700 is incorporated herein by reference. 9(e). Form of Administrative Services Agreement between Registrant and American Express Financial Corporation, dated March 20, 1995, filed electronically as Exhibit 9(e) to Registrant's Post-Effective Amendment No. 81 to Registration Statement No. 2-10700 is incorporated herein by reference. 10. Opinion and consent of counsel as to the legality of the securities being registered is filed with Registrant's most recent 24f-2 Notice. 11. Independent Auditors' Consent is filed electronically herewith. 12. None. 13. Not Applicable. 14. Forms of Keogh, IRA and other retirement plans, filed as Exhibits 14(a) through 14(n) to IDS Growth Fund, Inc., Post Effective Amendment No. 34 to Registration Statement No. 2- 38355, are incorporated herein by reference. 15. Form of Plan and Agreement of Distribution between Registrant and American Express Financial Advisors Inc., dated March 20, 1995, filed electronically as Exhibit 15 to Registrant's Post-Effective Amendment No. 81 to Registration Statement No. 2-10700 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. 75 to Registrant's Registration Statement No. 2-10700, is incorporated herein by reference. 17. Financial Data Schedule is filed electronically herewith. PAGE 100 18. Copy of Plan pursuant to Rule 18f-3 under the 1940 Act, filed electronically as Exhibit 18 to Registrant's Post-Effective Amendment No. 82 to Registration Statement No. 2-10700, is incorporated herein by reference. 19(a). Directors' Power of Attorney to sign Amendments to this Registration Statement, dated Nov. 10, 1994, filed electronically as Exhibit 18(a) to Registrant's Post- Effective Amendment No. 79, is incorporated herein by reference. 19(b). Officers' Power of Attorney to sign Amendments to this Registration Statement, dated November 1, 1995, is filed electronically herewith as Exhibit 19(b). Item 25. Persons Controlled by or Under Common Control with Registrant None. Item 26. Number of Holders of Securities (1) (2) Number of Record Holders as of Title of Class January 22, 1996 Common Stock 86,458 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 PAGE 101 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 102 PAGE 1
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation) Directors and officers of American Express Financial Corporation who are directors and/or officers of one or more other companies: Ronald G. Abrahamson, Vice President--Service Quality and Reengineering American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Service Quality and Reengineering American Express Service Corporation Vice President Douglas A. Alger, Vice President--Total Compensation American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Total Compensation Peter J. Anderson, Director and Senior Vice President--Investments American Express Financial Advisors IDS Tower 10 Senior Vice President- Minneapolis, MN 55440 Investments IDS Advisory Group Inc. Director and Chairman of the Board IDS Capital Holdings Inc. Director and President IDS International, Inc. Director, Chairman of the Board and Executive Vice President IDS Securities Corporation Executive Vice President- Investments NCM Capital Management Group, Inc. 2 Mutual Plaza Director 501 Willard Street Durham, NC 27701 Ward D. Armstrong, Vice President-Sales and Marketing, American Express Institutional Services American Express Financial Advisors IDS Tower 10 Vice President-Sales and Minneapolis, MN 55440 Marketing, American Express Institutional Services Joseph M. Barsky III, Vice President--Senior Portfolio Manager American Express Financial Advisors IDS Tower 10 Vice President-Senior Minneapolis, MN 55440 Portfolio Manager IDS Advisory Group Inc. Vice President Robert C. Basten, Vice President--Tax and Business Services American Express Financial Advisors IDS Tower 10 Vice President-Tax Minneapolis, MN 55440 and Business Services American Express Tax & Business Director, President and Services Inc. Chief Executive Officer PAGE 2 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Timothy V. Bechtold, Vice President--Risk Management Products American Express Financial Advisors IDS Tower 10 Vice President-Risk Minneapolis, MN 55440 Management Products IDS Life Insurance Company Vice President-Risk Management Products Carl E. Beihl, Vice President--Strategic Technology Planning American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Strategic Technology Planning Alan F. Bignall, Vice President--Technology and Development American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Technology and Development American Express Service Corporation Vice President John C. Boeder, Vice President--Mature Market Group American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Mature Market Group IDS Life Insurance Company of New York Box 5144 Director Albany, NY 12205 Karl J. Breyer, Director, Senior Vice President--Corporate Affairs and General Counsel American Express Financial Advisors IDS Tower 10 Senior Vice President- Minneapolis, MN 55440 Corporate Affairs and Special Counsel American Express Minnesota Foundation Director IDS Aircraft Services Corporation Director and President Harold E. Burke, Vice President and Assistant General Counsel American Express Financial Advisors IDS Tower 10 Vice President and Minneapolis, MN 55440 Assistant General Counsel Daniel J. Candura, Vice President--Marketing Support American Express Financial Advisors IDS Tower 10 Vice President-Marketing Minneapolis, MN 55440 Support Cynthia M. Carlson, Vice President--American Express Securities Services American Enterprise Investment IDS Tower 10 Director, President and Services Inc. Minneapolis, MN 55440 Chief Executive Officer American Express Financial Advisors Vice President-American Express Securities Services PAGE 3 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Orison Y. Chaffee III, Vice President--Field Real Estate American Express Financial Advisors IDS Tower 10 Vice President-Field Minneapolis, MN 55440 Real Estate James E. Choat, Director and Senior Vice President--Field Management American Express Financial Advisors IDS Tower 10 Senior Vice President- Minneapolis, MN 55440 Field Management American Express Insurance Agency of Nevada Inc. Vice President--North Central Region American Express Minnesota Foundation Director American Express Service Corporation Vice President IDS Insurance Agency of Alabama Inc. Vice President--North Central Region IDS Insurance Agency of Arkansas Inc. Vice President--North Central Region IDS Insurance Agency of Massachusetts Inc. Vice President--North Central Region IDS Insurance Agency of New Mexico Inc. Vice President--North Central Region IDS Insurance Agency of North Carolina Inc. Vice President--North Central Region IDS Insurance Agency of Ohio Inc. Vice President--North Central Region IDS Insurance Agency of Wyoming Inc. Vice President-- North Central Region Kenneth J. Ciak, Vice President and General Manager--IDS Property Casualty AMEX Assurance Co. Director and President American Express Financial Advisors IDS Tower 10 Vice President and General Minneapolis, MN 55440 Manager-IDS Property Casualty IDS Property Casualty Insurance Co. I WEG Blvd. Director and President DePere, Wisconsin 54115 Colleen Curran, Vice President and Assistant General Counsel American Express Financial Advisors IDS Tower 10 Vice President and Minneapolis, MN 55440 Assistant General Counsel American Express Service Corporation Vice President and Chief Legal Counsel Alan R. Dakay, Vice President--Institutional Products Group American Centurion Life Assurance Co. IDS Tower 10 Director and Vice Chairman Minneapolis, MN 55440 and President, Financial Institutions Division American Enterprise Life Insurance Co. Director and President PAGE 4 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) IDS Life Insurance Company Vice President - Institutional Insurance American Express Financial Advisors Vice President - Institutional Products Group Marketing Regenia David, Vice President--Systems Services American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Systems Services William H. Dudley, Director and Executive Vice President--Investment Operations American Express Financial Advisors IDS Tower 10 Director and Executive Minneapolis, MN 55440 Vice President- Investment Operations IDS Advisory Group Inc. Director IDS Capital Holdings Inc. Director IDS Futures Corporation Director IDS Futures III Corporation Director IDS International, Inc. Director IDS Securities Corporation Director, Chairman of the Board, President and Chief Executive Officer Roger S. Edgar, Director, Senior Vice President and Technology Advisor American Express Financial Advisors IDS Tower 10 Senior Vice President and Minneapolis, MN 55440 Technology Advisor Gordon L. Eid, Director, Senior Vice President and Deputy General Counsel American Express Financial Advisors IDS Tower 10 Senior Vice President and Minneapolis, MN 55440 General Counsel American Express Insurance Agency of Nevada Inc. Director and Vice President IDS Insurance Agency of Alabama Inc. Director and Vice President IDS Insurance Agency of Arkansas Inc. Director and Vice President IDS Insurance Agency of Massachusetts Inc. Director and Vice President IDS Insurance Agency of New Mexico Inc. Director and Vice President IDS Insurance Agency of North Carolina Inc. Director and Vice President IDS Insurance Agency of Ohio Inc. Director and Vice President IDS Insurance Agency of Wyoming Inc. Director and Vice President IDS Real Estate Services, Inc. Vice President Investors Syndicate Development Corp. Director Robert M. Elconin, Vice President--Government Relations American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Government Relations IDS Life Insurance Company Vice President PAGE 5 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Mark A. Ernst, Vice President--Retail Services American Enterprise Investment IDS Tower 10 Director Services Inc. Minneapolis, MN 55440 American Express Financial Advisors Vice President- Retail Services American Express Tax & Business Director and Chairman of Services Inc. the Board Gordon M. Fines, Vice President--Mutual Fund Equity Investments American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Mutual Fund Equity Investments IDS Advisory Group Inc. Executive Vice President IDS International, Inc. Vice President and Portfolio Manager Robert G. Gilbert, Vice President--Real Estate American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Real Estate John J. Golden, Vice President--Field Compensation Development American Express Financial Advisors IDS Tower 10 Vice President-Field Minneapolis, MN 55440 Compensation Development Harvey Golub, Director American Express Company American Express Tower Chairman and Chief World Financial Center Executive Officer New York, New York 10285 American Express Travel Chairman and Chief Related Services Company, Inc. Executive Officer Morris Goodwin Jr., Vice President and Corporate Treasurer American Centurion Life Assurance Co. Vice President and Treasurer American Enterprise Investment IDS Tower 10 Vice President and Services Inc. Minneapolis, MN 55440 Treasurer American Enterprise Life Insurance Vice President and Company Treasurer American Express Financial Advisors Vice President and Corporate Treasurer American Express Insurance Agency of Nevada Inc. Vice President and Treasurer American Express Minnesota Foundation Vice President and Treasurer American Express Service Corporation Vice President and Treasurer American Express Tax & Business Vice President and Services Inc. Treasurer American Partners Life Insurance Co. Vice President and Treasurer PAGE 6 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) AMEX Assurance Co. Vice President and Treasurer IDS Advisory Group Inc. Vice President and Treasurer IDS Aircraft Services Corporation Vice President and Treasurer IDS Cable Corporation Director, Vice President and Treasurer IDS Cable II Corporation Director, Vice President and Treasurer IDS Capital Holdings Inc. Vice President and Treasurer IDS Certificate Company Vice President and Treasurer IDS Deposit Corp. Director, President and Treasurer IDS Futures Corp. Director IDS Futures III Corp. Director IDS Insurance Agency of Alabama Inc. Vice President and Treasurer IDS Insurance Agency of Arkansas Inc. Vice President and Treasurer IDS Insurance Agency of Massachusetts Inc. Vice President and Treasurer IDS Insurance Agency of New Mexico Inc. Vice President and Treasurer IDS Insurance Agency of North Carolina Inc. Vice President and Treasurer IDS Insurance Agency of Ohio Inc. Vice President and Treasurer IDS Insurance Agency of Wyoming Inc. Vice President and Treasurer IDS International, Inc. Vice President and Treasurer IDS Life Insurance Company Vice President and Treasurer IDS Life Series Fund, Inc. Vice President and Treasurer IDS Life Variable Annuity Funds A&B Vice President and Treasurer IDS Management Corporation Director, Vice President and Treasurer IDS Partnership Services Corporation Director, Vice President and Treasurer IDS Plan Services of California, Inc. Vice President and Treasurer IDS Property Casualty Insurance Co. Vice President and Treasurer IDS Real Estate Services, Inc Vice President and Treasurer IDS Realty Corporation Director, Vice President and Treasurer IDS Sales Support Inc. Director, Vice President and Treasurer PAGE 7 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) IDS Securities Corporation Vice President and Treasurer Investors Syndicate Development Corp. Vice President and Treasurer National Computer Systems, Inc. 11000 Prairie Lakes Drive Director Minneapolis, MN 55440 NCM Capital Management Group, Inc. 2 Mutual Plaza Director 501 Willard Street Durham, NC 27701 Sloan Financial Group, Inc. Director Suzanne Graf, Vice President--Systems Services American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Systems Services David A. Hammer, Vice President and Marketing Controller American Express Financial Advisors IDS Tower 10 Vice President and Minneapolis, MN 55440 Marketing Controller IDS Plan Services of California, Inc. Director and Vice President Lorraine R. Hart, Vice President--Insurance Investments American Enterprise Life IDS Tower 10 Vice President-Investments Insurance Company Minneapolis, MN 55440 American Express Financial Advisors Vice President-Insurance Investments American Partners Life Insurance Co. Director and Vice President-Investments AMEX Assurance Co. Vice President-Investments IDS Certificate Company Vice President-Investments IDS Life Insurance Company Vice President-Investments IDS Life Series Fund, Inc. Vice President-Investments IDS Life Variable Annuity Funds A and B Vice President-Investments IDS Property Casualty Insurance Company Vice President-Investment Officer Investors Syndicate Development Corp. Director and Vice President-Investments Scott A. Hawkinson, Vice President--Assured Assets Product Development and Management American Express Financial Advisors IDS Tower 10 Vice President-Assured Minneapolis, MN 55440 Assets Product Development & Management James G. Hirsh, Vice President and Assistant General Counsel American Express Financial Advisors IDS Tower 10 Vice President and Minneapolis, MN 55440 Assistant General Counsel IDS Securities Corporation Director, Vice President and General Counsel PAGE 8 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Darryl G. Horsman, Vice President--Product Development and Technology, American Express Institutional Retirement Services American Express Trust Company IDS Tower 10 Director and President Minneapolis, MN 55440 Kevin P. Howe, Vice President--Government and Customer Relations and Chief Compliance Officer American Enterprise Investment IDS Tower 10 Vice President and Chief Services Inc. Minneapolis, MN 55440 Compliance Officer American Express Financial Advisors Vice President- Government and Customer Relations American Express Service Corporation Vice President IDS Securities Corporation Vice President and Chief Compliance Officer David R. Hubers, Director, President and Chief Executive Officer American Express Financial Advisors IDS Tower 10 Chairman, Chief Executive Minneapolis, MN 55440 Officer and President American Express Service Corporation Director and President AMEX Assurance Co. Director IDS Aircraft Services Corporation Director IDS Certificate Company Director IDS Life Insurance Company Director IDS Plan Services of California, Inc. Director and President IDS Property Casualty Insurance Co. Director Marietta L. Johns, Director and Senior Vice President--Field Management American Express Financial Advisors IDS Tower 10 Senior Vice President- Minneapolis, MN 55440 Field Management James E. Kaarre, Vice President--Marketing Information American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Marketing Information Linda B. Keene, Vice President--Market Development American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Market Development G. Michael Kennedy, Vice President--Investment Services and Investment Research American Express Financial Advisors IDS Tower 10 Vice President-Investment Minneapolis, MN 55440 Services and Investment Research Susan D. Kinder, Director and Senior Vice President--Human Resources American Express Financial Advisors IDS Tower 10 Senior Vice President- Minneapolis, MN 55440 Human Resources American Express Minnesota Foundation Director American Express Service Corporation Vice President PAGE 9 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Richard W. Kling, Director and Senior Vice President--Risk Management Products American Centurion Life Assurance Co. Director American Enterprise Life Insurance Co. IDS Tower 10 Director and Chairman of Minneapolis, MN 55440 the Board American Express Financial Advisors Senior Vice President- Risk Management Products American Express Insurance Agency of Nevada Inc. Director and President American Partners Life Insurance Co. Director and Chairman of the Board AMEX Assurance Co. Director and Chairman of the Board IDS Insurance Agency of Alabama Inc. Director and President IDS Insurance Agency of Arkansas Inc. Director and President IDS Insurance Agency of Massachusetts Inc. Director and President IDS Insurance Agency of New Mexico Inc. Director and President IDS Insurance Agency of North Carolina Inc. Director and President IDS Insurance Agency of Ohio Inc. Director and President IDS Insurance Agency of Wyoming Inc. Director and President IDS Life Insurance Company Director and President IDS Life Series Fund, Inc. Director and President IDS Life Variable Annuity Funds A and B Director and Chairman of the Board and President IDS Property Casualty Insurance Co. Director and Chairman of the Board IDS Life Insurance Company P.O. Box 5144 Director, Chairman of the of New York Albany, NY 12205 Board and President Paul F. Kolkman, Vice President--Actuarial Finance American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Actuarial Finance IDS Life Insurance Company Director and Executive Vice President IDS Life Series Fund, Inc. Vice President and Chief Actuary IDS Property Casualty Insurance Company Director Claire Kolmodin, Vice President--Service Quality American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Service Quality Steven C. Kumagai, Director and Senior Vice President--Field Management and Business Systems American Express Financial Advisors IDS Tower 10 Director and Senior Vice Minneapolis, MN 55440 President-Field Management and Business Systems American Express Service Corporation Vice President PAGE 10 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Edward Labenski, Jr.., Vice President--Senior Portfolio Manager American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Senior Portfolio Manager IDS Advisory Group Inc. Senior Vice President Kurt A. Larson, Vice President--Senior Portfolio Manager American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Senior Portfolio Manager Lori J. Larson, Vice President--Variable Assets Product Development American Express Financial Advisors IDS Tower 10 Vice President-Variable Minneapolis, MN 55440 Assets Product Development IDS Cable Corporation Director and Vice President IDS Cable II Corporation Director and Vice President IDS Futures Brokerage Group Assistant Vice President- General Manager/Director IDS Futures Corporation Director and Vice President IDS Futures III Corporation Director and Vice President IDS Management Corporation Director and Vice President IDS Partnership Services Corporation Director and Vice President IDS Realty Corporation Director and Vice President Ryan R. Larson, Vice President--IPG Product Development American Centurion Life Assurance Co. Director and Vice President-Product Development American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 IPG Product Development IDS Life Insurance Company Vice President- Annuity Product Development Daniel E. Laufenberg, Vice President and Chief U.S. Economist American Express Financial Advisors IDS Tower 10 Vice President and Minneapolis, MN 55440 Chief U.S. Economist Richard J. Lazarchic, Vice President--Senior Portfolio Manager American Express Financial Advisors IDS Tower 10 Vice President-Senior Minneapolis, MN 55440 Portfolio Manager PAGE 11 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Peter A. Lefferts, Director and Senior Vice President--Corporate Strategy and Development American Express Financial Advisors IDS Tower 10 Senior Vice President- Minneapolis, MN 55440 Corporate Strategy and Development American Express Service Corporation Director American Express Trust Company Director IDS Plan Services of California, Inc. Director Investors Syndicate Development Corp. Director Douglas A. Lennick, Director and Executive Vice President--Private Client Group American Express Financial Advisors IDS Tower 10 Director and Executive Minneapolis, MN 55440 Vice President-Private Client Group American Express Service Corporation Vice President Jonathan S. Linen, Director Mary J. Malevich, Vice President--Senior Portfolio Manager American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Senior Portfolio Manager IDS International, Inc. Vice President and Portfolio Manager Fred A. Mandell, Vice President--Field Marketing Readiness American Express Financial Advisors IDS Tower 10 Vice President-Field Minneapolis, MN 55440 Marketing Readiness William J. McKinney, Vice President--Field Management Support American Express Financial Advisors IDS Tower 10 Vice President-Field Minneapolis, MN 55440 Management Support Thomas W. Medcalf, Vice President--Senior Portfolio Manager American Express Financial Advisors IDS Tower 10 Vice President-Senior Minneapolis, MN 55440 Portfolio Manager William C. Melton, Vice President-International Research and Chief International Economist American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 International Research and Chief International Economist PAGE 12 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Janis E. Miller, Vice President--Variable Assets American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Variable Assets IDS Cable Corporation Director and President IDS Cable II Corporation Director and President IDS Futures Corporation Director and President IDS Futures III Corporation Director and President IDS Life Insurance Company Director and Executive Vice President-Variable Assets IDS Life Series Fund, Inc. Director IDS Life Variable Annuity Funds A&B Director IDS Management Corporation Director and President IDS Partnership Services Corporation Director and President IDS Realty Corporation Director and President IDS Life Insurance Company of New York Box 5144 Executive Vice President Albany, NY 12205 James A. Mitchell, Director and Executive Vice President--Marketing and Products American Enterprise Investment IDS Tower 10 Director Services Inc. Minneapolis, MN 55440 American Express Financial Advisors Executive Vice President- Marketing and Products American Express Tax and Business Director Services Inc. AMEX Assurance Co. Director IDS Certificate Company Director and Chairman of the Board IDS Life Insurance Company Director, Chairman of the Board and Chief Executive Officer IDS Plan Services of California, Inc. Director IDS Property Casualty Insurance Co. Director Pamela J. Moret, Vice President--Corporate Communications American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Corporate Communications American Express Minnesota Foundation Director and President Barry J. Murphy, Director and Senior Vice President--Client Service American Express Financial Advisors IDS Tower 10 Senior Vice President- Minneapolis, MN 55440 Client Service IDS Life Insurance Company Director and Executive Vice President-Client Service Mary Owens Neal, Vice President--Mature Market Segment American Express Financial Advisors Inc. IDS Tower 10 Vice President- Minneapolis, MN 55440 Mature Market Segment PAGE 13 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Robert J. Neis, Vice President--Technology Services American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Technology Services James R. Palmer, Vice President--Insurance Operations American Express Financial Advisors IDS Tower 10 Vice President-Taxes Minneapolis, MN 55440 IDS Aircraft Services Corp. Vice President IDS Life Insurance Company Vice President-Taxes Carla P. Pavone, Vice President--Specialty Service Teams and Emerging Business American Express Financial Advisors IDS Tower 10 Vice President-Specialty Minneapolis, MN 55440 Service Teams and Emerging Business Susan B. Plimpton, Vice President--Segmentation Development and Support American Express Financial Advisors IDS Tower 10 Vice President-- Minneapolis, MN 55440 Segmentation Development and Support Ronald W. Powell, Vice President and Assistant General Counsel American Express Financial Advisors IDS Tower 10 Vice President and Minneapolis, MN 55440 Assistant General Counsel IDS Cable Corporation Vice President and Assistant Secretary IDS Cable II Corporation Vice President and Assistant Secretary IDS Management Corporation Vice President and Assistant Secretary IDS Partnership Services Corporation Vice President and Assistant Secretary IDS Plan Services of California, Inc. Vice President and Assistant Secretary IDS Realty Corporation Vice President and Assistant Secretary James M. Punch, Vice President--Geographic Service Teams American Express Financial Advisors IDS Tower 10 Vice President-Geographic Minneapolis, MN 55440 Services Teams Frederick C. Quirsfeld, Vice President--Taxable Mutual Fund Investments American Express Financial Advisors IDS Tower 10 Vice President-- Minneapolis, MN 55440 Taxable Mutual Fund Investments IDS Advisory Group Inc. Vice President PAGE 14 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) ReBecca K. Roloff, Vice President--1994 Program Director American Express Financial Advisors IDS Tower 10 Vice President-1994 Minneapolis, MN 55440 Program Director Stephen W. Roszell, Vice President--Advisory Institutional Marketing American Express Financial Advisors IDS Tower 10 Vice President-Advisory Minneapolis, MN 55440 Institutional Marketing IDS Advisory Group Inc. President and Chief Executive Officer IDS Fund Management Limited Director IDS International, Inc. Director Robert A. Rudell, Vice President--American Express Institutional Retirement Services American Express Financial Advisors IDS Tower 10 Vice President-American Minneapolis, MN 55440 Express Institutional Services American Express Trust Company Director and Chairman of the Board IDS Sales Support Inc. Director and President John P. Ryan, Vice President and General Auditor American Express Financial Advisors IDS Tower 10 Vice President and General Minneapolis, MN 55440 Auditor Erven A. Samsel, Director and Senior Vice President--Field Management American Express Financial Advisors IDS Tower 10 Senior Vice President- Minneapolis, MN 55440 Field Management American Express Insurance Agency of Nevada Inc. Vice President- New England Region American Express Service Corporation Vice President IDS Insurance Agency of Alabama Inc. Vice President- New England Region IDS Insurance Agency of Arkansas Inc. Vice President- New England Region IDS Insurance Agency of Massachusetts Inc. Vice President- New England Region IDS Insurance Agency of New Mexico Inc. Vice President- New England Region IDS Insurance Agency of North Carolina Inc. Vice President- New England Region IDS Insurance Agency of Ohio Inc. Vice President- New England Region IDS Insurance Agency of Wyoming Inc. Vice President- New England Region PAGE 15 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Stuart A. Sedlacek, Vice President--Assured Assets American Centurion Life Assurance Co. Director and Chairman and President American Enterprise Life Insurance Co. IDS Tower 10 Director and Executive Minneapolis, MN 55440 Vice President, Assured Assets American Express Financial Advisors Vice President- Assured Assets American Partners Life Insurance Co. Director and President IDS Certificate Company Director and President IDS Life Insurance Company Director and Executive Vice President, Assured Assets Investors Syndicate Development Corp. Director and Chairman of the Board and President Donald K. Shanks, Vice President--Property Casualty American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Property Casualty IDS Property Casualty Insurance Co. Senior Vice President F. Dale Simmons, Vice President--Senior Portfolio Manager, Insurance Investments American Enterprise Life Insurance Co. IDS Tower 10 Vice President-Real Minneapolis, MN 55440 Estate Loan Management American Express Financial Advisors Vice President-Senior Portfolio Manager, Insurance Investments American Partners Life Insurance Co. Vice President-Real Estate Loan Management AMEX Assurance Co. Vice President IDS Certificate Company Vice President-Real Estate Loan Management IDS Life Insurance Company Vice President-Real Estate Loan Management IDS Partnership Services Corporation Vice President IDS Real Estate Services Inc. Director and Vice President IDS Realty Corporation Vice President IDS Life Insurance Company of New York Box 5144 Vice President and Albany, NY 12205 Assistant Treasurer Judy P. Skoglund, Vice President--Human Resources and Organization Development American Express Financial Advisors IDS Tower 10 Vice President-Human Minneapolis, MN 55440 Resources and Organization Development Ben C. Smith, Vice President--Workplace Marketing American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Workplace Marketing PAGE 16 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) William A. Smith, Vice President and Controller--Private Client Group American Express Financial Advisors IDS Tower 10 Vice President and Minneapolis, MN 55440 Controller-Private Client Group Bridget Sperl, Vice President--Human Resources Management Services American Express Financial Advisors IDS Tower 10 Vice President-Human Minneapolis, MN 55440 Resources Management Services William A. Stoltzmann, Vice President and Assistant General Counsel American Express Financial Advisors IDS Tower 10 Vice President and Minneapolis, MN 55440 Assistant General Counsel American Partners Life Insurance Co. Director, Vice President, General Counsel and Secretary IDS Life Insurance Company Vice President, General Counsel and Secretary American Enterprise Life Insurance P.O. Box 534 Director, Vice President, Company Minneapolis, MN 55440 General Counsel and Secretary James J. Strauss, Vice President--Corporate Planning and Analysis American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Corporate Planning and Analysis Jeffrey J. Stremcha, Vice President--Information Resource Management/ISD American Express Financial Advisors IDS Tower 10 Vice President-Information Minneapolis, MN 55440 Resource Management/ISD John R. Thomas, Director and Senior Vice President--Information and Technology American Express Financial Advisors IDS Tower 10 Senior Vice President- Minneapolis, MN 55440 Information and Technology Melinda S. Urion, Director, Senior Vice President and Chief Financial Officer American Enterprise Life IDS Tower 10 Vice President and Insurance Company Minneapolis, MN 55440 Controller American Express Financial Advisors Senior Vice President and Chief Financial Officer American Partners Life Insurance Co. Director and Vice President IDS Life Insurance Company Director, Executive Vice President and Controller IDS Life Series Fund, Inc. Vice President and Controller PAGE 17 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Wesley W. Wadman, Vice President--Senior Portfolio Manager American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Senior Portfolio Manager IDS Advisory Group Inc. Executive Vice President IDS Fund Management Limited Director and Vice Chairman IDS International, Inc. Senior Vice President Norman Weaver Jr., Director and Senior Vice President--Field Management American Express Financial Advisors IDS Tower 10 Senior Vice President-- Minneapolis, MN 55440 Field Management American Express Insurance Agency of Nevada Inc. Vice President-Southeast Region American Express Service Corporation Vice President IDS Insurance Agency of Alabama Inc. Vice President-Pacific Region IDS Insurance Agency of Arkansas Inc. Vice President-Pacific Region IDS Insurance Agency of Massachusetts Inc. Vice President-Pacific Region IDS Insurance Agency of New Mexico Inc. Vice President-Pacific Region IDS Insurance Agency of North Carolina Inc. Vice President-Pacific Region IDS Insurance Agency of Ohio Inc. Vice President-Pacific Region IDS Insurance Agency of Wyoming Inc. Vice President-Pacific Region Michael L. Weiner, Vice President--Tax Research and Audit American Express Financial Advisors IDS Tower 10 Vice President-Tax Research Minneapolis, MN 55440 and Audit IDS Capital Holdings Inc. Vice President IDS Futures Brokerage Group Vice President IDS Futures Corporation Vice President, Treasurer and Secretary IDS Futures III Corporation Vice President, Treasurer and Secretary James M. Weiss, Vice President and Senior Portfolio Manager American Express Financial Advisors Inc. Vice President and Senior Portfolio Manager IDS Advisory Group Inc. Executive Vice President Lawrence J. Welte, Vice President--Investment Administration American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Investment Administration IDS Securities Corporation Director, Executive Vice President and Chief Operating Officer PAGE 18 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Jeffry F. Welter, Vice President--Equity and Fixed Income Trading American Express Financial Advisors IDS Tower 10 Vice President-Equity Minneapolis, MN 55440 and Fixed Income Trading William N. Westhoff, Director, Senior Vice President and Global Chief Investment Officer American Enterprise Life Insurance IDS Tower 10 Director Company Minneapolis, MN 55440 American Express Financial Advisors Senior Vice President and Global Chief Investment Officer IDS Fund Management Limited Director IDS International, Inc. Director IDS Partnership Services Corporation Director and Vice President IDS Real Estate Services Inc. Director, Chairman of the Board and President IDS Realty Corporation Director and Vice President Investors Syndicate Development Corp. Director Edwin M. Wistrand, Vice President and Assistant General Counsel American Express Financial Advisors IDS Tower 10 Vice President and Minneapolis, MN 55440 Assistant General Counsel Michael R. Woodward, Director and Senior Vice President--Field Management American Express Financial Advisors IDS Tower 10 Senior Vice President- Minneapolis, MN 55440 Field Management American Express Insurance Agency of Nevada Inc. Vice President- North Region American Express Service Corporation Vice President IDS Insurance Agency of Alabama Inc. Vice President- North Region IDS Insurance Agency of Arkansas Inc. Vice President- North Region IDS Insurance Agency of Massachusetts Inc. Vice President- North Region IDS Insurance Agency of New Mexico Inc. Vice President- North Region IDS Insurance Agency of North Carolina Inc. Vice President- North Region IDS Insurance Agency of Ohio Inc. Vice President- North Region IDS Insurance Agency of Wyoming Inc. Vice President- North Region IDS Life Insurance Company Box 5144 Director of New York Albany, NY 12205
PAGE 19 Item 29. Principal Underwriters. (a) American Express Financial Advisors acts as principal underwriter for the following investment companies: IDS Bond Fund, Inc.; IDS California Tax-Exempt Trust; IDS Discovery Fund, Inc.; IDS Equity Select Fund, Inc.; IDS Extra Income Fund, Inc.; IDS Federal Income Fund, Inc.; IDS Global Series, Inc.; IDS Growth Fund, Inc.; IDS High Yield Tax- Exempt Fund, Inc.; IDS International Fund, Inc.; IDS Investment Series, Inc.; IDS Managed Retirement Fund, Inc.; IDS Market Advantage Series, Inc.; IDS Money Market Series, Inc.; IDS New Dimensions Fund, Inc.; IDS Precious Metals Fund, Inc.; IDS Progressive Fund, Inc.; IDS Selective Fund, Inc.; IDS Special Tax-Exempt Series Trust; IDS Stock Fund, Inc.; IDS Strategy Fund, Inc.; IDS Tax-Exempt Bond Fund, Inc.; IDS Tax-Free Money Fund, Inc.; IDS Utilities Income Fund, Inc. and IDS Certificate Company. (b) As to each director, officer or partner of the principal underwriter: Positions and Name and Principal Position and Offices Offices with Business Address with Underwriter Registrant Ronald G. Abrahamson Vice President- None IDS Tower 10 Service Quality and Minneapolis, MN 55440 Reengineering Douglas A. Alger Vice President-Total None IDS Tower 10 Compensation Minneapolis, MN 55440 Peter J. Anderson Senior Vice President- Vice IDS Tower 10 Investments President-- Minneapolis, MN 55440 Investments Ward D. Armstrong Vice President- None IDS Tower 10 Sales and Marketing, Minneapolis, MN 55440 American Express Institutional Retirement Services Alvan D. Arthur Group Vice President- None Suite 105 Central California/ 2710 S. Gateway Oaks Dr. Western Nevada Sacramento, CA 95833 Joseph M. Barsky III Vice President-Senior None IDS Tower 10 Portfolio Manager Minneapolis, MN 55440 Robert C. Basten Vice President-Tax None IDS Tower 10 and Business Services Minneapolis, MN 55440 PAGE 20 Item 29(b). As to each director, officer or partner of the principal underwriter (American Express Financial Advisors): (cont'd) Positions and Name and Principal Position and Offices Offices with Business Address with Underwriter Registrant Timothy V. Bechtold Vice President-Risk None IDS Tower 10 Management Products Minneapolis, MN 55440 John D. Begley Group Vice President- None Suite 100 Ohio/Indiana 7760 Olentangy River Rd. Columbus, OH 43235 Carl E. Beihl Vice President- None IDS Tower 10 Strategic Technology Minneapolis, MN 55440 Planning Jack A. Benjamin Group Vice President- None Suite 200 Greater Pennsylvania 3500 Market Street Camp Hill, PA 17011 Alan F. Bignall Vice President- None IDS Tower 10 Technology and Minneapolis, MN 55440 Development Brent L. Bisson Group Vice President- None Ste 900 E. Westside Twr Los Angeles Metro 11835 West Olympic Blvd. Los Angeles, CA 90064 John C. Boeder Vice President- None IDS Tower 10 Mature Market Group Minneapolis, MN 55440 Walter K. Booker Group Vice President- None Suite 200 New Jersey 3500 Market Street Camp Hill, NJ 17011 Bruce J. Bordelon Group Vice President- None Galleria One Suite 1900 Gulf States Galleria Blvd. Metairie, LA 70001 Charles R. Branch Group Vice President- None Suite 200 Northwest West 111 North River Dr Spokane, WA 99201 Karl J. Breyer Senior Vice President- None IDS Tower 10 Corporate Affairs and Minneapolis, MN 55440 Special Counsel PAGE 21 Item 29(b). As to each director, officer or partner of the principal underwriter (American Express Financial Advisors): (cont'd) Positions and Name and Principal Position and Offices Offices with Business Address with Underwriter Registrant Harold E. Burke Vice President None IDS Tower 10 and Assistant Minneapolis, MN 55440 General Counsel Daniel J. Candura Vice President- None IDS Tower 10 Marketing Support Minneapolis, MN 55440 Cynthia M. Carlson Vice President- None IDS Tower 10 American Express Minneapolis, MN 55440 Securities Services Orison Y. Chaffee III Vice President-Field None IDS Tower 10 Real Estate Minneapolis, MN 55440 James E. Choat Senior Vice President- None IDS Tower 10 Field Management Minneapolis, MN 55440 Kenneth J. Ciak Vice President and None IDS Property Casualty General Manager- 1400 Lombardi Avenue IDS Property Casualty Green Bay, WI 54304 Roger C. Corea Group Vice President- None 290 Woodcliff Drive Upstate New York Fairport, NY 14450 Henry J. Cormier Group Vice President- None Commerce Center One Connecticut 333 East River Drive East Hartford, CT 06108 John M. Crawford Group Vice President- None Suite 200 Arkansas/Springfield/Memphis 10800 Financial Ctr Pkwy Little Rock, AR 72211 Kevin F. Crowe Group Vice President- None Suite 312 Carolinas/Eastern Georgia 7300 Carmel Executive Pk Charlotte, NC 28226 Colleen Curran Vice President and None IDS Tower 10 Assistant General Counsel Minneapolis, MN 55440 Alan R. Dakay Vice President- None IDS Tower 10 Institutional Products Minneapolis, MN 55440 Group PAGE 22 Item 29(b). As to each director, officer or partner of the principal underwriter (American Express Financial Advisors): (cont'd) Positions and Name and Principal Position and Offices Offices with Business Address with Underwriter Registrant Regenia David Vice President- None IDS Tower 10 Systems Services Minneapolis, MN 55440 Scott M. DiGiammarino Group Vice President- None Suite 500 Washington/Baltimore 8045 Leesburg Pike Vienna, VA 22182 Bradford L. Drew Group Vice President- None Two Datran Center Eastern Florida Penthouse One B 9130 S. Dadeland Blvd. Miami, FL 33156 William H. Dudley Director and Executive Director IDS Tower 10 Vice President- Minneapolis MN 55440 Investment Operations Roger S. Edgar Senior Vice President None IDS Tower 10 and Technology Advisor Minneapolis, MN 55440 Gordon L. Eid Senior Vice President None IDS Tower 10 and General Counsel Minneapolis, MN 55440 Robert M. Elconin Vice President- None IDS Tower 10 Government Relations Minneapolis, MN 55440 Mark A. Ernst Vice President- None IDS Tower 10 Retail Services Minneapolis, MN 55440 Joseph Evanovich Jr. Group Vice President- None One Old Mill Nebraska/Iowa/Dakotas 101 South 108th Avenue Omaha, NE 68154 Louise P. Evenson Group Vice President- None Suite 200 San Francisco Bay Area 1333 N. California Blvd. Walnut Creek, CA 94596 Gordon M. Fines Vice President- None IDS Tower 10 Mutual Fund Equity Minneapolis MN 55440 Investments PAGE 23 Item 29(b). As to each director, officer or partner of the principal underwriter (American Express Financial Advisors): (cont'd) Positions and Name and Principal Position and Offices Offices with Business Address with Underwriter Registrant Douglas L. Forsberg Group Vice President- None Suite 100 Portland/Eugene 7931 N. E. Halsey Portland, OR 97213 William P. Fritz Group Vice President- None Suite 160 Northern Missouri 12855 Flushing Meadows Dr St. Louis, MO 63131 Carl W. Gans Group Vice President- None 8500 Tower Suite 1770 Twin City Metro 8500 Normandale Lake Blvd. Bloomington, MN 55437 Robert G. Gilbert Vice President- None IDS Tower 10 Real Estate Minneapolis, MN 55440 John J. Golden Vice President- None IDS Tower 10 Field Compensation Minneapolis, MN 55440 Development Morris Goodwin Jr. Vice President and None IDS Tower 10 Corporate Treasurer Minneapolis, MN 55440 Suzanne Graf Vice President- None IDS Tower 10 Systems Services Minneapolis, MN 55440 Bruce M. Guarino Group Vice President- None Suite 1736 Hawaii 1585 Kapiolani Blvd. Honolulu, HI 96814 David A. Hammer Vice President None IDS Tower 10 and Marketing Minneapolis, MN 55440 Controller Teresa A. Hanratty Group Vice President- None Suites 6&7 Northern New England 169 South River Road Bedford, NH 03110 John R. Hantz Group Vice President- None Suite 107 Detroit Metro 17177 N. Laurel Park Livonia, MI 48154 PAGE 24 Item 29(b). As to each director, officer or partner of the principal underwriter (American Express Financial Advisors): (cont'd) Positions and Name and Principal Position and Offices Offices with Business Address with Underwriter Registrant Robert L. Harden Group Vice President- None Two Constitution Plaza Boston Metro Boston, MA 02129 Lorraine R. Hart Vice President- None IDS Tower 10 Insurance Investments Minneapolis, MN 55440 Scott A. Hawkinson Vice President-Assured None IDS Tower 10 Assets Product Development Minneapolis, MN 55440 and Management Brian M. Heath Group Vice President- None Suite 150 North Texas 801 E. Campbell Road Richardson, TX 75081 James G. Hirsh Vice President and None IDS Tower 10 Assistant General Minneapolis, MN 55440 Counsel David J. Hockenberry Group Vice President- None 30 Burton Hills Blvd. Eastern Tennessee Suite 175 Nashville, TN 37215 Kevin P. Howe Vice President- None IDS Tower 10 Government and Minneapolis, MN 55440 Customer Relations and Chief Compliance Officer David R. Hubers Chairman, Chief Director IDS Tower 10 Executive Officer and Minneapolis, MN 55440 President Marietta L. Johns Senior Vice President- None IDS Tower 10 Field Management Minneapolis, MN 55440 James E. Kaarre Vice President- None IDS Tower 10 Marketing Information Minneapolis, MN 55440 Linda B. Keene Vice President- None IDS Tower 10 Market Development Minneapolis, MN 55440 G. Michael Kennedy Vice President-Investment None IDS Tower 10 Services and Investment Minneapolis, MN 55440 Research PAGE 25 Item 29(b). As to each director, officer or partner of the principal underwriter (American Express Financial Advisors): (cont'd) Positions and Name and Principal Position and Offices Offices with Business Address with Underwriter Registrant Susan D. Kinder Senior Vice President- None IDS Tower 10 Human Resources Minneapolis, MN 55440 Richard W. Kling Senior Vice President- None IDS Tower 10 Risk Management Products Minneapolis, MN 55440 Paul F. Kolkman Vice President- None IDS Tower 10 Actuarial Finance Minneapolis, MN 55440 Claire Kolmodin Vice President- None IDS Tower 10 Service Quality Minneapolis, MN 55440 David S. Kreager Group Vice President- None Ste 108 Trestle Bridge V Greater Michigan 5136 Lovers Lane Kalamazoo, MI 49002 Steven C. Kumagai Director and Senior None IDS Tower 10 Vice President-Field Minneapolis, MN 55440 Management and Business Systems Mitre Kutanovski Group Vice President- None Suite 680 Chicago Metro 8585 Broadway Merrillville, IN 48410 Edward Labenski Jr. Vice President- None IDS Tower 10 Senior Portfolio Minneapolis, MN 55440 Manager Kurt A. Larson Vice President- None IDS Tower 10 Senior Portfolio Minneapolis, MN 55440 Manager Lori J. Larson Vice President- None IDS Tower 10 Variable Assets Product Minneapolis, MN 55440 Development Ryan R. Larson Vice President- None IDS Tower 10 IPG Product Development Minneapolis, MN 55440 Daniel E. Laufenberg Vice President and None IDS Tower 10 Chief U.S. Economist Minneapolis, MN 55440 PAGE 26 Item 29(b). As to each director, officer or partner of the principal underwriter (American Express Financial Advisors): (cont'd) Positions and Name and Principal Position and Offices Offices with Business Address with Underwriter Registrant Richard J. Lazarchic Vice President- None IDS Tower 10 Senior Portfolio Minneapolis, MN 55440 Manager Peter A. Lefferts Senior Vice President- None IDS Tower 10 Corporate Strategy and Minneapolis, MN 55440 Development Douglas A. Lennick Director and Executive None IDS Tower 10 Vice President-Private Minneapolis, MN 55440 Client Group Mary J. Malevich Vice President- None IDS Tower 10 Senior Portfolio Minneapolis, MN 55440 Manager Fred A. Mandell Vice President- None IDS Tower 10 Field Marketing Readiness Minneapolis, MN 55440 Daniel E. Martin Group Vice President- None Suite 650 Pittsburgh Metro 5700 Corporate Drive Pittsburgh, PA 15237 William J. McKinney Vice President- None IDS Tower 10 Field Management Minneapolis, MN 55440 Support Thomas W. Medcalf Vice President- None IDS Tower 10 Senior Portfolio Manager Minneapolis, MN 55440 William C. Melton Vice President- None IDS Tower 10 International Research Minneapolis, MN 55440 and Chief International Economist Janis E. Miller Vice President- None IDS Tower 10 Variable Assets Minneapolis, MN 55440 James A. Mitchell Executive Vice President- None IDS Tower 10 Marketing and Products Minneapolis, MN 55440 John P. Moraites Group Vice President- None Union Plaza Suite 900 Kansas/Oklahoma 3030 Northwest Expressway Oklahoma City, OK 73112 PAGE 27 Item 29(b). As to each director, officer or partner of the principal underwriter (American Express Financial Advisors): (cont'd) Positions and Name and Principal Position and Offices Offices with Business Address with Underwriter Registrant Pamela J. Moret Vice President- None IDS Tower 10 Corporate Communications Minneapolis, MN 55440 Alan D. Morgenstern Group Vice President- None Suite 200 At Large 3500 Market Street Camp Hill, NJ 17011 Barry J. Murphy Senior Vice President- None IDS Tower 10 Client Service Minneapolis, MN 55440 Mary Owens Neal Vice President- None IDS Tower 10 Mature Market Segment Minneapolis, MN 55440 Robert J. Neis Vice President- None IDS Tower 10 Technology Services Minneapolis, MN 55440 Ronald E. Newton Group Vice President- None 319 Southbridge St. Rhode Island/Central Auburn, MA 01501 Massachusetts Thomas V. Nicolosi Group Vice President- None Suite 220 New York Metro Area 500 Mamaroneck Avenue Harrison, NY 10528 James R. Palmer Vice President- None IDS Tower 10 Taxes Minneapolis, MN 55440 Carla P. Pavone Vice President- None IDS Tower 10 Specialty Service Teams Minneapolis, MN 55440 and Emerging Business Susan B. Plimpton Vice President- None IDS Tower 10 Segmentation Development Minneapolis, MN 55440 and Support Larry M. Post Group Vice President- None One Tower Bridge Philadelphia Metro 100 Front Street 8th Fl West Conshohocken, PA 19428 Ronald W. Powell Vice President and None IDS Tower 10 Assistant General Minneapolis, MN 55440 Counsel PAGE 28 Item 29(b). As to each director, officer or partner of the principal underwriter (American Express Financial Advisors): (cont'd) Positions and Name and Principal Position and Offices Offices with Business Address with Underwriter Registrant James M. Punch Vice President- None IDS Tower 10 Geographical Service Minneapolis, MN 55440 Teams Frederick C. Quirsfeld Vice President-Taxable None IDS Tower 10 Mutual Fund Investments Minneapolis, MN 55440 R. Daniel Richardson Group Vice President- None Suite 800 Southern Texas Arboretum Plaza One 9442 Capital of Texas Hwy N. Austin, TX 78759 Roger B. Rogos Group Vice President- None One Sarasota Tower Western Florida Suite 700 Two N. Tamiami Trail Sarasota, FL 34236 ReBecca K. Roloff Vice President-1994 None IDS Tower 10 Program Director Minneapolis, MN 55440 Stephen W. Roszell Vice President- None IDS Tower 10 Advisory Institutional Minneapolis, MN 55440 Marketing Max G. Roth Group Vice President- None Suite 201 S IDS Ctr Wisconsin/Upper Michigan 1400 Lombardi Avenue Green Bay, WI 54304 Robert A. Rudell Vice President- None IDS Tower 10 American Express Minneapolis, MN 55440 Institutional Retirement Services John P. Ryan Vice President and None IDS Tower 10 General Auditor Minneapolis, MN 55440 Erven Samsel Senior Vice President- None 45 Braintree Hill Park Field Management Suite 402 Braintree, MA 02184 Russell L. Scalfano Group Vice President- None Suite 201 Illinois/Indiana/Kentucky 101 Plaza East Blvd. Evansville, IN 47715 PAGE 29 Item 29(b). As to each director, officer or partner of the principal underwriter (American Express Financial Advisors): (cont'd) Positions and Name and Principal Position and Offices Offices with Business Address with Underwriter Registrant William G. Scholz Group Vice President- None Suite 205 Arizona/Las Vegas 7333 E Doubletree Ranch Rd Scottsdale, AZ 85258 Stuart A. Sedlacek Vice President- None IDS Tower 10 Assured Assets Minneapolis, MN 55440 Donald K. Shanks Vice President- None IDS Tower 10 Property Casualty Minneapolis, MN 55440 F. Dale Simmons Vice President-Senior None IDS Tower 10 Portfolio Manager, Minneapolis, MN 55440 Insurance Investments Judy P. Skoglund Vice President- None IDS Tower 10 Human Resources and Minneapolis, MN 55440 Organization Development Julian W. Sloter Group Vice President- None Ste 1700 Orlando FinCtr Orlando/Jacksonville 800 North Magnolia Ave. Orlando, FL 32803 Ben C. Smith Vice President- None IDS Tower 10 Workplace Marketing Minneapolis, MN 55440 William A. Smith Vice President and None IDS Tower 10 Controller-Private Minneapolis, MN 55440 Client Group James B. Solberg Group Vice President- None 466 Westdale Mall Eastern Iowa Area Cedar Rapids, IA 52404 Bridget Sperl Vice President- None IDS Tower 10 Human Resources Minneapolis, MN 55440 Management Services Paul J. Stanislaw Group Vice President- None Suite 1100 Southern California Two Park Plaza Irvine, CA 92714 Lois A. Stilwell Group Vice President- None Suite 433 Outstate Minnesota Area/ 9900 East Bren Road North Dakota/Western Wisconsin Minnetonka, MN 55343 PAGE 30 Item 29(b). As to each director, officer or partner of the principal underwriter (American Express Financial Advisors): (cont'd) Positions and Name and Principal Position and Offices Offices with Business Address with Underwriter Registrant William A. Stoltzmann Vice President and None IDS Tower 10 Assistant General Minneapolis, MN 55440 Counsel James J. Strauss Vice President- None IDS Tower 10 Corporate Planning Minneapolis, MN 55440 and Analysis Jeffrey J. Stremcha Vice President-Information None IDS Tower 10 Resource Management/ISD Minneapolis, MN 55440 Neil G. Taylor Group Vice President- None Suite 425 Seattle/Tacoma 101 Elliott Avenue West Seattle, WA 98119 John R. Thomas Senior Vice President- Director IDS Tower 10 Information and Minneapolis, MN 55440 Technology Melinda S. Urion Senior Vice President Treasurer IDS Tower 10 and Chief Financial Minneapolis, MN 55440 Officer Peter S. Velardi Group Vice President- None Suite 180 Atlanta/Birmingham 1200 Ashwood Parkway Atlanta, GA 30338 Charles F. Wachendorfer Group Vice President- None Suite 100 Denver/Salt Lake City/ Stanford Plaza II Albuquerque 7979 East Tufts Ave Pkwy Denver, CO 80237 Wesley W. Wadman Vice President- None IDS Tower 10 Senior Portfolio Minneapolis, MN 55440 Manager Norman Weaver Jr. Senior Vice President- None 1010 Main St Suite 2B Field Management Huntington Beach, CA 92648 Michael L. Weiner Vice President- None IDS Tower 10 Tax Research and Audit Minneapolis, MN 55440 James M. Weiss Vice President-Senior None IDS Tower 10 Portfolio Manager Minneapolis, MN 55440 PAGE 31 Item 29(b). As to each director, officer or partner of the principal underwriter (American Express Financial Advisors): (cont'd) Positions and Name and Principal Position and Offices Offices with Business Address with Underwriter Registrant Lawrence J. Welte Vice President- None IDS Tower 10 Investment Administration Minneapolis, MN 55440 Jeffry M. Welter Vice President- None IDS Tower 10 Equity and Fixed Income Minneapolis, MN 55440 Trading William N. Westhoff Senior Vice President and None IDS Tower 10 Global Chief Investment Minneapolis, MN 55440 Officer Thomas L. White Group Vice President- None Suite 200 Cleveland Metro 28601 Chagrin Blvd. Woodmere, OH 44122 Eric S. Williams Group Vice President- None Suite 250 Virginia 3951 Westerre Parkway Richmond, VA 23233 Edwin M. Wistrand Vice President and None IDS Tower 10 Assistant General Minneapolis, MN 55440 Counsel Michael R. Woodward Senior Vice President- None 32 Ellicott St Ste 100 Field Management Batavia, NY 14020 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 103 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, IDS Selective Fund, certifies that it meets the requirements for the effectiveness of this Amendment to its Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933, and has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Minneapolis and State of Minnesota on the 25th day of January, 1996. IDS SELECTIVE FUND by /s/ Melinda S. Urion** Melinda S. Urion, Treasurer by /s/ William R. Pearce** William R. Pearce, President 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 25th day of January, 1996. Signatures Capacity /s/ William R. Pearce** President, Principal William R. Pearce Executive Officer and Director /s/ Lynne V. Cheney* Lynne V. Cheney Director /s/ William H. Dudley* Director William H. Dudley /s/ Robert F. Froehlke* Director Robert F. Froehlke /s/ David R. Hubers* Director David R. Hubers /s/ Heinz F. Hutter* Director Heinz F. Hutter /s/ Anne P. Jones* Director Anne P. Jones PAGE 104 Signatures Capacity /s/ Donald M. Kendall* Director Donald M. Kendall /s/ Melvin R. Laird* Director Melvin R. Laird /s/ Lewis W. Lehr* Director Lewis W. Lehr /s/ Edson W. Spencer* Director Edson W. Spencer /s/ John R. Thomas* Director John R. Thomas /s/ Wheelock Whitney* Director Wheelock Whitney /s/ C. Angus Wurtele* C. Angus Wurtele Director *Signed pursuant to Directors' Power of Attorney dated Nov. 10, 1994, filed electronically as Exhibit 18(a) to Registrant's Post- Effective Amendment No. 79, by: Leslie L. Ogg **Signed pursuant to Officers' Power of Attorney dated November 1, 1995, filed electronically herewith by: Leslie L. Ogg PAGE 105 CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 83 TO REGISTRATION STATEMENT NO. 2-10700 This Post-Effective Amendment comprises the following papers and documents: The facing sheet. The cross-reference page. Part A. The prospectus. Part B. Statement of Additional Information. Financial Statements. Part C. Other information. Exhibits. The signatures. EX-99 2 EXHIBIT INDEX PAGE 1 IDS SELECTIVE FUND, INC. Registration Number 2-10700/811-499 EXHIBIT INDEX Exhibit 8 Custodian Agreement Exhibit 11 Independent Auditors' Consent Exhibit 17 Financial Data Schedules Exhibit 19(b) Officers' Power of Attorney, dated Nov. 1, 1995 EX-99.8 3 CUSTODIAN AGREEMENT PAGE 1 CUSTODIAN AGREEMENT THIS CUSTODIAN AGREEMENT dated July 23, 1986, between IDS Selective Fund, Inc., a Minnesota Corporation (hereinafter also called the "Corporation") and First National Bank of Minneapolis, a corporation organized under the laws of the United States of America with its principal place of business at Minneapolis, Minnesota (hereinafter also called the "Custodian"). WHEREAS, the Corporation desires that its securities and cash be hereafter held and administered by Custodian pursuant to the terms of this Agreement. NOW, THEREFORE, in consideration of the mutual agreements herein made, the Corporation and the Custodian agree as follows: Section l. Definitions The word "securities" as used herein shall be construed to include, without being limited to, shares, stocks, treasury stocks, including any stocks of this Corporation, notes, bonds, debentures, evidences of indebtedness, options to buy or sell stocks or stock indexes, certificates of interest or participation in any profit- sharing agreements, collateral trust certificates, preorganization certificates or subscriptions, transferable shares, investment contracts, voting trust certificates, certificates of deposit for a security, fractional or undivided interests in oil, gas or other mineral rights, or any certificates of interest or participation in, temporary or interim certificates for, receipts for, guarantees of, or warrants or rights to subscribe to or purchase any of the foregoing, acceptances and other obligations and any evidence of any right or interest in or to any cash, property or assets and any interest or instrument commonly known as a security. In addition, for the purpose of this Agreement, the word "securities" also shall include other instruments in which the Corporation may invest including currency forward contracts and commodities such as interest rate or index futures contracts, margin deposits on such contracts or options on such contracts. The words "custodian order" shall mean a request or direction, including a computer printout, directed to the Custodian and signed in the name of the Corporation by any two individuals designated in the current certified list referred to in Section 2. The word "facsimile" shall mean an exact copy or likeness which is electronically transmitted for instant reproduction. Section 2. Names, Titles and Signatures of Authorized Persons The Corporation will certify to the Custodian the names and signatures of its present officers and other designated persons authorized on behalf of the Corporation to direct the Custodian by custodian order as hereinbefore defined. The Corporation agrees that whenever any change occurs in this list it will file with the Custodian a copy of a resolution certified by the Secretary or an Assistant Secretary of the Corporation as having been duly adopted PAGE 2 by the Board of Directors or the Executive Committee of the Board of Directors of the Corporation designating those persons currently authorized on behalf of the Corporation to direct the Custodian by custodian order, as hereinbefore defined, and upon such filing (to be accompanied by the filing of specimen signatures of the designated persons) the persons so designated in said resolution shall constitute the current certified list. The Custodian is authorized to rely and act upon the names and signatures of the individuals as they appear in the most recent certified list from the Corporation which has been delivered to the Custodian as hereinabove provided. Section 3. Use of Subcustodians The Custodian may make arrangements, where appropriate, with other banks having not less than two million dollars aggregate capital, surplus and undivided profits for the custody of securities and cash. The Custodian also may enter into arrangements for the custody of "Foreign Securities" and cash entrusted to its care through "Eligible Foreign Custodian," as those terms are defined by Rule 17f-5 under the Investment Company Act of 1940 (the "Act"), or such other entity as permitted by the Securities and Exchange Commission (the "SEC") (such Eligible Foreign Custodians, collectively, "Foreign Custodial Agents") provided, if required by the SEC, that the Board has given its prior approval to the use of, and Custodian's contract with, each Foreign Custodial Agent by resolution, and a certified copy of such resolution has been provided to the Custodian. To the extent the provisions of this Agreement are consistent with the requirements of the Act, rules, orders or no-action letters of the SEC, they shall apply to all such foreign custodianships. To the extent such provisions are inconsistent with or additional requirements are established by the Act or such rules, orders or no-action letters, the requirements of the Act or such rules, orders or no-action letters will prevail and the parties will adhere to such requirements; provided, however, in the absence of notification from the Corporation of any changes or additions to such requirements, the Custodian shall have no duty or responsibility to inquire as to any such changes or additions. All subcustodians of the Custodian (such subcustodians, collectively, the "Subcustodians"), including all Foreign Custodial Agents, shall be subject to the instructions of the Custodian and not to those of the Corporation and shall act solely as agent of the Custodian. Section 4. Receipt and Disbursement of Money (1) The Custodian shall open and maintain a separate account or accounts in the name of the Corporation and cause any Subcustodians to open and maintain such account or accounts, subject only to checks, drafts or directives by the Custodian or such Subcustodian pursuant to the terms of this Agreement. The Custodian or such Subcustodian shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account PAGE 3 of the Corporation. The Custodian or such Subcustodian shall make payments of cash to or for the account of the Corporation from such cash only: (a) for the purchase of securities for the portfolio of the Corporation upon the receipt of such securities by the Custodian or such Subcustodian; (b) for the purchase or redemption of shares of capital stock of the Corporation; (c) for the payment of interest, dividends, taxes, management fees, or operating expenses (including, without limitation thereto, fees for legal, accounting and auditing services); (d) for payment of distribution fees, commissions, or redemption fees, if any; (e) for payments in connection with the conversion, exchange or surrender of securities owned or subscribed to by the Corporation held by or to be delivered to the Custodian; (f) for payments in connection with the return of securities loaned by the Corporation upon receipt of such securities or the reduction of collateral upon receipt of proper notice; (g) for payments for other proper corporate purposes; or (h) upon the termination of this Agreement. Before making any such payment for the purposes permitted under the terms of items (a), (b), (c), (d), (e), (f) or (g) of paragraph (1) of this section, the Custodian shall receive and may rely upon a custodian order directing such payment and stating that the payment is for such a purpose permitted under these items (a), (b), (c), (d), (e), (f) or (g) and that in respect to item (g), a copy of a resolution of the Board of Directors or of the Executive Committee of the Board of Directors of the Corporation signed by an officer of the Corporation and certified by its Secretary or an Assistant Secretary, specifying the amount of such payment, setting forth the purpose to be a proper corporate purpose, and naming the person or persons to whom such payment is made. Notwithstanding the above, for the purposes permitted under items (a) or (f) of paragraph (1) of this section, the Custodian may rely upon a facsimile order. (2) The Custodian is hereby appointed the attorney-in-fact of the Corporation to endorse and collect all checks, drafts or other orders for the payment of money received by the Custodian for the account of the Corporation and drawn on or to the order of the Corporation and to deposit same to the account of the Corporation pursuant to this Agreement. PAGE 4 (3) Subject to the prior authorization provisions of Section 3 of this Agreement, the Corporation authorizes the Custodian to establish and maintain in each country or other jurisdiction in which the principal trading market for any Foreign Securities is located, or in which any Foreign Securities are to be presented for payment, an account or accounts which may include nostro accounts with Custodian branches and omnibus accounts of Custodian at Foreign Custodial Agents for receipt of cash in such currencies as directed by custodian order. For purposes of this Agreement, cash so held in any such account shall be evidenced by separate book entries maintained by Custodian and shall be deemed to be cash held by Custodian. Cash received or credited by Custodian or any Custodian branch or any Foreign Custodial Agent in a currency other than United States dollars shall be maintained in such currency and shall not be converted or remitted except in accordance with the custodian order, except as permitted by Section 7. Section 5. Receipt of Securities Except as permitted by the second paragraph of this section, the Custodian shall, and shall cause any Subcustodians to, hold in a separate account or accounts, and physically segregated at all times from those of any other persons, firms or corporations, pursuant to the provisions hereof, all securities and cash received for the account of the Corporation. The Custodian shall, and shall cause any Subcustodians to, record and maintain a record of all certificate numbers. Securities so received shall be held in the name of the Corporation, in the name of an exclusive nominee duly appointed by the Custodian or such Subcustodian, or in bearer form, as appropriate. Subject to such rules, regulations or guidelines as the SEC may adopt, the Custodian may deposit all or any part of the securities owned by the Corporation in a securities depository which includes any system for the central handling of securities established by a national securities exchange or a national securities association registered with the SEC under the Securities Exchange Act of 1934, or such other person as may be permitted by the SEC, pursuant to which system all securities of any particular class or series of any issuer deposited within the system are treated as fungible and may be transferred or pledged by bookkeeping entry without physical delivery of such securities. All securities are to be held or disposed of by the Custodian for, and subject at all times to the instructions of, the Corporation pursuant to the terms of this Agreement. The Custodian shall have no power or authority to assign, hypothecate, pledge or otherwise dispose of any such securities, except pursuant to the directive of the Corporation and only for the account of the Corporation as set forth in Section 6 of this Agreement. PAGE 5 Section 6. Transfer Exchange, Delivery, etc. of Securities The Custodian shall have sole power to release or deliver any securities of the Corporation held by it pursuant to this Agreement. The Custodian agrees to transfer, exchange or deliver securities held by it or any Subcustodian only: (a) for sales of such securities for the account of the Corporation, upon receipt of payment therefor; (b) when such securities are called, redeemed, retired or otherwise become payable; (c) for examination upon the sale of any such securities in accordance with "street delivery" custom which would include delivery against interim receipts or other proper delivery receipts; (d) in exchange for or upon conversion into other securities alone or other securities and cash whether pursuant to any plan of merger, consolidation, reorganization, recapitalization or readjustment, or otherwise; (e) for the purpose of exchanging interim receipts or temporary certificates for permanent certificates; (f) upon conversion of such securities pursuant to their terms into other securities; (g) upon exercise of subscription, purchase or other similar rights represented by such securities; (h) for loans of such securities by the Corporation upon receipt of collateral; or (i) for other proper corporate purposes. As to any deliveries made by the Custodian pursuant to items (a), (b), (c), (d), (e), (f), (g) and (h), securities or cash received in exchange therefore shall be delivered to the Custodian, a Subcustodian, or to a securities depository. Before making any such transfer, exchange or delivery, the Custodian shall receive a custodian order or a facsimile from the Corporation requesting such transfer, exchange or delivery and stating that it is for a purpose permitted under this section (whenever a facsimile is utilized, the Corporation will also deliver an original signed custodian order) and, in respect to item (i), a copy of a resolution of the Board of Directors or of the Executive Committee of the Board of Directors of the Corporation signed by an officer of the Corporation and certified by its Secretary or an Assistant Secretary, specifying the securities, setting forth the purpose for which such payment, transfer, exchange or delivery is to be made, declaring such PAGE 6 purpose to be a proper corporate purpose, and naming the person or persons to whom such transfer, exchange or delivery of such securities shall be made. Section 7. Custodian's Acts Without Instructions Unless and until the Custodian receives a contrary custodian order from the Corporation, the Custodian shall or shall cause a Subcustodian to: (a) present for payment all coupons and other income items held by the Custodian or such Subcustodian for the account of the Corporation which call for payment upon presentation and hold all cash received by it upon such payment for the account of the Corporation; (b) present for payment all securities held by it or such Subcustodian which mature or when called, redeemed, retired or otherwise become payable; (c) ascertain all stock dividends, rights and similar securities to be issued with respect to any securities other than Foreign Securities; (d) collect and hold for the account of the Corporation all stock dividends, rights and similar securities issued with respect to any securities; (e) ascertain all interest and cash dividends to be paid to security holders with respect to any securities other than Foreign Securities; (f) collect and hold all interest and cash dividends for the account of the Corporation; (g) present for exchange securities converted pursuant to their terms into other securities; (h) exchange interim receipts or temporary securities for definitive securities; (i) execute in the name of the Corporation such ownership and other certificates as may be required to obtain payments in respect thereto, provided that the Corporation shall have furnished to the Custodian or such Subcustodian any information necessary in connection with such certificates; and (j) convert interest and dividends received with respect to Foreign Securities into United States dollars whenever it is practicable to do so through customary banking channels, including the Custodian's own banking facilities. PAGE 7 Section 8. Settlement Procedures Settlement procedures for transactions in Foreign Securities, including receipts and payments of cash held in any nostro account or omnibus account, shall be carried out in accordance with instructions in the operational manual provided by the Custodian (the "Operational Manual"). It is understood that such settlement procedures may vary, as provided in the Operational Manual, from securities market to securities market, to reflect particular settlement practices in such markets. With respect to any transaction involving Foreign Securities, the Custodian or any Subcustodian in its discretion may cause the Corporation to be credited on the contractual settlement date with proceeds of any sale or exchange of Foreign Securities and to be debited on the contractual settlement date for the cost of Foreign Securities purchased or acquired. The Custodian may reverse any such credit or debit if the transaction with respect to which such credit or debit was made fails to settle within a reasonable period, determined by the Custodian in its discretion, after the contractual settlement date except that if any Foreign Securities delivered pursuant to this section are returned by the recipient thereof, the Custodian may cause any such credits and debits to be reversed at any time. With respect to any transactions as to which the Custodian does not determine so to credit or debit the Corporation, the proceeds from the sale or exchange of Foreign Securities will be credited and the cost of such Foreign Securities purchased or acquired will be debited on the date such proceeds or Foreign Securities are received by the Custodian. Notwithstanding the preceding paragraph, settlement, payment and delivery for Foreign Securities may be effected in accordance with the customary or established securities trading or securities processing practices and procedures in the jurisdiction or market in which the transaction occurs, including, without limitation, delivering Foreign Securities to the purchaser thereof or to a dealer therefor against a receipt with the exception of receiving later payment for such Foreign Securities from such purchaser or dealer. Section 9. Records The Custodian hereby agrees that it shall create, maintain, and retain all records relating to its activities and obligations under this Agreement in such manner as will meet their obligations under this Agreement and the obligations of the Corporation under the Act, particularly Section 31 thereof and Rules 31a-1 and 31a-2 thereunder and Section 17(f) thereof and the rules thereunder, and applicable federal, state and foreign tax laws and other laws or administrative rules or procedures, in each case as currently in effect, which may be applicable to the Corporation. All records so maintained in connection with the performance of its duties under this Agreement shall remain the property of the Corporation and, in PAGE 8 the event of termination of this Agreement, shall be delivered in accordance with the provisions of this Agreement. (a) With respect to securities and cash held by the Custodian's branches, such securities and cash may be placed in an omnibus account for the customers of the Custodian, and the Custodian shall maintain separate book entry records for each such omnibus account. (b) With respect to securities and cash deposited by the Custodian with a Foreign Custodial Agent, the Custodian shall indemnify on its books as belonging to the Corporation the securities and cash shown on the Custodian's account on the books of such Foreign Custodial Agent. (c) With respect to securities and cash deposited with a securities depository or clearing agency, incorporated or organized under the laws of a country other than the United States, which operates the central system for handling of securities or equivalent book-entries in that country or which operates a transnational system for the central handling or securities or equivalent book-entries (on "Eligible Foreign Securities Depository"), the Custodian shall cause the securities and cash shown on the account on the books of the Eligible Foreign Securities Depository to be identified as belonging to the Custodian as agent for the Corporation. The Custodian hereby agrees that the books and records of the Custodian (including any Custodian branch) pertaining to its actions under this Agreement shall be open to the physical, on- premises inspection and audit by the independent accountant (the "Accountant") employed by, or other representatives of, the Corporation, and, upon the request of the Accountant, confirmation of the contents of those records shall be provided by the Custodian. The Custodian shall use its best efforts to cause any Foreign Custodial Agent to afford access to the Accountant to the books and records of such Foreign Custodial Agent with respect to securities and cash held by such Foreign Custodial Agent for the Corporation. the Custodian also agrees to furnish the Accountant with such reports of the Custodian's (including any Custodian branches') auditors as they relate to the services provided under this Agreement and as are necessary for the Accountant to conduct its examination of the books and records pertaining to affairs of the Corporation, and the Custodian shall use its best efforts to obtain and furnish similar reports of any Foreign Custodial Agent holding securities and cash for the Corporation. Section 10. Registration of Securities Securities which are ordinarily held in registered form may be registered in the name of the Custodian's nominee or, as to any securities in the physical possession of an entity other than the Custodian, in the name of such entity's nominee. The Corporation PAGE 9 agrees to hold any such nominee harmless from any liability as a holder of record of such securities. The Custodian may without notice to the Corporation cause any such securities to cease to be registered in the name of any such nominee and to be registered in the name of the Corporation. In the event that any security registered in the name of the Custodian's nominee or held by any Subcustodians and registered in the name of such Subcustodian's nominee is called for partial redemption by the issuer of such security, the Custodian may allot, or cause to be allotted, the called portion to the respective beneficial holders of such class of security in any manner the Custodian deems to be fair and equitable. Section 11. Transfer Taxes The Corporation shall pay or reimburse the Custodian and any Subcustodian for any transfer taxes payable upon transfers of securities made hereunder, including transfers resulting from the termination of this Agreement. The Custodian shall, and shall use its best efforts to cause any Subcustodian to, execute such certificates in connection with securities delivered to it under this Agreement as may be required, under any applicable law or regulation, to exempt from taxation any transfers and/or deliveries of any such securities which may be entitled to such exemption. Section 12. Voting and Other Action Neither the Custodian or any Subcustodian nor any nominee of the Custodian or such Subcustodian shall vote any of the securities held hereunder by or for the account of the Corporation. The Custodian shall, and shall use its best efforts to cause any Subcustodian to, promptly deliver to the Corporation all notices, proxies and proxy soliciting materials with relation to such securities, such proxies to be executed by the registered holder of such securities (if registered otherwise than in the name of the Corporation), but without indicating the manner in which such proxies are to be voted. The Custodian shall, and shall use its best efforts to cause any Subcustodian to, transmit promptly to the Corporation all written information (including, without limitation, pendency of calls and maturities of securities and expirations of rights in connection therewith) received by the Custodian or such Subcustodian from issuers of the securities being held for the Corporation. With respect to tender or exchange offers, the Custodian shall, and shall use its best efforts to cause any Subcustodian to, transmit promptly to the Corporation all written information received by the Custodian or such Subcustodian from issuers of the securities whose tender or exchange is sought and from the party (or his agents) making the tender or exchange offer. PAGE 10 Section 13. Custodian's Reports The Custodian shall furnish the Corporation as of the close of business each day a statement showing all transactions and entries for the account of the Corporation. The books and records of the Custodian pertaining to its actions as Custodian under this Agreement and securities held hereunder by the Custodian shall be open to inspection and audit by officers of the Corporation, internal auditors employed by the Corporation's investment adviser, and independent auditors employed by the Corporation. The Custodian shall furnish the Corporation in such form as may reasonably be requested by the Corporation a report, including a list of the securities held by it in custody for the account of the Corporation, identification of any subcustodian, and identification of such securities held by such subcustodian, as of the close of business of the last business day of each month, which shall be certified by a duly authorized officer of the Custodian. It is further understood that additional reports may from time to time be requested by the Corporation. Should any report ever be filed with any governmental authority pertaining to lost or stolen securities, the Custodian will concurrently provide the Corporation with a copy of that report. The Custodian also shall furnish such reports on its systems of internal accounting control as the Corporation may reasonably request from time to time. Section 14. Security Interest, Liens and Transfers of Beneficial Ownership The securities and cash held by the Custodian hereunder shall not be subject to any right, change, security interest, lien or claim of any kind in favor of the Custodian or its creditors, except a claim of payment for their safe custody or administration, and beneficial ownership of such securities and cash shall be freely transferable without the payment of money or value other than for safe custody or administration. Any agreement the Custodian shall enter into with any Subcustodian, including any Foreign Custodial Agent, shall contain a provision which is substantially identical to the foregoing. In the event that there shall be asserted any attachment or lien on or against any securities or cash held in any omnibus account or nostro account referred to in this Agreement which results from any claim against the Custodian (including any branch) or any such account, which is not directly related to transactions in securities or cash for the Corporation, the Custodian will use its best efforts promptly to discharge such attachment or lien. If the Custodian shall not have discharged such attachment or lien within five business days, it shall notify the Corporation of the existence of the attachment or lien. If the attachment or lien is not discharged on the date required for delivery or payment with respect to any securities or cash in accordance with the provisions of the Operation Manual: PAGE 11 (a) in the case of such securities, at the option of the Corporation, the Custodian shall either immediately transfer to the Corporation a like amount of such securities (provided the same shall be reasonably available) or immediately transfer an amount in United States dollars equal to the market value of such securities, valued in accordance with such procedures as may be mutually agreed to by the parties thereto; (b) in the case of cash, the Custodian shall immediately transfer to the Corporation an equal amount of cash in United States dollars. Section 15. Compensation For its services hereunder the Custodian shall be paid such compensation and out-of-pocket or incidental expenses at such times as may from time to time be agreed on in writing by the parties hereto in a Custodian Fee Agreement. Section 16. Standard of Care The Custodian shall not be liable for any action taken in good faith upon any custodian order or facsimile herein described or certified copy of any resolution of the Board of Directors or of the Executive Committee of the Board of Directors of the Corporation, and may rely on the genuineness of any such document which it may in good faith believe to have been validly executed. The Corporation agrees to indemnify and hold harmless the Custodian, any Subcustodian, or any nominee thereof from all taxes, charges, expenses, assessments, claims and liabilities (including counsel fees) incurred or assessed against any such entity in connection with the performance of this Agreement, except such as may arise from such entity's own negligent action, negligent failure to act or willful misconduct. The Custodian is authorized to charge any account of the Corporation for such items. In the event of any advance of cash for any purpose made by the Custodian resulting from orders or instructions of the Corporation, or in the event that the Custodian or any nominee thereof shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Agreement, except such as may arise from such entity's own negligent action, negligent failure to act or willful misconduct, any property at any time held for the account of the Corporation shall be security therefor. The Custodian shall maintain a standard of care equivalent to that which would be required of a bailee for hire and shall not be liable for any loss or damage to the Corporation resulting from participation in a securities depository unless such loss or damage arises by reason of any negligence, misfeasance, or willful misconduct of officers or employees of the Custodian, or from its PAGE 12 failure to enforce effectively such rights as it may have against any securities depository or from use of a Subcustodian, unless such loss or damage arises by reason of any negligence, mis- feasance, or willful misconduct of officers or employees of the Custodian, or from its failure to enforce effectively such rights as it may have against such Subcustodian. Anything in the foregoing to the contrary notwithstanding, the Custodian shall exercise, in the performance of its obligations undertaken or reasonably assumed with respect to this Agreement, including the recommendation to the Board of Foreign Custodial Agents, reasonable care, for which the Custodian shall be responsible to the same extent as if it were performing such duties directly and holding such securities and cash in Minnesota, United States of America. The Custodian shall be indemnified and held harmless by the Corporation from and against any loss or liability for any action taken or omitted to be taken hereunder in good faith upon custodian order and may rely on the genuineness of all such orders and documents as it in good faith believes to have been validly executed. The Custodian shall be responsible for the securities and cash held by or deposited with any Subcustodian to the same extent as if such securities and cash were directly held by or deposited with the Custodian. The Custodian hereby agrees that it shall indemnify and hold the Corporation harmless from and against any loss which shall occur as a result of the failure of a foreign Custodial Agent holding the securities and cash to exercise reasonable care with respect to the safekeeping of such securities and cash to the extent that the Custodian would be required to indemnify and hold the Corporation harmless if the Custodian were itself holding such securities and cash in Minnesota. It is also understood that the Custodian shall not have liability for loss except by reason of the Custodian's negligence, fraud or willful misconduct, or by reason of negligence, fraud or willful misconduct of any Subcustodian holding such securities or cash for the Corporation. The Custodian warrants that the established procedures to be followed by any Subcustodian, in the opinion of the Custodian after due inquiry, afford protection for such securities and cash at least equal to that afforded by the Custodian's established procedures with respect to similar securities and cash held by the Custodian (including its securities depositories) in Minnesota. However, the Custodian shall have no liability for any loss or liability occasioned by delay in the actual receipt by it or any Subcustodian of notice of any payment, redemption, or other transaction regarding securities unless such delay is a result of its own negligence, fraud, or willful misconduct. The Custodian shall not be responsible for any loss of the Corporation, or to take any action with respect to any attachment or lien on any omnibus account or nostro account, except as provided in Section 14 of this Agreement, in such loss, attachment or lien arises by reason of any cause or circumstances beyond the control of the Custodian, including acts of civil or military PAGE 13 authority, expropriation, national emergency, acts of God, insurrection, war, riots, or failure of transportation, communication or power supply, or the failure of any person, firm or corporation (other than the Custodian or any Subcustodian acting on behalf of the Custodian) to perform any obligation if such failure results in any such loss. Section 17. Insurance The Custodian represents and warrants that it presently maintains and shall maintain for the duration of this Agreement a bankers' blanket bond (the "Bond") which provides standard fidelity and non- negligent loss coverage with respect to securities and cash which may be held by the Custodian and securities and cash which may be held by any Subcustodian which may be utilized by the Custodian pursuant to this Agreement. The Custodian agrees that, if at any time the Custodian for any reason discontinues such coverage, it shall immediately notify the Corporation in writing. The Custodian represents that only the named insured on the Bond, which includes the Custodian but not any of its customers, is directly protected against loss. The Custodian represents that while it might resist a claim of one of its customers to recover for a loss not covered by the Bond, as a practical matter, where a claim is brought and a loss is possibly covered by the Bond, the Custodian would give notice of the claim to its insurer, and the insurer would normally determine whether to defend the claim against the Custodian or to pay the claim on behalf of the Custodian. The Custodian also represents that it does not intend to obtain any insurance for the benefit of the Corporation which protects against the imposition of the proceeds of sale of any securities or against confiscation, expropriation or nationalization of any securities or the assets of the issuer of such securities by a government or any foreign country in which the issuer of such securities is organized or in which securities are held for safekeeping either by the Custodian or any Subcustodian in such country. The Custodian represents that it has discussed the availability of expropriation insurance with the Corporation. The Custodian also represents that it has advised the Corporation as to its understanding of the position of the Staff of the SEC that any investment company investing in securities of foreign issuers has the responsibility for reviewing the possibility of the imposition of exchange control restrictions which would affect the liquidity of such investment company's assets and the possibility of exposure to political risk, including the appropriateness of insuring against such risk. The Custodian represents that the Corporation has acknowledged that it has the responsibility to review the possibility of such risks and what, if any, action should be taken. Section 18. Termination and Amendment of Agreement The Corporation and the Custodian mutually may agree from time to time in writing to amend, to add to, or to delete from any PAGE 14 provision of this Agreement. The Custodian may terminate this Agreement by giving the Corporation ninety days' written notice of such termination by registered mail addressed to the Corporation at its principal place of business. The Corporation may terminate this Agreement at any time by written notice thereof delivered, together with a copy of the resolution of the Board of Directors authorizing such termination and certified by the Secretary of the Corporation, by registered mail to the Custodian. Upon such termination of this Agreement, assets of the Corporation held by the Custodian shall be delivered by the Custodian to a successor custodian, if one has been appointed by the Corporation, upon receipt by the Custodian of a copy of the resolution of the Board of Directors of the Corporation certified by the Secretary, showing appointment of the successor custodian, and provided that such successor custodian is a bank or trust company, organized under the laws of the United States or of any State of the United States, having not less than two million dollars aggregate capital, surplus and undivided profits. Upon the termination of this Agreement as a part of the transfer of assets, either to a successor custodian or otherwise, the Custodian will deliver securities held by it hereunder, when so authorized and directed by resolution of the Board of Directors of the Corporation, to a duly appointed agent of the successor custodian or to the appropriate transfer agents for transfer of registration and delivery as directed. Delivery of assets on termination of this Agreement shall be effected in a reasonable, expeditious and orderly manner; and in order to accomplish an orderly transition from the Custodian to the successor custodian, the Custodian shall continue to act as such under this Agreement as to assets in its possession or control. Termination as to each security shall become effective upon delivery to the successor custodian, its agent, or to a transfer agent for a specific security for the account of the successor custodian, and such delivery shall constitute effective delivery by the Custodian to the successor under this Agreement. In addition to the means of termination hereinbefore authorized, this Agreement may be terminated at any time by the vote of a majority of the outstanding shares of the Corporation and after written notice of such action to the Custodian. Section 19. General Nothing expressed or mentioned in or to be implied from any provision of this Agreement is intended to, or shall be construed to give any person or corporation other than the parties hereto, any legal or equitable right, remedy or claim under or in respect of this Agreement, or any covenant, condition or provision herein contained, this Agreement and all of the covenants, conditions and PAGE 15 provisions hereof being intended to be and being for the sole and exclusive benefit of the parties hereto and their respective successors and assigns. This Agreement shall be governed by the laws of the State of Minnesota. Attest: IDS SELECTIVE FUND, INC. ______________________________ By _______________________________ William C. Herber Leslie L. Ogg Secretary Vice President FIRST NATIONAL BANK OF MINNEAPOLIS By ________________________________ By ________________________________ EX-99.11 4 INDEPENDENT AUDITORS' CONSENT PAGE 1 INDEPENDENT AUDITORS' CONSENT ___________________________________________________________________ The Board of Directors and Shareholders IDS Selective 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 , 1996 EX-99.17 5 FINANCIAL DATA SCHEDULE [ARTICLE] 6 [SERIES] [NUMBER] 1 [NAME] IDS SELECTIVE FUND CLASS A [PERIOD-TYPE] YEAR [FISCAL-YEAR-END] NOV-30-1995 [PERIOD-END] NOV-30-1995 [INVESTMENTS-AT-COST] 1577445592 [INVESTMENTS-AT-VALUE] 1704527689 [RECEIVABLES] 25470218 [ASSETS-OTHER] 101344419 [OTHER-ITEMS-ASSETS] 0 [TOTAL-ASSETS] 1831342326 [PAYABLE-FOR-SECURITIES] 9972000 [SENIOR-LONG-TERM-DEBT] 0 [OTHER-ITEMS-LIABILITIES] 117524285 [TOTAL-LIABILITIES] 127496285 [SENIOR-EQUITY] 0 [PAID-IN-CAPITAL-COMMON] 1566388703 [SHARES-COMMON-STOCK] 156460478 [SHARES-COMMON-PRIOR] 163598056 [ACCUMULATED-NII-CURRENT] 2530909 [OVERDISTRIBUTION-NII] 0 [ACCUMULATED-NET-GAINS] 7530072 [OVERDISTRIBUTION-GAINS] 0 [ACCUM-APPREC-OR-DEPREC] 127396357 [NET-ASSETS] 1703846041 [DIVIDEND-INCOME] 186975 [INTEREST-INCOME] 112694319 [OTHER-INCOME] 0 [EXPENSES-NET] (12966820) [NET-INVESTMENT-INCOME] 99914474 [REALIZED-GAINS-CURRENT] 7644942 [APPREC-INCREASE-CURRENT] 173013840 [NET-CHANGE-FROM-OPS] 280573256 [EQUALIZATION] 0 [DISTRIBUTIONS-OF-INCOME] (91687959) [DISTRIBUTIONS-OF-GAINS] (20000191) [DISTRIBUTIONS-OTHER] 0 [NUMBER-OF-SHARES-SOLD] 23080473 [NUMBER-OF-SHARES-REDEEMED] (39632200) [SHARES-REINVESTED] 9414149 [NET-CHANGE-IN-ASSETS] 301724656 [ACCUMULATED-NII-PRIOR] 102344658 [ACCUMULATED-GAINS-PRIOR] 21139491 [OVERDISTRIB-NII-PRIOR] 0 [OVERDIST-NET-GAINS-PRIOR] 0 [GROSS-ADVISORY-FEES] 7840014 [INTEREST-EXPENSE] 0 [GROSS-EXPENSE] 12966820 [AVERAGE-NET-ASSETS] 1409179186 [PER-SHARE-NAV-BEGIN] 8.57 [PER-SHARE-NII] .59 [PER-SHARE-GAIN-APPREC] 1.08 [PER-SHARE-DIVIDEND] (.58) [PER-SHARE-DISTRIBUTIONS] (.13) [RETURNS-OF-CAPITAL] 0 [PER-SHARE-NAV-END] 9.53 [EXPENSE-RATIO] .85 [AVG-DEBT-OUTSTANDING] 0 [AVG-DEBT-PER-SHARE] 0
EX-99.17 6 17 FINANCIAL DATA SCHEDULE [ARTICLE] 6 [SERIES] [NUMBER] 2 [NAME] IDS SELECTIVE FUND CLASS B [PERIOD-TYPE] OTHER [FISCAL-YEAR-END] NOV-30-1995 [PERIOD-START] MAR-20-1995 [PERIOD-END] NOV-30-1995 [INVESTMENTS-AT-COST] 1577445592 [INVESTMENTS-AT-VALUE] 1704527689 [RECEIVABLES] 25470218 [ASSETS-OTHER] 101344419 [OTHER-ITEMS-ASSETS] 0 [TOTAL-ASSETS] 1831342326 [PAYABLE-FOR-SECURITIES] 9972000 [SENIOR-LONG-TERM-DEBT] 0 [OTHER-ITEMS-LIABILITIES] 117524285 [TOTAL-LIABILITIES] 127496285 [SENIOR-EQUITY] 0 [PAID-IN-CAPITAL-COMMON] 1566388703 [SHARES-COMMON-STOCK] 7530528 [SHARES-COMMON-PRIOR] 0 [ACCUMULATED-NII-CURRENT] 2530909 [OVERDISTRIBUTION-NII] 0 [ACCUMULATED-NET-GAINS] 7530072 [OVERDISTRIBUTION-GAINS] 0 [ACCUM-APPREC-OR-DEPREC] 127396357 [NET-ASSETS] 1703846041 [DIVIDEND-INCOME] 186975 [INTEREST-INCOME] 112694319 [OTHER-INCOME] 0 [EXPENSES-NET] (12966820) [NET-INVESTMENT-INCOME] 99914474 [REALIZED-GAINS-CURRENT] 7644942 [APPREC-INCREASE-CURRENT] 173013840 [NET-CHANGE-FROM-OPS] 280573256 [EQUALIZATION] 0 [DISTRIBUTIONS-OF-INCOME] (1325265) [DISTRIBUTIONS-OF-GAINS] 0 [DISTRIBUTIONS-OTHER] 0 [NUMBER-OF-SHARES-SOLD] 8072716 [NUMBER-OF-SHARES-REDEEMED] (671879) [SHARES-REINVESTED] 129691 [NET-CHANGE-IN-ASSETS] 301724656 [ACCUMULATED-NII-PRIOR] 102344658 [ACCUMULATED-GAINS-PRIOR] 21139491 [OVERDISTRIB-NII-PRIOR] 0 [OVERDIST-NET-GAINS-PRIOR] 0 [GROSS-ADVISORY-FEES] 7840014 [INTEREST-EXPENSE] 0 [GROSS-EXPENSE] 12966820 [AVERAGE-NET-ASSETS] 33643928 [PER-SHARE-NAV-BEGIN] 8.78 [PER-SHARE-NII] .40 [PER-SHARE-GAIN-APPREC] .75 [PER-SHARE-DIVIDEND] (.40) [PER-SHARE-DISTRIBUTIONS] 0 [RETURNS-OF-CAPITAL] 0 [PER-SHARE-NAV-END] 9.53 [EXPENSE-RATIO] 1.67 [AVG-DEBT-OUTSTANDING] 0 [AVG-DEBT-PER-SHARE] 0
EX-99.17 7 17 FINANCIAL DATA SCHEDULE [ARTICLE] 6 [SERIES] [NUMBER] 3 [NAME] IDS SELECTIVE FUND CLASS Y [PERIOD-TYPE] OTHER [FISCAL-YEAR-END] NOV-30-1995 [PERIOD-START] MAR-20-1995 [PERIOD-END] NOV-30-1995 [INVESTMENTS-AT-COST] 1577445592 [INVESTMENTS-AT-VALUE] 1704527689 [RECEIVABLES] 25470218 [ASSETS-OTHER] 101344419 [OTHER-ITEMS-ASSETS] 0 [TOTAL-ASSETS] 1831342326 [PAYABLE-FOR-SECURITIES] 9972000 [SENIOR-LONG-TERM-DEBT] 0 [OTHER-ITEMS-LIABILITIES] 117524285 [TOTAL-LIABILITIES] 127496285 [SENIOR-EQUITY] 0 [PAID-IN-CAPITAL-COMMON] 1566388703 [SHARES-COMMON-STOCK] 14864594 [SHARES-COMMON-PRIOR] 0 [ACCUMULATED-NII-CURRENT] 2530909 [OVERDISTRIBUTION-NII] 0 [ACCUMULATED-NET-GAINS] 7530072 [OVERDISTRIBUTION-GAINS] 0 [ACCUM-APPREC-OR-DEPREC] 127396357 [NET-ASSETS] 1703846041 [DIVIDEND-INCOME] 186975 [INTEREST-INCOME] 112694319 [OTHER-INCOME] 0 [EXPENSES-NET] (12966820) [NET-INVESTMENT-INCOME] 99914474 [REALIZED-GAINS-CURRENT] 7644942 [APPREC-INCREASE-CURRENT] 173013840 [NET-CHANGE-FROM-OPS] 280573256 [EQUALIZATION] 0 [DISTRIBUTIONS-OF-INCOME] (5767587) [DISTRIBUTIONS-OF-GAINS] 0 [DISTRIBUTIONS-OTHER] 0 [NUMBER-OF-SHARES-SOLD] 16445854 [NUMBER-OF-SHARES-REDEEMED] (2199374) [SHARES-REINVESTED] 618114 [NET-CHANGE-IN-ASSETS] 301724656 [ACCUMULATED-NII-PRIOR] 102344658 [ACCUMULATED-GAINS-PRIOR] 21139491 [OVERDISTRIB-NII-PRIOR] 0 [OVERDIST-NET-GAINS-PRIOR] 0 [GROSS-ADVISORY-FEES] 7840014 [INTEREST-EXPENSE] 0 [GROSS-EXPENSE] 12966820 [AVERAGE-NET-ASSETS] 123662756 [PER-SHARE-NAV-BEGIN] 8.78 [PER-SHARE-NII] .46 [PER-SHARE-GAIN-APPREC] .75 [PER-SHARE-DIVIDEND] (.46) [PER-SHARE-DISTRIBUTIONS] 0 [RETURNS-OF-CAPITAL] 0 [PER-SHARE-NAV-END] 9.53 [EXPENSE-RATIO] .73 [AVG-DEBT-OUTSTANDING] 0 [AVG-DEBT-PER-SHARE] 0
EX-99.19B 8 OFFICERS POWER OF ATTORNEY PAGE 1 OFFICERS POWER OF ATTORNEY City of Minneapolis State of Minnesota Each of the undersigned, as officers of the below listed open-end, diversified investment companies that previously have filed registration statements and amendments thereto pursuant to the requirements of the 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 Life Investment Series, Inc. 2-73115 811-3218 IDS Life Managed Fund, Inc. 2-96367 811-4252 IDS Life Moneyshare Fund, Inc. 2-72584 811-3190 IDS Life Special Income Fund, Inc. 2-73113 811-3219 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, as an officer, 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 PAGE 2 the Securities and Exchange Commission, granting to either of them the full power and authority to do and perform each and every act required and necessary to be done in connection therewith. Dated the 1st day of November, 1995. /s/ William R. Pearce William R. Pearce /s/ Melinda S. Urion Melinda S. Urion -----END PRIVACY-ENHANCED MESSAGE-----