<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. __
Post-Effective Amendment No. 11 (File No. 33-30770) /X/
and/or
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY (ACT OF 1940)
Amendment No. 15 (File No. 811-5897) /X/
------------------------
IDS MARKET ADVANTAGE SERIES, INC.
IDS Tower 10, Minneapolis, MN 55440
Leslie L. Ogg
901 S. Marquette Avenue South, Suite 2810
Minneapolis, MN 55402-3268
(612) 330-9283
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/X/ on Mar. 3, 1995 pursuant to paragraph (a)(i)
/ / 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 THE FISCAL YEAR ENDED JANUARY
31, 1994, WAS FILED ON OR ABOUT APRIL 1, 1994.
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<PAGE>
CROSS REFERENCE SHEET
SHOWING LOCATION IN THE PROSPECTUS OF THE INFORMATION CALLED FOR
BY THE ITEMS ENUMERATED IN PART A AND PART B OF FORM N-1A.
Negative answers omitted from prospectus are so indicated.
<TABLE>
<CAPTION>
PART A
- ---------------------------------------
Page Number in
Item No. Prospectus
- ---------------- ---------------------
<S> <C>
1 3
2 5;6-7
3(a) 7-8
(b) NA
(c) 7-9
(d) 7-8
4(a) 5;10-12;24-28
(b) 10-12
(c) 10-12
5(a) 25;25-26
(b) 24-28;28
(b)(i) 28
(b)(ii) 26-27
(b)(iii) 26-27
(c) 5
(d) 5
(e) 26-27
(f) 27-28
(g) 26-27
5A(a) *
(b) *
6(a) 25;25
(b) NA
(c) NA
(d) 25
(e) 3;21-22
(f) 22;22-23
(g) 23-24
7(a) 27-28
(b) 9;12
(c) 12-21
(d) 15
(e) NA
(f) 27-28
8(a) 16-17
(b) NA
(c) 15
(d) 18
9 None
<CAPTION>
PART B
- ---------------------------------------
Page Number in
Item No. Prospectus
- ---------------- ---------------------
<S> <C>
10 29
11 30
12 NA
13(a) 31-33;52-55
(b) 31-33
(c) 32
(d) 34
14(a) 24-28**;47-50
(b) 47-50
(c) 50
15(a) NA
(b) NA
(c) 50
16(a)(i) 28**
(a)(ii) 44-45;46-47
(a)(iii) 44
(b) 44-45;46-47
(c) NA
(d) None
(e) NA
(f) 45-46;46-47
(g) NA
(h) 50;50
(i) 45;50
17(a) 33-34
(b) 34-35
(c) 33-34
(d) 34
(e) 34
18(a) 25**;25**
(b) NA
19(a) 37-41
(b) 36-37;37-41
(c) NA
20 43-44
21(a) 45-46
(b) 46
(c) NA
22(a) NA
(b) 35-36
23 50-51
<FN>
*Designates information is located in annual report.
**Designates page number in the Prospectus which is hereby incorporated by
reference in the Statement of Additional Information.
</TABLE>
<PAGE>
IDS BLUE CHIP ADVANTAGE FUND
PROSPECTUS
APRIL 1, 1994 AS REVISED MARCH 3, 1995
The goal of IDS Blue Chip Advantage Fund, a part of IDS Market Advantage Series,
Inc., is to achieve a long-term total return exceeding that of the U.S. stock
market. The fund invests in common stocks that are included in a broad market
index.
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 April
1, 1994 as revised March 3, 1995, 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.
American Express Shareholder Service
P.O. Box 534
Minneapolis, MN
55440-0534
612-671-3733
TTY: 800-846-4852
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE FUND IN BRIEF..........................................
Goal.....................................................
Types of fund investments................................
Manager and distributor..................................
Portfolio manager........................................
Alternative sales arrangements...........................
SALES CHARGE AND FUND EXPENSES.............................
Sales charge.............................................
Operating expenses.......................................
PERFORMANCE................................................
Financial highlights.....................................
Total returns............................................
Key terms................................................
INVESTMENT POLICIES AND RISKS..............................
Facts about investments and their risks..................
Alternative investment option............................
Valuing assets...........................................
HOW TO BUY, EXCHANGE OR SELL SHARES........................
Alternative sales arrangements...........................
How to buy shares........................................
How to exchange shares...................................
How to sell shares.......................................
Reductions of the sales charge...........................
Waivers of the sales charge..............................
SPECIAL SHAREHOLDER SERVICES...............................
Services.................................................
Quick telephone reference................................
DISTRIBUTIONS AND TAXES....................................
Dividend and capital gain distributions..................
Reinvestments............................................
Taxes....................................................
HOW THE FUND IS ORGANIZED..................................
Shares...................................................
Voting rights............................................
Shareholder meetings.....................................
Directors and officers...................................
Investment manager and transfer agent....................
Distributor..............................................
ABOUT AEFC.................................................
General information......................................
</TABLE>
2
<PAGE>
THE FUND IN BRIEF
GOAL
IDS Blue Chip Advantage Fund seeks to provide shareholders with a long-term
total return exceeding that of the U.S. stock market. Currently, the Standard &
Poor's 500 Stock Price Index (S&P 500) is the market index used to measure the
total return of the U.S. stock market. Because any investment involves risk,
achieving this goal cannot be guaranteed. Only shareholders can change the goal.
TYPES OF FUND INVESTMENTS
The fund is a diversified mutual fund that invests in U.S. and foreign common
stocks that are included in the market index. Blue chip stocks are issued by
companies with a market capitalization of at least $1 billion, an established
management, a history of consistent earnings and a leading position within their
respective industries. The investments are based on industry classifications and
individual stock analysis. The fund also invests in derivative instruments and
money market instruments.
The investments the fund makes may involve certain risks. In general, blue chip
stocks are considered to represent a lower investment risk and price volatility
than non-blue chip stocks.
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 $38 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.
PORTFOLIO MANAGER
Guru Baliga joined AEFC in 1991 as a research analyst. He became portfolio
manager of this fund in September 1994. He also is portfolio manager of IDS
Advisory accounts. Prior to joining AEFC, he had been a research analyst at
McDonald & Company.
ALTERNATIVE SALES ARRANGEMENTS
The fund offers its shares in three classes. Class A shares are subject to a
sales charge at the time of purchase. Class B shares are subject to a contingent
deferred sales charge (CDSC) on redemptions made within 6 years of purchase and
an annual distribution (12b-1) fee. Class Y shares are sold without a sales
charge to qualifying institutional investors. Other differences between the
classes include the fees paid by each class. The fund offers these alternatives
so you may choose the method of purchasing shares that is most beneficial given
the amount of purchase, length of time you expect to hold the shares and other
circumstances.
3
<PAGE>
SALES CHARGE AND FUND EXPENSES
SALES CHARGE
When you buy Class A shares, you pay a maximum sales charge of 5% of the public
offering price. This charge can be reduced, depending on your total investments
in IDS funds. See "Reductions of the sales charge." No sales charge applies at
the time of purchase of Class B shares, although Class B shares may be subject
to a CDSC on redemptions made within 6 years and are subject to annual
distribution (12b-1) fees. Class Y shares are sold without a sales charge to
qualifying institutional investors.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Class A Class B Class Y
------------- ------------- -------------
<S> <C> <C> <C>
Maximum sales charge on purchases (as a percentage of
offering price)...................................... 5% 0% 0%
Maximum deferred sales charge imposed on redemptions
(as a percent of original purchase price)............ 0% 5% 0%
</TABLE>
OPERATING EXPENSES
The fund pays certain expenses out of its assets for each class of shares. The
expenses are reflected in the fund's daily share price and dividends, and are
not charged directly to shareholder accounts. The following chart gives a
projection of these expenses -- based on historical expenses.
ANNUAL FUND OPERATING EXPENSES
(% of average daily net assets):
<TABLE>
<CAPTION>
Class A Class B Class Y
----------- ----------- -----------
<S> <C> <C> <C>
Management fee...................................... 0.00% 0.00% 0.00%
12b-1 fee........................................... 0.00% 0.00% 0.00%
Other expenses...................................... 0.00% 0.00% 0.00%
Total............................................... 0.00% 0.00% 0.00%
</TABLE>
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 estimated
based on the restated expenses for Class A, except that the 12b-1 fee for Class
B is based on the Plan and Agreement of Distribution for that class.
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:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years**
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Class A......................... $ $ $ $
Class B......................... $ $ $ $
Class B*........................ $ $ $ $
Class Y......................... $ $ $ $
<FN>
*Assuming Class B shares are not redeemed at the end of the period.
**Assuming conversion of Class B shares to Class A shares after 8 years.
</TABLE>
4
<PAGE>
THIS EXAMPLE DOES NOT REPRESENT ACTUAL EXPENSES, PAST OR FUTURE. ACTUAL EXPENSES
MAY BE HIGHER OR LOWER THAN THOSE SHOWN. Because Class B pays annual
distribution (12b-1) fees, long-term shareholders of Class B may indirectly pay
an equivalent of more than a 6.25% sales charge, the maximum permitted by the
National Association of Securities Dealers.
PERFORMANCE
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Fiscal period ended Jan. 31,
Per share income and capital changes*
----------------------------------------------
1994 1993 1992 1991**
------ ------ -------- -----------
<S> <C> <C> <C> <C>
Net asset value beginning of period......................... $6.20 $5.96 $5.25 $5.00
Income from investment operations:
Net investment income....................................... .10 .10 .12 .10
Net gains on securities (both realized and unrealized)...... .79 .50 .96 .25
Total from investment operations............................ .89 .60 1.08 .35
Less distributions:
Dividends from net investment income........................ (.10) (.09) (.12) (.10)
Distributions from realized gains........................... (.41) (.27) (.25) --
Total distributions......................................... (.51) (.36) (.37) (.10)
Net asset value, end of period.............................. $6.58 $6.20 $5.96 $5.25
<CAPTION>
Ratios/supplemental data
1994 1993 1992 1991**
------ ------ -------- -----------
<S> <C> <C> <C> <C>
Net assets, end of period (in millions)..................... $ 148 $ 124 $ 85 $ 36
Ratio of expenses to average daily net assets............... 1.03% 1.10% 1.11%+ .85%++
Ratio of net income to average daily net assets............. 1.59% 1.63% 2.01%++ 2.93%***++
Portfolio turnover rate (excluding short-term securities)... 156% 202% 154% 103%
Total return****............................................ 14.7% 10.2% 21.2% 7.0%*****
<FN>
*For a share outstanding throughout the period. Rounded to the nearest cent.
**Commencement of operations. Period from March 5, 1990 to Jan. 31, 1991.
***Adjusted to an annual basis.
****Total return does not reflect payment of a sales charge.
*****Annualized total return is 7.7%
+During the period from Feb. 1, 1991, to May 9, 1991, AEFC reimbursed the
fund for expenses in excess of 0.85% of its average daily net assets. Had
AEFC not done so, the annual ratios of expenses and net investment income
would have been 1.17% and 1.95%, respectively.
++During the period from March 5, 1990, to Jan. 31, 1991, AEFC reimbursed the
fund for expenses in excess of 0.85% of its average daily net assets. Had
AEFC not done so, the ratios of expenses and net investment income would
have been 1.35% and 2.39%, respectively.
</TABLE>
5
<PAGE>
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. Information on Class B and Class Y shares is not included because no
shares of those classes were outstanding for the periods shown.
TOTAL RETURNS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS as of Jan. 31, 1994
Since
Purchase made 1 year ago inception*
- ------------------------------------------------------------ ----------- -------------
<S> <C> <C>
Blue Chip: Class A.......................................... 9.0% 12.0%
S&P 500..................................................... 12.9% 13.5%
<FN>
*March 5, 1990
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURNS as of Jan. 31, 1994
Since
Purchase made 1 year ago inception*
- ------------------------------------------------------------ ----------- -------------
<S> <C> <C>
Blue Chip: Class A.......................................... 9.0% 55.8%
S&P 500..................................................... 12.9% 64.2%
<FN>
*March 5, 1990
</TABLE>
These examples show total returns from hypothetical investments in Class A of
the fund. No shares for Class B and Class Y were outstanding during the periods
presented. These returns are compared to those of a popular index for the same
periods.
For purposes of calculation, information about the fund assumes:
- - of 5% for Class A shares
- - no adjustments for taxes an investor may have paid on the reinvested income
and capital gains
- - a period of widely fluctuating securities prices. Returns shown should not be
considered a representation of the fund's future performance.
6
<PAGE>
The fund invests in common stocks that may be different from those in the index.
The index reflects reinvestment of all distributions and changes in market
prices, but excludes brokerage commissions or other fees.
S&P 500, an unmanaged list of common stocks, is frequently used as a general
measure of market performance.
KEY TERMS
NET ASSET VALUE (NAV)
Value of a single fund share. For each class, it is the total market value of
all of a fund's investments and other assets attributable to that class, less
any liabilities attributable to that class, divided by the number of shares of
that class outstanding.
When you buy shares, you pay the NAV plus any applicable sales charge. When you
sell shares, the price you receive is the NAV minus any applicable sales charge.
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).
PUBLIC OFFERING PRICE
Price at which you buy shares. It is the NAV plus the sales charge for Class A.
It is the NAV for Class B and Class Y. NAVs and public offering prices of IDS
funds are listed each day in major newspapers and financial publications.
INVESTMENT INCOME
Dividends and interest earned on securities held by the fund.
CAPITAL GAINS OR LOSSES
Increase or decrease in value of the securities the fund holds. Gains or losses
are realized when securities that have increased or decreased in value are sold.
A fund also may have unrealized gains or losses when securities increase or
decrease in value but are not sold.
DISTRIBUTIONS
Payments to shareholders of two types: investment income (dividends) and
realized net long-term capital gains (capital gains distributions).
TOTAL RETURN
Sum of all of your returns for a given period, assuming you reinvest all
distributions. 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
The annually compounded rate of return over a given time period (usually two or
more years) -- total return for the period converted to an equivalent annual
figure.
7
<PAGE>
INVESTMENT POLICIES AND RISKS
The fund invests in common stocks of companies that make up a market index. That
index is currently the S&P 500. The fund will not own stocks of all of the
companies in the market index nor will the assets be invested in ways to produce
the same market results as the index.
INVESTMENT STRATEGY: The investment manager will establish one or more industry
classifications for each company whose common stock makes up the market index.
The classifications may or may not be the same as the ones given to a company by
others. Stocks will be classified into one of at least 25 industries and some of
the fund's assets will be invested in each classification. Normally the fund
will own stock of 125 or more companies. Cash positions are invested in money
market instruments. To the extent practicable, the fund's total assets are fully
invested in stocks with 65% of those being blue chip stocks.
Research analysts employed by the investment manager evaluate companies and
assign ratings to each stock based on their opinion of the attractiveness of
investing. In structuring the portfolio, the investment manager selects stocks
based on the research analyst recommendations for a particular stock, the
weighting of the stock and its industry group in the index, dividend yield,
historical volatility and other measures that relate to the stock's historical
and expected performance. The portfolio's structure will resemble the index
while seeking to maximize the fund's expected total return relative to the
index. The composition of the fund's portfolio is reviewed at least monthly to
keep the portfolio's structure in line with the index and take advantage of the
investment analyst's ratings of the stocks. The dividend yield of the fund's
portfolio, before management fees and expenses are deducted, is expected to be
comparable to that of the market index.
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.
FACTS ABOUT INVESTMENTS AND THEIR RISKS
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.
BLUE CHIP STOCKS: Blue chip stocks are common stocks included in the market
index used by the fund and issued by companies with a market capitalization of
at least $1 billion, an established management, a history of consistent earnings
and a leading position within their respective industries.
FOREIGN INVESTMENTS: The fund may invest only in foreign securities that are
included in the market index, or which will be included in the index in the near
future, or in Canadian money market instruments. 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
8
<PAGE>
of companies, imposition of withholding taxes on income, establishment of
exchange controls or adoption of other restrictions that might affect an
investment adversely. The fund may invest up to 20% of its total assets in
foreign investments included in the market index.
DERIVATIVE INSTRUMENTS: Derivative instruments are used to achieve total return
characteristics of the market index. Derivative instruments are characterized by
requiring little or no initial payment and a daily change in price based on or
derived from an index. A small change in the value of the underlying index will
cause a sizable gain or loss in the price of the derivative instrument. 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. For further information, see the
futures appendix in the SAI.
SECURITIES AND DERIVATIVE INSTRUMENTS THAT ARE ILLIQUID: Illiquid means the
security or derivative instrument cannot be sold quickly in the normal course of
business. 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 are used to meet daily cash needs and to hold assets until the next
restructuring of the portfolio.
EXCEPTIONS TO PURCHASING STOCK IN AN INDEX: First, if an announcement is made
that a stock will be added to the index, the fund may buy it before it is
actually added. Second, if a stock is removed from the index, the fund may
continue to hold it for a short time. Third, the fund may receive a distribution
of a stock not included in the index from a company whose common stock it owns,
in which case the stock may be held for a short time. Fourth, the fund cannot
buy stock of American Express Company because it is the parent company of the
investment manager.
The investment policies described above may be changed by the board of
directors. The investment manager may change any of the above-mentioned
investment strategies without approval from the shareholders or the board of
directors.
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 shareholders approve otherwise, loans may not exceed
30% of the fund's net assets.
MARKET INDEX: Should the current market index become unavailable for use by the
fund, the board of directors will select a new index to measure the long-term
total returns of the U.S. stock market. Shareholders will be given as much
notice of such a change as is practicable under the circumstances.
9
<PAGE>
ALTERNATIVE INVESTMENT OPTION
In the future, the board of the fund may determine for operating efficiencies to
use a master feeder structure. Under that structure, the fund's investment
portfolio would be managed by another investment company with the same goal as
the fund, rather than investing directly in a portfolio of securities.
VALUING ASSETS
- - Securities (except bonds) and assets with available market values are valued
on that basis.
- - Securities maturing in 60 days or less are valued at amortized cost.
- - Bonds and assets without readily available market values are valued according
to methods selected in good faith by the board of directors.
HOW TO BUY, EXCHANGE OR SELL SHARES
HOW TO BUY SHARES -- ALTERNATIVE SALES ARRANGEMENTS
The fund offers three different classes of shares -- Class A, Class B and Class
Y. The primary differences among the classes are in the sales charge structures
and in their ongoing expenses. These differences are summarized in the table
below. You may choose the class that best suits your circumstances and
objectives.
<TABLE>
<CAPTION>
Sales charge and Service fee
distribution (12b-1) (as a % of average
fee daily net assets) Other information
----------------------- -------------------- -----------------------
<S> <C> <C> <C>
Class A Maximum initial sales Service fee of Initial sales charge
charge of 5% 0.175% waived or reduced for
certain purchases
Class B No initial sales Service fee of Shares convert to Class
charge; distribution 0.175% A after 8 years; fee of
net assets; maximum 0.75% of daily CDSC
CDSC of 5% declines to waived in certain
0% after 6 years circumstances
Class Y None None Available only to
certain qualifying
institutional investors
</TABLE>
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.
10
<PAGE>
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.
<TABLE>
<CAPTION>
If you purchase Class A shares If you purchase Class B shares
- --------------------------------------- ---------------------------------------
<S> <C>
SALES CHARGES ON PURCHASE OR REDEMPTION
- - You will not have all of your - All of your money is invested in
purchase price invested. Part of your shares of stock. However, you will
purchase price will go to pay the pay a sales charge if you redeem your
sales charge. You will not pay a shares within 6 years of purchase.
sales charge when you redeem your
shares.
- - You will be able to take advantage of - No reductions of the sales charge are
reductions in the sales charge. If available for large purchases.
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.
- - The sales charges and distribution fee are structured so that you will have
approximately the same total return at the end of 8 years regardless of which
class you chose.
<CAPTION>
ONGOING EXPENSES
<S> <C>
- - Your shares will have a lower expense - The distribution and transfer agent
ratio than Class B shares because fees for Class B will cause your
Class A does not pay a distribution shares to have a higher expense ratio
fee and the transfer agent fee for and to pay lower dividends than Class
Class A is lower than the fee for A shares. After 8 years, Class B
Class B. As a result, Class A shares shares will convert to Class A shares
will pay higher dividends than Class and will no longer be subject to
B shares. higher fees.
</TABLE>
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
11
<PAGE>
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:
- - Qualified employee benefit plans* if the plan:
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.
- - 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.
- - Nonqualified deferred compensation plans* whose participants are included in a
qualified employee benefit plan described above.
*Eligibility must be determined in advance by AEFC. To do so, contact your
financial advisor.
Financial advisors may receive different compensation for selling Class A, Class
B and Class Y shares.
HOW TO BUY 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."
When you buy 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:
- - 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.
12
<PAGE>
- - The minimums allowed for investment may change from time to time.
- - Wire orders can be accepted only on days when your bank, AEFC the fund and
Norwest Bank Minneapolis are open for business.
- - Wire purchases are completed when wired payment is received and the fund
accepts the purchase.
- - AEFC and the fund are not responsible for any delays that occur in wiring
funds, including delays in processing by the bank.
- - You must pay any fee the bank charges for wiring.
- - The fund reserves the right to reject any application for any reason.
- - If your application does not specify which class of share you are purchasing,
it will be assumed that you are investing in Class A shares.
THREE WAYS TO INVEST
<TABLE>
<S> <C> <C>
1
BY REGULAR
ACCOUNT Send your check and MINIMUM AMOUNTS
application (or your name and Initial investment: $2,000
account number if you have an Additional investments: $100
established account) to: Account balances: $300*
American Express Financial Qualified retirement accounts: none
Advisors Inc.
P.O. Box 74
Minneapolis, MN 55440-0074
Your financial advisor will
help you with this process.
BY SCHEDULED
INVESTMENT
PLAN Contact your financial advisor MINIMUM AMOUNTS
to set up one of the following Initial investment: $100
scheduled plans: Additional investments: $100/mo
- automatic payroll deduction Account balances: none
- bank authorization (on active plans of monthly
- direct deposit of payments)
Social Security check
- other plan approved by the
fund
BY WIRE If you have an established If this information is not included,
account, you may wire money the order may be rejected and all
to: money received by the fund, less any
Norwest Bank Minneapolis costs the fund or AEFC incurs, will
Routing No. 091000019 be returned promptly.
Minneapolis, MN
Attn: Domestic Wire Dept.
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).
<FN>
*If your account balance falls below $300, AEFC will ask you 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.
</TABLE>
13
<PAGE>
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. 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 sale 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 SELL SHARES
You can sell (redeem) your shares at any time. American Express Shareholder
Service will mail payment within seven days after receiving your request.
When you sell 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 the fund's net asset value when you
sell shares is more or less than the cost of your shares, you will have a gain
or loss, which can affect your tax liability. Redeeming shares held in an IRA or
qualified retirement account may subject you to certain federal taxes, penalties
and reporting requirements. Consult your tax advisor.
TWO WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES
<TABLE>
<S> <C> <C>
1 Include in your letter:
BY LETTER - the name of the fund(s)
- the class of shares to be redeemed
- your account number(s) (for exchanges, both
funds must be registered in the same ownership)
- your Taxpayer Identification Number (TIN)
- the dollar amount or number of shares you want
to exchange or sell
- signature of all registered account owners
- for redemptions, indicate how you want your
sales proceeds delivered to you
- 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
</TABLE>
14
<PAGE>
<TABLE>
<S> <C> <C>
2 - The fund and AEFC will honor any telephone
BY PHONE exchange or redemption request believed to be
American Express Telephone authentic and will use reasonable procedures to
Transaction Service: confirm that they are. This includes asking
800-437-3133 or identifying questions and tape recording calls.
612-671-3800 So long as reasonable procedures are followed,
neither the fund nor AEFC will be liable for any
loss resulting from fraudulent requests.
- 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.
- 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.
- Phone privileges may be modified or discontinued
at any time.
MINIMUM AMOUNT
Redemption: $100
MAXIMUM AMOUNT
Redemption: $50,000
</TABLE>
EXCHANGE POLICIES:
- - 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.
- - Exchanges must be made into the same class in the new fund.
- - If your exchange creates a new account, it must satisfy the minimum investment
amount for new purchases.
- - Once we receive your exchange request, you cannot cancel it.
- - Shares of the new fund may not be used on the same day for another exchange.
- - If your shares are pledged as collateral, the exchange will be delayed until
written approval is obtained from the secured party.
- - 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:
- - 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 buy new shares in the
same account at the net asset value, rather than the offering price on the
date of a new purchase. If you reinvest in this manner, any CDSC you paid on
the amount you are reinvesting also will be reinvested in the fund.
15
<PAGE>
To take 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.
- - 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. Please expect a minimum of 10 days from the date of purchase before
AEFC mails a check 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 SELL SHARES
<TABLE>
<S> <C> <C>
1 - Mailed to the address on record.
BY REGULAR OR EXPRESS MAIL - Payable to names listed on the account.
NOTE: The express mail delivery charges you pay
will vary depending on the courier you select.
2 - Minimum wire redemption: $1,000.
BY WIRE - Request that money be wired to your bank.
- Bank account must be in the same ownership as
the IDS fund account.
NOTE: Pre-authorization required. For
instructions, contact your financial advisor or
American Express Shareholder Service.
3 - Minimum payment: $50.
BY SCHEDULED PAYOUT PLAN - 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.
- Buying new shares while under a payout plan may
be disadvantageous because of the sales charges.
</TABLE>
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:
<TABLE>
<CAPTION>
Sales charge as a percent
of:*
---------------------------
Public
offering Net amount
Total investment price invested
- ------------------------ ------------- ------------
<S> <C> <C>
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
More than $1,000,000 0.0 0.00
</TABLE>
16
<PAGE>
*To calculate the actual sales charge on an investment greater than $50,000,
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:
- - the amount you are investing in this fund now,
- - the amount of your existing investment in this fund, if any, and
- - 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:
- - 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.
- - IRA purchases or other employee benefit plan purchases made through a payroll
deduction plan or through a plan sponsored by an employer, association of
employers, employee organization or other similar entity, may be added
together to reduce sales charges for all shares purchased through that plan.
For more details, see the SAI.
WAIVERS OF THE SALES CHARGE FOR CLASS A SHARES
Sales charges do not apply to:
- - Current or retired trustees, directors, officers or employees of the fund or
AEFC or its subsidiaries, their spouses and unmarried children under 21.
- - Current or retired American Express financial advisors, their spouses and
unmarried children under 21.
- - 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.)
- - 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.
- - Purchases made within 30 days after a redemption of shares (up to the amount
redeemed):
17
<PAGE>
--__ 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 acts as
trustee or recordkeeper.
Send the fund a written request along with your payment, indicating the amount
of the redemption and the date on which it occurred.
- - Purchases made with dividend or capital gain distributions from another fund
in the IDS MUTUAL FUND GROUP that has a sales charge.
*Eligibility must be determined in advance by AEFC. 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:
<TABLE>
<CAPTION>
If a
redemption
is made The percentage rate
during the for the CDSC is:
- -------------- --------------------
<S> <C>
First year 5%
Second year 4%
Third year 4%
Fourth year 3%
Fifth year 2%
Sixth year 1%
Seventh year 0%
</TABLE>
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 6 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
18
<PAGE>
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.
WAIVERS OF THE SALES CHARGE FOR CLASS B SHARES
The CDSC on Class B shares will be waived on redemptions of shares:
- - In the event of the shareholder's death,
- - Purchased by any trustee, director, officer or employee of a fund or AEFC or
its subsidiaries,
- - Purchased by any American Express financial advisor,
- - Held in a trusteed employee benefit plan,
- - Held in IRAs or certain qualified plans for which AEFC 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.
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
19
<PAGE>
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 (TouchTone-R- 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
The fund distributes to shareholders investment income and net capital gains. It
does so to qualify as a regulated investment company and to avoid paying
corporate income and excise taxes. Dividend and capital gains distributions will
have tax consequences you should know about.
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS
The fund distributes its net investment income (dividends and interest earned on
securities held by the fund, less operating expenses) to shareholders of record
at the end of each calendar quarter. Short-term capital gains distributed are
included in net investment income. Net realized capital gains, if any, from
selling securities are distributed at the end of the calendar year. Before
they're distributed, both net investment income and net 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 paid by each class will be calculated at the same time, in the same
manner and in the same amount, except the expenses attributable solely to Class
A, Class B and Class Y 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:
- - you request the fund in writing or by phone to pay distributions to you in
cash, or
20
<PAGE>
- - 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 pays them
regardless of whether you take them in cash or reinvest them.
Each January, AEFC sends you a statement showing the kinds and total amount of
all distributions you received during the previous year. You must report all
distributions on your tax returns, even if they are reinvested in additional
shares.
"Buying a dividend" creates a tax liability. This means buying shares shortly
before a net investment income or a capital gain distribution. You pay the full
pre-distribution price for the shares, then receive a portion of your investment
back as a distribution, which is taxable.
Redemptions and exchanges subject you to a tax on any capital gain. If you sell
shares for more than their cost, the difference is a capital gain. Your gain may
be 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.
If you don't provide the TIN to AEFC, 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:
21
<PAGE>
- - a $50 penalty for each failure to supply your correct TIN
- - a civil penalty of $500 if you make a false statement that results in no
backup withholding
- - 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
<TABLE>
<CAPTION>
Use the Social Security or Employer
For this type of account: Identification number of:
- --------------------------------------- ---------------------------------------
<S> <C>
Individual or joint account The individual or first person listed
on the account
Custodian account of a minor (Uniform The minor
Gifts/Transfers to Minors Act)
A living trust The grantor-trustee (the person who
puts the money into the trust)
An irrevocable trust, pension trust or The legal entity (not the personal
estate representative or trustee, unless no
legal entity is designated in the
account title)
Sole proprietorship or partnership The owner or partnership
Corporate The corporation
Association, club or tax-exempt The organization
organization
</TABLE>
For details on TIN requirements, ask your financial advisor or local American
Express Financial Advisors office for Federal Form W-9, "Request for Taxpayer
Identification Number and Certification."
IMPORTANT: This information is a brief and selective summary of certain federal
tax rules that apply to this fund. Tax matters are highly individual and
complex, and you should consult a qualified tax advisor about your personal
situation.
HOW THE FUND IS ORGANIZED
IDS Market Advantage Series, Inc., of which IDS Blue Chip Advantage Fund is a
part, is an open-end management investment company, as defined in the Investment
Company Act of 1940. It was incorporated on Aug. 25, 1989 in Minnesota. The fund
headquarters are at 901 S. Marquette Ave., Suite 2810, Minneapolis, MN
55402-3268.
22
<PAGE>
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 1 cent per share. Both full and fractional shares can be
issued.
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. 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 directors may
call meetings at their discretion, or on demand by holders of 10% or more of the
outstanding shares, to elect or remove directors.
DIRECTORS AND OFFICERS
Shareholders elect a board of directors 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
directors also serve on the boards of all of the other funds in the IDS MUTUAL
FUND GROUP, except for Mr. Dudley, who is a director of all publicly offered
funds.
DIRECTORS AND OFFICERS OF THE FUND
PRESIDENT AND INTERESTED DIRECTOR
WILLIAM R. PEARCE
President of all funds in the IDS MUTUAL FUND GROUP.
INDEPENDENT DIRECTORS
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.
ANNE P. JONES
Attorney and telecommunications consultant.
23
<PAGE>
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 DIRECTORS 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.
OTHER OFFICER
LESLIE L. OGG
Vice president of all funds in the IDS MUTUAL FUND GROUP and general counsel and
treasurer of the publicly offered funds.
Refer to the SAI for the directors' and officers' biographies.
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 fund's board of directors). Effective March 3, 1995, the fund pays AEFC a
fee for these services based on the average daily net assets of the fund, as
follows:
24
<PAGE>
<TABLE>
<CAPTION>
Assets Annual rate
(billions) at each asset level
- ----------------- -------------------
<S> <C> <C>
First $0.25 0.440%
Next 0.25 0.415
Next 0.25 0.390
Next 0.25 0.365
Over 1.0 0.340
</TABLE>
For the fiscal year ended Jan. 31, 1994, under a prior agreement, the fund paid
AEFC a total investment management fee of 0.50% 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 0.04% decreasing in
gradual percentages to 0.02% 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:
- - Class A $15
- - Class B $16
- - Class Y $15
DISTRIBUTOR
The fund sells shares through American Express Financial Advisors, a wholly
owned subsidiary of AEFC, under a Distribution Agreement. Financial advisors
representing American Express Financial Advisors provide information to
investors about individual investment programs, the fund and its operations, new
account applications, exchange and redemption requests. The cost of these
services is paid partially by the fund's sales charge.
Portions of sales charges may be paid to securities dealers who have sold the
fund's shares, or to banks and other financial institutions. The proceeds paid
to others range from 0.8% to 4% of the fund's offering price depending on the
monthly sales volume.
For Class B shares, to help defray costs not covered by sales charges, including
costs for marketing, sales administration, training, overhead, direct marketing
programs, advertising and related functions, the fund pays American Express
Financial Advisors a distribution fee, also known as a 12b-1 fee. This fee is
paid under a Plan and Agreement of Distribution that follows the terms of Rule
12b-1 of the Investment Company Act of 1940. Under this Agreement, 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. The
total 12b-1 fee paid by the fund under a prior agreement for the fiscal year
ended Jan. 31, 1994 was 0.10% of its average daily net assets. This fee will not
cover all of the costs incurred by American Express Financial Advisors.
25
<PAGE>
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 in the fiscal year ended Jan. 31, 1994 were
1.03% of its average daily net assets.
Total fees and expenses (excluding taxes and brokerage commissions) cannot
exceed the most restrictive applicable state expense limitation.
ABOUT AEFC
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 Jan. 31, 1994 were more than $100 billion.
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, 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.
26
<PAGE>
IDS MARKET ADVANTAGE SERIES, INC.
STATEMENT OF ADDITIONAL INFORMATION
FOR
IDS BLUE CHIP ADVANTAGE FUND
April 1, 1994 as revised March 3, 1995
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 April 1, 1994, as revised March 3, 1995, and it
is to be used with the prospectus dated April 1, 1994, as revised
March 3, 1995, and the Annual Report for the fiscal year ended
January 31, 1994.
1
<PAGE>
TABLE OF CONTENTS
Goal and Investment Policies.........................See Prospectus
Additional Investment Policies................................p.
Portfolio Transactions........................................p.
Brokerage Commissions Paid to Brokers Affiliated with AEFC....p.
Performance Information.......................................p.
Valuing Fund Shares...........................................p.
Investing in the Fund.........................................p.
Redeeming Shares..............................................p.
Pay-out Plans.................................................p.
Exchanges.....................................................p.
Taxes.........................................................p.
Agreements....................................................p.
Directors and Officers........................................p.
Custodian.....................................................p.
Independent Auditors..........................................p.
Financial Statements..............................See Annual Report
Prospectus....................................................p.
Appendix A: Options and Stock Index Futures Contracts........p.
Appendix B: Dollar-Cost Averaging............................p.
2
<PAGE>
ADDITIONAL INVESTMENT POLICIES
These are investment policies in addition to those presented in the
prospectus. Unless holders of a majority of the outstanding shares
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, at market value, in
securities of any one company, government or political subdivision
thereof, except the limitation will not apply to investments in
securities issued by the U.S. government, its agencies or
instrumentalities, and except that up to 25% of the fund's total
assets may be invested without regard to this 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.
'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 directors and officers of AEFC
or to its own directors and officers.
'Lend portfolio securities in excess of 30% of its net assets.
This policy may not be changed without shareholder approval. The
current policy of the fund's board of directors 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
3
<PAGE>
securities, letters of credit or such other collateral as may be
permitted by regulatory agencies and approved by the board of
directors. 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.
Unless changed by the board of directors, the fund will not:
'Buy on margin or sell short, but it may make margin payments in
connection with transactions in stock index futures contracts.
'Pledge or mortgage its assets beyond 15% of the cost of total
assets. If the fund were ever to do so, valuation of the pledged
or mortgaged assets would be based on market value. For purposes
of this policy, collateral arrangements for margin deposits on
stock index futures contracts are not deemed to be a pledge of
assets.
'Invest more than 5% of its total assets, at cost, in securities of
companies, including any predecessors, that have a record of less
than three years continuous operations.
'Invest in a company to control or manage it.
'Invest in securities of investment companies except by purchase in
the open market where the dealer's or sponsor's profit is the
regular commission.
'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 an Exchange.
'Invest in exploration or development programs, such as oil, gas or
mineral programs.
'Purchase securities of an issuer if the directors and officers of
the fund and of AEFC hold more than a certain percentage of the
issuer's outstanding securities. The holdings of all directors 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.
'Invest more than 10% of its 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 a readily available market,
repurchase agreements with maturities greater than seven days, non-
negotiable fixed-time deposits and over-the-counter options.
In determining the liquidity of Rule 144A securities, which are
unregistered securities offered to qualified institutional buyers,
the investment manager, under guidelines established by the board
4
<PAGE>
of directors, 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 of directors, will evaluate
relevant factors such as the issuer and the size and nature of its
commercial paper programs, the willingness and ability of the
issuer or dealer to repurchase the paper, and the nature of the
clearance and settlement procedures for the paper.
The fund may make contracts to purchase securities for a fixed
price at a future date beyond normal settlement time (when-issued
securities or forward commitments). Under normal market
conditions, the fund does not intend to commit more than 5% of its
total assets to these practices. The fund does not pay for the
securities or receive dividends or interest on them until the
contractual settlement date. The fund will designate cash or
liquid high-grade debt securities at least equal in value to its
commitments to purchase the securities. When-issued securities or
forward commitments are subject to market fluctuations and they may
affect the fund's total assets the same as owned securities.
The fund may 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. or Standard & Poor's Corporation 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 discussion on options and stock index futures contracts, see
Appendix A.
PORTFOLIO TRANSACTIONS
Subject to policies set by the board of directors, AEFC is
authorized to determine, consistent with the fund's investment goal
5
<PAGE>
and policies, which securities will be purchased, held or sold. In
determining where the buy and sell orders are to be placed, AEFC
has been directed to use its best efforts to obtain the best
available price and the most favorable execution except where
otherwise authorized by the board of directors. In selecting
broker-dealers to execute transactions, AEFC has determined that
due to the unique nature of the fund it is in the best interest of
this fund to execute through a single or a limited number of
brokers at an agreed upon favorable commission rate.
The fund paid total brokerage commissions of $307,934 for the
fiscal year ended January 31, 1994, $354,632 for fiscal year 1993,
and $165,014 for fiscal year 1992. 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.
On January 31, 1994, at the end of the fiscal year, 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:
<TABLE>
<CAPTION>
Value of Securities
Owned at End of
Name of Issuer Fiscal Year
- -------------- -------------------
<S> <C>
Bank America $ 939,300
Chase Manhattan Bank 484,075
Dean Witter 1,373,825
</TABLE>
The portfolio turnover rate was 156% in the fiscal year ended
January 31, 1994, and 202% in fiscal year 1993.
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH AEFC
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 of directors 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.
Information about brokerage commissions paid by the fund for the
last three fiscal years to brokers affiliated with AEFC is
contained in the following table:
6
<PAGE>
<TABLE>
<CAPTION>
For the Fiscal Year Ended January 31,
1994 1993 1992
----------------------------------------------------------- ----------- -----------
Aggregate Percent of Aggregate Aggregate
Dollar Aggregate Dollar Dollar Dollar
Amount of Percent of Amount of Amount of Amount of
Nature Commissions Aggregate Transactions Commissions Commissions
of Paid to Brokerage Involving Payment Paid to Paid to
Broker Affiliation Broker Commissions of Commissions Broker Broker
------ ----------- ----------- ----------- ----------------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
American
Enterprise
Investment
Services Inc. (1) $ -0- -0- -0- $6,836 None
<FN>
(1) Wholly owned subsidiary of AEFC.
</TABLE>
PERFORMANCE INFORMATION
The fund may quote various performance figures to illustrate past
performance for the fund. An explanation of the methods used by
the fund to compute performance follows below.
AVERAGE ANNUAL TOTAL RETURN
The fund may calculate average annual total return for a class for
certain periods by finding the average annual compounded rates of
return over the period that would equate the initial amount
invested to the ending redeemable value, according to the following
formula:
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)
The total return of the S&P 500 is calculated by several sources.
The fund will use the total return as calculated by Standard &
Poor's Corporation (S&P) to measure the U.S. stock market. The
total return is calculated by adding dividend income to price
appreciation. For periods after 1987, total return on the S&P 500
is determined by reinvesting cash dividends paid on stocks on the
ex-dividend date - that is, the date on or after which a sales of
stock does not carry with it the right to a dividend already
declared. For periods before 1988, S&P calculated total return by
compiling actual dividends on a quarterly basis and assumed they
were reinvested as of the end of a particular quarter. S&P also
makes adjustments for special dividends, such as stock dividends.
The percentage changes for the indexes other than the S&P 500
reflect reinvestment of all distributions on a quarterly basis and
changes in market prices. The percentage changes for all the
indexes exclude brokerage commissions or other fees. By
comparison, the fund will incur such fees and other expenses.
AGGREGATE TOTAL RETURN
The fund may calculate aggregate total return for a class for
certain periods representing the cumulative change in the value of
7
<PAGE>
an investment in the fund over a specified period of time according
to the following formula:
ERV - P
-------
P
where: P = a hypothetical initial payment of $1,000
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of a period, at the
end of the period (or fractional portion thereof)
In its sales material and other communications, the fund may quote,
compare or refer to rankings, yields or returns as published by
independent statistical services or publishers and publications
such as The Bank Rate Monitor National Index, Barron's, Business
Week, Donoghue's Money Market Fund Report, Financial Services Week,
Financial Times, Financial World, Forbes, Fortune, Global Investor,
Institutional Investor, Investor's Daily, Kiplinger's Personal
Finance, Lipper Analytical Services, Money, 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 February 1, 1994, the first business day following the end
of the fiscal year, the computation looked like this:
<TABLE>
<CAPTION>
Net assets before Shares outstanding Net asset value
shareholder transactions at end of previous day of one share
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A* $147,326,551 divided by 22,451,674 equals $6.56
<FN>
*Shares of Class B and Class Y were not outstanding on that date.
</TABLE>
In determining net assets before shareholder transactions, the
fund's portfolio securities are valued as follows as of the close
of business of the New York Stock Exchange:
'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
8
<PAGE>
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 New York Stock Exchange (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 of directors (the "board").
'Short-term securities maturing more than 60 days from the
valuation date are valued at the readily available market price or
approximate market value based on current interest rates. Short-
term securities maturing in 60 days or less that originally had
maturities of more than 60 days at acquisition date are valued at
amortized cost using the market value on the 61st day before
maturity. Short-term securities maturing in 60 days or less at
acquisition date are valued at amortized cost. Amortized cost is
an approximation of market value determined by systematically
increasing the carrying value of a security if acquired at a
discount, or reducing the carrying value if acquired at a premium,
so that the carrying value is equal to maturity value on the
maturity date.
'Securities without a readily available market price, 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
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
9
<PAGE>
an investment of less than $50,000, made February 1, 1994, was
determined by dividing the net asset value of one share, $6.56, by
0.95 (1.00-0.05 for a maximum 5% sales charge) for a public
offering price of $6.91. 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:
<TABLE>
<CAPTION>
Within each increment,
sales charge as a
percentage of:
----------------------------------------
Public Net
Amount of Investment Offering Price Amount Invested
- -------------------- -------------- ---------------
<S> <C> <C> <C>
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
More than 1,000,000 0.0 0.00
</TABLE>
Sales charges on an investment greater than $50,000 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.
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.
<TABLE>
<CAPTION>
On total investment, sales
charge as a percentage of
-------------------------
Public Net
Offering Price Amount Invested
Amount of Investment ranges from:
- -------------------- --------------------------------
<S> <C> <C> <C>
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 4.50-3.75 4.71-3.90
More than 500,000 to 1,000,000 3.75-2.00 3.90-2.04
More than 1,000,000 0.00 0.00
</TABLE>
10
<PAGE>
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
<TABLE>
<CAPTION>
Number of Participants
----------------------
Total Plan Assets 1-99 100 or more
- ----------------- ---- -----------
<S> <C> <C>
Less than $1 million 4% 0%
$1 million or more 0% 0%
_________________________________________________________
</TABLE>
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 to $100,000.
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 trustees, directors,
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
11
<PAGE>
added together to reduce sales charges for shares purchased through
that plan.
Class A - Letter of Intent
You can reduce the sales charges in Class A by filing a letter-of-
intent stating that you intend to invest $1 million over a period
of 13 months. 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,
the sales charges previously paid will be reversed. 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 letter-of-
intent is not an option (absolute right) to buy shares.
Here's an example. You file a letter-of-intent 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. What sales
charge do you pay? AEFC makes an adjustment on your last purchase
so that there's no sales charge on the total $1 million investment,
just as if you had invested $1 million all at once.
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 B.
12
<PAGE>
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).
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 goal is 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 of directors (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 New York Stock Exchange (the "Exchange") closes for reasons
other than the usual weekend and holiday closings or trading on the
Exchange is restricted, or
'Disposal of the fund's securities is not reasonably practicable or
it is not reasonably practicable for the fund to determine the fair
value of its net assets, or
'The SEC, under the provisions of the Investment Company Act of
1940, as amended, declares a period of emergency to exist.
13
<PAGE>
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.
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.
14
<PAGE>
Plan #3: Redemption of a fixed dollar amount
If you decide on a fixed dollar amount, whatever number of shares
is necessary to make the payment will be redeemed in regular
installments until the account is closed.
Plan #4: Redemption of a percentage of net asset value
Payments are made based on a fixed percentage of the net asset
value of the shares in the account computed on the day of each
payment. Percentages range from 0.25% to 0.75%. For example, if
you are on this plan and arrange to take 0.5% each month, you will
get $50 if the value of your account is $10,000 on the payment
date.
EXCHANGES
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.
TAXES
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 January 31, 1994, 37.92% 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
gains earned by the fund are paid to shareholders as part of their
ordinary income dividend and are taxable.
15
<PAGE>
You may be able to defer taxes on current income from a fund by
investing through an IRA, 401(k) plan account or other qualified
retirement account. If you move all or part of a non-qualified
investment in the fund to a qualified account, this type of
exchange is considered a sale of shares. You pay no sales charge,
but the exchange may result in a gain or loss for tax purposes, or
excess contributions under IRA or qualified plan regulations.
Under federal tax law, 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 Oct. 31 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. The fund has no current intention to invest in PFICs.
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:
<TABLE>
<CAPTION>
Assets Annual rate at
(billions) each asset level
- ---------- ----------------
<S> <C>
First $0.25 0.440%
Next 0.25 0.415
Next 0.25 0.390
Next 0.25 0.365
Over 1.0 0.340
</TABLE>
On March 3, 1995, the daily rate applied to the fund's assets is
expected to be approximately 0.___% 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 a prior agreement, the
total amount paid was $678,653 for the fiscal year ended January
31, 1994, $528,798 for fiscal year 1993, and $361,893 for fiscal
year 1992.
16
<PAGE>
Under the current Agreement, the fund also pays taxes, brokerage
commissions and nonadvisory expenses, that include custodian fees;
audit and certain legal fees; fidelity bond premiums; registration
fees for shares; fund office expenses; consultants' fees;
compensation of directors, officers and employees; corporate filing
fees; organizational expenses; expenses incurred in connection with
lending portfolio securities of the fund; and expenses properly
payable by the fund, approved by the board of directors. Under a
prior agreement, the fund paid nonadvisory expenses of $254,146 for
the fiscal year ended January 31, 1994, $194,681 for fiscal year
1993, and $136,399 for fiscal year 1992.
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:
<TABLE>
<CAPTION>
Assets Annual rate
(billions) each asset level
---------- ----------------
<S> <C>
First $0.25 0.040%
Next 0.25 0.035
Next 0.25 0.030
Next 0.25 0.025
Over $1 0.020
</TABLE>
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 and dividing
by the number of days in the year. The rate for Class A and for Class Y
is $15 per year. The rate for Class B is $16 per year. The fees
paid to AEFC may be changed from time to time upon agreement of the
parties without shareholder approval. The fund paid fees of
$320,969 for the fiscal year ended January 31, 1994.
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 $556,866 for the fiscal
year ended January 31, 1994. After paying commissions to personal
financial advisors, and other expenses, the amount retained was
$216,463. The amounts were $1,038,796 and $500,300 for fiscal year
1993, and $1,560,281 and $534,472 for fiscal year 1992.
Additional information about commissions and compensation for the
fiscal year ended January 31, 1994, is contained in the following
table:
17
<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Compensation
Name of Underwriting on Redemption
Principal Discounts and and Brokerage Other
Underwriter Commissions Repurchases Commissions Compensation
- ----------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
AEFC None None None* $128,942**
American
Express
Financial
Advisors $556,866 None None None
<FN>
*For further information see "Brokerage Commissions Paid to Brokers
Affiliated with AEFC."
**Distribution fees paid pursuant to the Plan and Supplemental
Agreement of Distribution.
</TABLE>
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.
The Plan must be approved annually by the board of directors (the
"directors"), including a majority of the disinterested directors,
if it is to continue for more than a year. At least quarterly, the
directors 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 directors
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 directors, including a
majority of the directors 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 directors is the responsibility of the
18
<PAGE>
other disinterested directors. No interested person of the fund,
and no director who is not an interested person, has any direct or
indirect financial interest in the operation of the Plan or any
related agreement.
`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.
DIRECTORS AND OFFICERS
The following is a list of the fund's directors who, except for Mr.
Dudley, also are directors of all other funds in the IDS MUTUAL
FUND GROUP. Mr. Dudley is a director of all publicly offered
funds. All shares have cumulative voting rights when voting on the
election of directors.
LYNNE V. CHENEY+'
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 Corp., and the Interpublic Group of Companies, Inc.
(advertising).
WILLIAM H. DUDLEY+**
2900 IDS Tower
Minneapolis, MN
Executive vice president and director of AEFC.
ROBERT F. FROEHLKE+
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.
19
<PAGE>
DAVID R. HUBERS**
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+
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+
5716 Bent Branch Rd.
Bethesda, MD
Attorney and telecommunications consultant. Former partner, law
firm of Sutherland, Asbill & Brennan. Director, Motorola, Inc. and
C-Cor Electronics, Inc.
DONALD M. KENDALL'
PepsiCo, Inc.
Purchase, NY
Former chairman and chief executive officer, PepsiCo, Inc.
MELVIN R. LAIRD+
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'
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).
20
<PAGE>
WILLIAM R. PEARCE+*
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
4900 IDS Center
80 S. 8th St.
Minneapolis, MN
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**
2900 IDS Tower
Minneapolis, MN
Senior vice president and director of AEFC.
WHEELOCK WHITNEY+
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN
Chairman, Whitney Management Company (manages family assets).
C. ANGUS WURTELE
1101 S. 3rd St.
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, director,
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.
Besides Mr. Pearce, who is president, the fund's other officer is:
21
<PAGE>
LESLIE L. OGG
901 S. Marquette Ave.
Minneapolis, MN
Vice president of all funds in the IDS MUTUAL FUND GROUP and
general counsel and treasurer of the publicly offered funds.
During the fiscal year that ended January 31, 1994, the members of
the board, for attending up to 51 meetings, received the following
compensation, in total, from all funds in the IDS MUTUAL FUND
GROUP.
<TABLE>
<CAPTION>
Board compensation
Aggregate Retirement Estimated Total Cash
compensation benefits annual compensation
from the accrued as benefit on from the IDS
Board member fund fund expenses retirement MUTUAL FUND GROUP
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert F. Froehlke $ 528 $251 $ 96 $51,834
(part of year)
Anne P. Jones 1,014 125 125 73,267
Donald M. Kendall 771 302 71 66,167
Melvin R. Laird 932 286 90 71,067
Lewis W. Lehr 917 302 70 70,167
William R. Pearce 733 216 125 30,333
(part of year)
Edson W. Spencer 945 266 67 71,367
Wheelock Whitney 980 241 125 73,267
</TABLE>
On January 31, 1994, the fund's directors and officers as a group
owned less than 1% of the outstanding shares. During the fiscal
year ended January 31, 1994, no director or officer earned more
than $60,000 from this fund. All directors and officers as a group
earned $14,047, including $2,104 of retirement plan expense, from
this fund.
CUSTODIAN
The fund's securities and cash are held by American Express Trust
Company, 1200 Northstar Center West, 625 Marquette Ave.,
Minneapolis, MN 55402-2307, through a custodian agreement. The
custodian is permitted to deposit some or all of its securities in
central depository systems as allowed by federal law.
INDEPENDENT AUDITORS
The financial statements contained in the Annual Report to
shareholders, for the fiscal year ended January 31, 1994, 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
22
<PAGE>
Investments in Securities, contained in the 1994 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 Blue Chip Advantage Fund dated April 1,
1994, as revised March 3, 1995, is hereby incorporated in this SAI
by reference.
23
<PAGE>
APPENDIX A
STOCK INDEX FUTURES CONTRACTS AND RELATED CALL OPTIONS
The fund may buy stock index futures contracts (futures contracts),
buy call options on futures contracts and buy call options on stock
indexes. Under normal market conditions, the fund will invest no more
than __% of its net assets in derivatives.
STOCK INDEX FUTURES CONTRACTS. Stock index futures contracts are
commodity contracts listed on commodity exchanges. They include
contracts on the Standard & Poor's 500 Stock Index (S&P 500 Index)
and other broad stock market indexes such as the New York Stock
Exchange Composite Stock Index and the Value Line Composite Stock
Index, as well as narrower sub-indexes such as the S&P 100 Energy
Stock Index and the New York Stock Exchange Utilities Stock Index.
A stock index assigns relative values to common stocks included in
the index and the index fluctuates with the value of the common
stocks so included.
A futures contract is a legal agreement between a buyer or seller
and the clearinghouse of a futures exchange in which the parties
agree to make a cash settlement on a specified future date in an
amount determined by the stock index on the last trading day of the
contract. The amount is a specified dollar amount (usually $100 or
$500) multiplied by the difference between the index value on the
last trading day and the value on the day the contract was struck.
For example, the S&P 500 Index consists of 500 selected common
stocks, most of which are listed on the New York Stock Exchange.
The S&P 500 Index assigns relative weightings to the common stocks
included in the Index, and the Index fluctuates with changes in the
market values of those stocks. In the case of S&P 500 Index
futures contracts, the specified multiple is $500. Thus, if the
value of the S&P 500 Index were 150, the value of one contract
would be $75,000 (150 x $500). Unlike other futures contracts, a
stock index futures contract specifies that no delivery of the
actual stocks making up the index will take place. Instead,
settlement in cash must occur upon the termination of the contract.
For example, excluding any transaction costs, if the fund enters
into one futures contract to buy the S&P 500 Index at a specified
future date at a contract value of 150 and the S&P 500 Index is at
154 on that future date, the fund will gain $500 x (154-150) or
$2,000. If the fund enters into one futures contract to buy the
S&P 500 Index at a specified future date at a contract value of 150
and the S&P 500 Index is at 148 on that future date, the fund will
lose $500 x (150-148) or $1000.
Unlike the purchase or sale of an equity security, no price would
be paid or received by the fund upon entering into stock index
futures contracts. However, the fund would be required to deposit
with its custodian, in a segregated account in the name of the
futures broker, an amount of cash or U.S. Treasury bills equal to
approximately 5% of the contract value. This amount is known as
initial margin. The nature of initial margin in futures
transactions is different from that of margin in security
transactions in that futures contract margin does not involve
24
<PAGE>
borrowing funds by the fund to finance the transactions. Rather,
the initial margin is in the nature of a performance bond or good-
faith deposit on the contract that is returned to the fund upon
termination of the contract, assuming all contractual obligations
have been satisfied.
Subsequent payments, called variation margin, to and from the
broker would be made on a daily basis as the price of the
underlying stock index fluctuates, making the long and short
positions in the contract more or less valuable, a process known as
marking to the market. For example, when the fund enters into a
contract in which it benefits from a rise in the value of an index
and the price of the underlying stock index has risen, the fund
will receive from the broker a variation margin payment equal to
that increase in value. Conversely, if the price of the underlying
stock index declines, the fund would be required to make a
variation margin payment to the broker equal to the decline in
value.
HOW THE FUND WOULD USE STOCK INDEX FUTURES CONTRACTS. The fund
intends to use stock index futures contracts and related options
for hedging and not for speculation. Hedging permits the fund to
gain rapid exposure to changes in the market. For example, the
fund may find itself with a high cash position because of new
purchases of fund shares. Conventional procedures of purchasing a
number of individual issues entail the lapse of time and the
possibility of missing a significant market movement. By using
futures contracts, the fund can obtain immediate exposure to the
market. The buying program can then proceed and once it is
completed (or as it proceeds), the contracts can be closed.
SPECIAL RISKS OF TRANSACTIONS IN STOCK INDEX FUTURES CONTRACTS.
1. LIQUIDITY. The fund may elect to close some or all of its
contracts prior to expiration. The purpose of making such a move
would be to reduce or eliminate the hedge position held by the
fund. The fund may close its positions by taking opposite
positions. Final determinations of variation margin are then made,
additional cash as required is paid by or to the fund, and the fund
realizes a gain or a loss.
Positions in stock index futures contracts may be closed only on an
exchange or board of trade providing a secondary market for such
futures contracts. For example, futures contracts transactions can
currently be entered into with respect to the S&P 500 Stock Index
on the Chicago Mercantile Exchange. Although the fund intends to
enter into futures contracts only on exchanges or boards of trade
where there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any
particular contract at any particular time. In such event, it may
not be possible to close a futures contract position, and in the
event of adverse price movements, the fund would have to make daily
cash payments of variation margin. Further, there is no guarantee
the price of the securities will correlate with the price movements
in the futures contract.
2. HEDGING RISKS. There are several risks in using stock index
futures contracts as a hedging device. One risk arises because the
25
<PAGE>
prices of futures contracts may not correlate perfectly with
movements in the underlying stock index due to certain market
distortions. First, all participants in the futures market are
subject to initial margin and variation margin requirements.
Rather than making additional variation margin payments, investors
may close the contracts through offsetting transactions which could
distort the normal relationship between the index and futures
markets. Second, the margin requirements in the futures market are
lower than margin requirements in the securities market, and as a
result the futures market may attract more speculators than does
the securities market. Increased participation by speculators in
the futures market may also cause temporary price distortions.
Because of price distortion in the futures market and because of
imperfect correlation between movements in stock indexes and
movements in prices of futures contracts, even a correct forecast
of general market trends may not result in a successful hedging
transaction over a short period. In addition, if the fund has
insufficient cash, it may have to sell securities to meet daily
variation margin requirements.
OPTIONS ON STOCK INDEX FUTURES CONTRACTS. Options on stock index
futures contracts are similar to options on stock except that
options on futures contracts give the purchaser the right, in
return for the premium paid, to assume a position in a stock index
futures contract (a long position if the option is a call) at a
specified exercise price at any time during the period of the
option. If the option is closed instead of exercised, the holder
of the option receives an amount that represents the amount by
which the market price of the contract exceeds (in the case of a
call) the exercise price of the option on the futures contract. If
the option does not appreciate in value prior to the exercise date,
the fund will suffer a loss of the premium paid.
OPTIONS ON STOCK INDEXES. Stock indexes are securities traded on
national securities exchanges. An option on a stock index is
similar to an option on a futures contract except all settlements
are in cash. A fund exercising an option, for example, would
receive the difference between the exercise price and the current
index level. Such options would be used in the same manner as
options on futures contracts.
SPECIAL RISKS OF TRANSACTIONS IN OPTIONS ON STOCK INDEX FUTURES
CONTRACTS AND OPTIONS ON STOCK INDEXES. As with options on stocks,
the holder of an option on a stock index futures contract or on a
stock index may terminate a position by selling an option covering
the same contract or index and having the same exercise price and
expiration date. Trading in options on stock index futures
contracts and stock indexes began only recently. The ability to
establish and close out positions on such options will be subject
to the development and maintenance of a liquid secondary market.
The fund will not purchase options unless the market for such
options has developed sufficiently, so that the risks in connection
with options are not greater than the risks in connection with
stock index futures contracts transactions themselves. Compared to
using futures contracts, purchasing options involves less risk to
the fund because the maximum amount at risk is the premium paid for
the options (plus transaction costs). There may be circumstances,
26
<PAGE>
however, when using an option would result in a greater loss to the
fund than using a futures contract, such as when there is no
movement in the level of the stock index.
TAX TREATMENT. As permitted under federal income tax laws, the
fund intends to identify futures contracts as mixed straddles and
not mark them to market, that is, not treat them as having been
sold at the end of the year at market value. Such an election may
result in the fund being required to defer recognizing losses
incurred by entering into futures contracts and losses on
underlying securities identified as being hedged against.
Federal income tax treatment of gains or losses from transactions
in options on futures contracts and stock indexes is currently
unclear, although the fund's tax advisers currently believe marking
to market is not required. Depending on developments, and although
no assurance is given, the fund may seek Internal Revenue Service
(IRS) rulings clarifying questions concerning such treatment.
Certain provisions of the Internal Revenue Code may also limit the
fund's ability to engage in futures contracts and related options
transactions. For example, at the close of each quarter of the
fund's taxable year, at least 50% of the value of its assets must
consist of cash, government securities and other securities,
subject to certain diversification requirements. 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.
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.
27
<PAGE>
APPENDIX B
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
<TABLE>
<CAPTION>
- ------------------------------------------------------------
REGULAR MARKET PRICE SHARES
INVESTMENT OF A SHARE ACQUIRED
- ------------------------------------------------------------
<S> <C> <C>
$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
</TABLE>
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).
28
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<C> <C> <S>
(a) FINANCIAL STATEMENTS:
Registrant's semi-annual report to shareholders filed electronically pursuant to Section
270.30d-1 on or about Oct. 31, 1994 is incorporated herein by reference.
(b) EXHIBITS:
1. Articles of Incorporation as amended on Jan. 16, 1990, filed as exhibit 1 to
Registration Statement No. 33-30770 are incorporated herein by reference.
2. By-laws, filed as Exhibit 2 to Pre-Effective Amendment No. 3 to Registration
Statement No. 33-30770 are incorporated herein by reference.
3. Not Applicable.
4. Not Applicable.
5. Investment Management and Services Agreement between Registrant and IDS
Financial Corporation, dated Nov. 14, 1991, filed as Exhibit 5 to
Post-Effective Amendment No. 3 to Registration Statement No. 33-30770, is
incorporated herein by reference.
6. Distribution Agreement between Registrant and IDS Financial Services Inc.,
dated Jan. 30, 1990, filed as Exhibit 6 to Pre-Effective Amendment No. 3 to
Registration Statement No. 33-30770 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.(a) Custodian Agreement between Registrant and IDS Bank and Trust, dated Jan. 30,
1990, filed as Exhibit 8(a) to Pre-Effective Amendment No. 3 to Registration
Statement No. 33-30770 is incorporated herein by reference.
9. Transfer Agency Agreement between Registrant and IDS Financial Corporation,
dated Nov. 14, 1991, filed as Exhibit 9 to Post-Effective Amendment No. 3 to
Registration Statement No. 33-30770, is incorporated herein by reference.
10. Copy of Opinion and Consent of Counsel as to the legality of the securities
registered filed as Exhibit 10 on February 1, 1990 to Pre-Effective Amendment
No. 3 to Registration Statement No. 33-30770 is incorporated herein by
reference.
11. Not applicable.
12. None.
13. Agreement made in consideration for providing initial capital between
Registrant and IDS Financial Corporation filed as Exhibit No. 13 on March 1,
1990 to Pre-Effective Amendment No. 4 to Registration Statement No. 33-30770
is incorporated herein by reference.
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. 2-383 on Sept. 8, 1986, are incorporated herein by
reference.
15. Plan and Supplemental Agreement of Distribution between Registrant and IDS
Financial Corporation, dated Jan. 30, 1990, filed as Exhibit 15 to
Pre-Effective Amendment No. 3 to Registration Statement No. 33-30770 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, filed as Exhibit 16 on August
29, 1990 to Post-Effective Amendment No. 1 to Registration Statement No.
33-30770 is incorporated herein by reference.
17. Not applicable.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <C> <S>
18.(a) Directors' Power of Attorney to sign amendments to this Registration Statement
dated Nov. 10, 1994, filed electronically herewith.
18.(b) Officers' Power of Attorney to sign amendments to this Registration Statement,
dated June 1, 1993, filed as Exhibit 17(b) with Registrant's Post-Effective
Amendment No. 8 to Registration Statement No. 33-30770, is incorporated herein
by reference.
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
(1) (2)
Number of
Record Holders
as of Dec. 5,
Title of Class 1994
- -------------- --------------
<S> <C>
Common Stock 15,882
</TABLE>
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, IDS Market Advantage Series, Inc., 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 22nd day of December, 1994.
IDS MARKET ADVANTAGE SERIES, INC.
by /s/ WILLIAM R. PEARCE**
------------------------------------
William R. Pearce,
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on the 22nd day of December, 1994.
Signatures Capacity
- ----------------------------------- -------------------------
/s/ WILLIAM R. PEARCE** President, Principal
- ----------------------------------- Executive Officer and
William R. Pearce Director
Treasurer, Principal
/s/ LESLIE L. OGG** Financial Officer and
- ----------------------------------- Principal Accounting
Leslie L. Ogg Officer
/s/ LYNNE V. CHENEY*
- ----------------------------------- Director
Lynne V. Cheney
/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
II-3
<PAGE>
Signatures Capacity
- ----------------------------------- -------------------------
/s/ ANNE P. JONES*
- ----------------------------------- Director
Anne P. Jones
/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*
- ----------------------------------- Director
C. Angus Wurtele
*Signed pursuant to Directors' Power of Attorney dated Nov. 10, 1994, filed
electronically herewith as Exhibit 18(a) by:
/s/ Leslie L. Ogg
--------------------------------------
Leslie L. Ogg
**Signed pursuant to Officers' Power of Attorney dated June 1, 1993, filed as
Exhibit 17(b), to Registrant's Post-Effective Amendment No. 8 to Registration
Statement No. 33-30770, is incorporated herein by reference by:
/s/ Leslie L. Ogg
--------------------------------------
Leslie L. Ogg
II-4
<PAGE>
CONTENTS OF THIS
POST-EFFECTIVE AMENDMENT NO. 11
TO REGISTRATION STATEMENT NO. 33-30770
This post-effective amendment comprises the following papers and documents:
The facing sheet.
Cross reference sheet.
Part A.
The prospectus.
Part B.
Statement of Additional Information.
Part C.
Other information.
Exhibits.
The signatures.
<PAGE>
IDS Market Advantage Series, Inc.
Registration Number 33-30770/811-5897
EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibit 18(a) Directors' Power of Attorney, dated Nov. 10, 1994
</TABLE>
<PAGE>
Exhibit 18(a)
DIRECTORS/TRUSTEES POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as directors and trustees of the
below listed open-end, diversified investment companies that
previously have filed registration statements and amendments
thereto pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940 with the Securities and
Exchange Commission:
1933 Act 1940 Act
Reg. Number Reg. Number
----------- -----------
IDS Bond Fund, Inc. 2-51586 811-2503
IDS California Tax-Exempt Trust 33-5103 811-4646
IDS Discovery Fund, Inc. 2-72174 811-3178
IDS Equity Select Fund, Inc. 2-13188 811-772
IDS Extra Income Fund, Inc. 2-86637 811-3848
IDS Federal Income Fund, Inc. 2-96512 811-4260
IDS Global Series, Inc. 33-25824 811-5696
IDS Growth Fund, Inc. 2-38355 811-2111
IDS High Yield Tax-Exempt Fund, Inc. 2-63552 811-2901
IDS International Fund, Inc. 2-92309 811-4075
IDS Investment Series, Inc. 2-11328 811-54
IDS Managed Retirement Fund, Inc. 2-93801 811-4133
IDS Market Advantage Series, Inc. 33-30770 811-5897
IDS Money Market Series, Inc. 2-54516 811-2591
IDS New Dimensions Fund, Inc. 2-28529 811-1629
IDS Precious Metals Fund, Inc. 2-93745 811-4132
IDS Progressive Fund, Inc. 2-30059 811-1714
IDS Selective Fund, Inc. 2-10700 811-499
IDS Special Tax-Exempt Series Trust 33-5102 811-4647
IDS Stock Fund, Inc. 2-11358 811-498
IDS Strategy Fund, Inc. 2-89288 811-3956
IDS Tax-Exempt Bond Fund, Inc. 2-57328 811-2686
IDS Tax-Free Money Fund, Inc. 2-66868 811-3003
IDS Utilities Income Fund, Inc. 33-20872 811-5522
hereby constitutes and appoints William R. Pearce and Leslie L. Ogg
or either one of them, as her or his attorney-in-fact and agent, to
sign for her or him in her or his name, place and stead any and all
further amendments to said registration statements filed pursuant
to said Acts and any rules and regulations thereunder, and to file
such amendments with all exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission,
granting to either of them the full power and authority to do and
perform each and every act required and necessary to be done in
connection therewith.
Dated the 10th day of November, 1994.
<PAGE>
/s/ Lynne V. Cheney /s/ Melvin R. Laird
- -------------------------- ----------------------------
Lynne V. Cheney Melvin R. Laird
/s/ William H. Dudley /s/ Lewis W. Lehr
- -------------------------- ----------------------------
William H. Dudley Lewis W. Lehr
/s/ Robert F. Froehlke /s/ William R. Pearce
- -------------------------- ----------------------------
Robert F. Froehlke William R. Pearce
/s/ David R. Hubers /s/ Edson W. Spencer
- -------------------------- ----------------------------
David R. Hubers Edson W. Spencer
/s/ Heinz F. Hutter /s/ John R. Thomas
- -------------------------- ----------------------------
Heinz F. Hutter John R. Thomas
/s/ Anne P. Jones /s/ Wheelock Whitney
- -------------------------- ----------------------------
Anne P. Jones Wheelock Whitney
/s/ Donald M. Kendall /s/ C. Angus Wurtele
- -------------------------- ----------------------------
Donald M. Kendall C. Angus Wurtele
