<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 2049
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 18 (File No. 33-30770) X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY (ACT OF 1940)
Amendment No. 22 (File No. 811-5897) X
IDS MARKET ADVANTAGE SERIES, INC.
IDS Tower 10, Minneapolis, Minnesota 55440
Leslie L. Ogg - 901 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)
X on April 1, 1997 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on (date) paragraph (a)(2) 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, 1997 was filed
on or about March 21, 1997.
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<TABLE><CAPTION>
Cross reference sheet showing the location in its prospectus and the Statement of Additional Information of the information called
for by the items enumerated in Parts A and B of Form N-1A.
Negative answers omitted from prospectus are so indicated.
PART A PART B
Section Section in
Item No. in Prospectus Item No. Statement of Additional Information
<S> <C> <C> <C>
1 Cover page of prospectus 10 Cover page of SAI
2(a) Sales charge and Fund expenses 11 Table of Contents
(b) The Fund in brief
(c) The Fund in brief 12 NA
3(a) Financial highlights 13(a) Additional Investment Policies; all
(b) NA appendices except Dollar-Cost Averaging
(c) Performance (b) Additional Investment Policies
(d) Financial highlights (c) Additional Investment Policies
(d) Security Transactions
4(a) The Fund in brief; Investment policies and
risks; How the Fund is organized 14(a) Board members and officers of the Fund;**
(b) Investment policies and risks Board members and officers
(c) Investment policies and risks (b) Board members and Officers
(c) Board members and Officers
5(a) Board members and officers; Board members
and officers of the Fund (listing) 15(a) NA
(b)(i) Investment manager; (b) NA
About American Express Financial (c) Board members and Officers
Corporation -- General Information
(b)(ii) Investment manager 16(a)(i) How the Fund is organized; About American
(b)(iii) Investment manager Express Financial Corporation**
(c) Portfolio manager (a)(ii) Agreements: Investment Management Services
(d) Administrator and transfer agent Agreement, Plan and Agreement
(e) Administrator and transfer agent of Distribution
(f) Distributor (a)(iii) Agreements: Investment Management Services Agreement
(g) Investment manager; (b) Agreements: Investment Management Services Agreement
About American Express Financial (c) NA
Corporation -- General Information (d) Agreements: Administrative Services
Agreement, Shareholder Service Agreement
5A(a) * (e) NA
(b) * (f) Agreements: Distribution Agreement
(g) NA
6(a) Shares; Voting rights (h) Custodian; Independent Auditors
(b) NA (i) Agreements: Transfer Agency Agreement; Custodian
(c) NA
(d) Voting rights 17(a) Security Transactions
(e) Cover page; Special shareholder services (b) Brokerage Commissions Paid to Brokers Affiliated
(f) Dividends and capital gain distributions; with American Express Financial Corporation
Reinvestments (c) Security Transactions
(g) Taxes (d) Security Transactions
(h) Alternative purchase arrangements (e) Security Transactions
7(a) Distributor 18(a) Shares; Voting rights**
(b) Valuing Fund Shares (b) NA
(c) How to purchase, Exchange or redeem shares
(d) How to purchase shares 19(a) Investing in the Fund
(e) NA (b) Valuing Fund Shares; Investing in the Fund
(f) Distributor (c) NA
8(a) How to redeem shares 20 Taxes
(b) NA
(c) How to purchase shares: Three ways to invest 21(a) Agreements: Distribution Agreement
(d) How to purchase, exchange or redeem shares: (b) Agreements: Distribution Agreement
Redemption policies -- "Important..." (c) NA
9 None 22(a) Performance Information (for money market
funds only)
(b) Performance Information (for all funds except
money market funds)
23 Financial Statements
*Designates information is located in annual report.
**Designates location in prospectus.
</TABLE>
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IDS Blue Chip Advantage Fund
Prospectus
April 1, 1997
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 (SEC) and available for reference, along with other
related materials, on the SEC Internet web site
(http://www.sec.gov). The SAI is incorporated here by reference.
For a free copy, contact American Express Shareholder Service.
Like all mutual fund shares, 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.
Please note that the Fund:
o is not a bank deposit
o is not federally insured
o is not endorsed by any bank or government agency
o is not guaranteed to achieve its goal
American Express Shareholder Service
P.O. Box 534
Minneapolis, MN
55440-0534
612-671-3733
TTY: 800-846-4852
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PAGE 4
Table of contents
The Fund in brief
Goal
Investment policies and risks
Manager and distributor
Portfolio manager
Alternative purchase arrangements
Sales charge and Fund expenses
Performance
Financial highlights
Total returns
Investment policies and risks
Facts about investments and their risks
Alternative investment option
Valuing Fund shares
How to purchase, exchange or redeem shares
Alternative purchase arrangements
How to purchase shares
How to exchange shares
How to redeem shares
Reductions and waivers of the sales charge
Special shareholder services
Services
Quick telephone reference
Distributions and taxes
Dividend and capital gain distributions
Reinvestments
Taxes
How to determine the correct TIN
How the Fund is organized
Shares
Voting rights
Shareholder meetings
Board members and officers
Investment manager
Administrator and transfer agent
Distributor
About American Express Financial Corporation
General information
<PAGE>
PAGE 5
The Fund in brief
Goal
IDS Blue Chip Advantage Fund (the 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.
Investment policies and risks
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 $59 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 Aggressive Growth Portfolio, IDS Small Company
Index Fund, IDS Advisory accounts and is a member of the portfolio
management team for Total Return Portfolio.
Alternative purchase arrangements
The Fund offers its shares in three classes. Class A shares are
subject to a sales charge at the time of purchase. Class B shares
are subject to a contingent deferred sales charge (CDSC) on
redemptions made within six years of purchase and an annual
distribution (12b-1) fee. Class Y shares are sold without a sales
charge to qualifying institutional investors.
Sales charge and Fund expenses
Shareholder transaction expenses are incurred directly by an
investor on the purchase or redemption of Fund shares. Fund
operating expenses are paid out of Fund assets for each class of <PAGE>
PAGE 6
shares. Operating expenses are reflected in the Fund's daily share
price and dividends, and are not charged directly to shareholder
accounts.
Shareholder transaction expenses
Class A Class B Class Y
Maximum sales charge on purchases*
(as a percentage of offering price).......5% 0% 0%
Maximum deferred sales charge
imposed on redemptions (as a
percentage of original purchase price)....0% 5% 0%
Annual Fund operating expenses
(as a percentage of average daily net assets):
Class A Class B Class Y
Management fee 0.42% 0.42% 0.42%
12b-1 fee 0.00% 0.75% 0.00%
Other expenses** 0.47% 0.48% 0.30%
Total 0.89% 1.65% 0.72%
*This charge may be reduced depending on your total investments in
IDS funds. See "Reductions of the sales charge."
**Other expenses include an administrative services fee, a
shareholder services fee for Class A and Class B, a transfer agency
fee and other nonadvisory expenses.
Example: Suppose for each year for the next 10 years, Fund
expenses are as above and annual return is 5%. If you sold your
shares at the end of the following years, for each $1,000 invested,
you would pay total expenses of:
1 year 3 years 5 years 10 years
Class A $59 $77 $97 $155
Class B $57 $92 $110 $176**
Class B* $17 $52 $90 $176**
Class Y $ 7 $23 $40 $90
*Assuming Class B shares are not redeemed at the end of the period.
**Based on conversion of Class B shares to Class A shares after
eight years.
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.
<PAGE>
PAGE 7
Performance
Financial highlights
<TABLE><CAPTION>
IDS Blue Chip Advantage Fund
Financial highlights
Fiscal period ended Jan. 31,
Per share income and capital changes*
Class A
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993 1992 1991**
Net asset value, $7.62 $5.97 $6.58 $6.20 $5.96 $5.25 $5.00
beginning of period
Income from investment operations:
Net investment income .09 .11 .11 .10 .10 .12 .10
Net gains (losses) 1.69 2.18 (.13) .79 .50 .96 .25
(both realized
and unrealized)
Total from investment 1.78 2.29 (.02) .89 .60 1.08 .35
operations
Less distributions:
Dividends from net (.09) (.11) (.11) (.10) (.09) (.12) (.10)
investment income
Distributions from (.34) (.53) (.48) (.41) (.27) (.25) --
realized gains
Total distributions (.43) (.64) (.59) (.51) (.36) (.37) (.10)
Net asset value, $8.97 $7.62 $5.97 $6.58 $6.20 $5.96 $5.25
end of period
Ratios/supplemental data
1997 1996 1995 1994 1993 1992 1991**
Class A
Net assets, end of period $687 $247 $151 $148 $124 $85 $36
(in millions)
Ratio of expenses to .89% .96% .89% 1.03% 1.10% 1.11%+ .85%+
average daily net assets++
Ratio of net income 1.18% 1.68% 1.77% 1.59% 1.63% 2.01%+ 2.93%#+
to average daily net assets
Portfolio turnover rate 128% 126% 122% 156% 202% 154% 103%
(excluding short-term
securities)
Total return+++ 23.8% 39.0% (0.2%) 14.7% 10.2% 21.2% 7.0%
Average brokerage
commission rate## $.0388 -- -- -- -- -- --
*For a share outstanding throughout the period. Rounded to the nearest cent.
**Inception date. Period from March 5, 1990 to Jan. 31, 1991.
+During portions of the fiscal periods ended Jan. 31, 1992 and 1991, AEFC voluntarily reimbursed the Fund for certain expenses. Had
AEFC not done so, the annual ratios of expenses and net investment income would have been 1.17% and 1.95% in 1992 and 1.35% and
2.39% in 1991.
++Effective fiscal year 1996, expense ratio is based on total expenses of the Fund before reduction of earnings credits.
+++Total return does not reflect payment of a sales charge.
#Adjusted to an annual basis.
##Effective fiscal year 1997, the Fund is required to disclose an average brokerage commission rate. The rate is calculated by
dividing the total brokerage commissions paid on applicable purchases and sales of portfolio securities for the period by the total
number of
related shares purchased and sold.
</TABLE>
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<TABLE><CAPTION>
IDS Blue Chip Advantage Fund
Fiscal period ended Jan. 31,
Per share income and capital changes*
Class B Class Y
<S> <C> <C> <C> <C>
1997 1996++ 1997 1996++
Net asset value,
beginning of period $7.59 $6.30 $7.62 $6.30
__________________________________________________________________________________
Income from investment operations:
Net investment income .04 .07 .10 .11
Net gains (both
realized and unrealized) 1.67 1.83 1.69 1.86
__________________________________________________________________________________
Total from investment operations 1.71 1.90 1.79 1.97
__________________________________________________________________________________
Less distributions:
Dividends from net investment income (.04) (.08) (.10) (.12)
Distributions from realized gains (.34) (.53) (.34) (.53)
__________________________________________________________________________________
Total distributions (.38) (.61) (.44) (.65)
__________________________________________________________________________________
Net asset value,
end of period $8.92 $7.59 $8.97 $7.62
__________________________________________________________________________________
Ratios/supplemental data
Class B Class Y
1997 1996++ 1997 1996++
Net assets, end of
period (in millions) $302 $42 $77 $28
Ratio of expenses to
average daily net assets++ 1.65% 1.74%+ .72% .80%+
Ratio of net income to
average daily net assets .39% .81%+ 1.33% 1.75%+
Portfolio turnover rate
(excluding short-term securities) 128% 126% 128% 126%
Total return+++ 22.9% 30.3% 24.0% 31.3%
Average brokerage commission rate
for the underlying portfolio# $.0388 -- $.0388 --
__________________________________________________________________________________
*For a share outstanding throughout the period. Rounded to the nearest cent.
**Inception date was March 20, 1995 for Class B and Class Y.
#Effective fiscal 1997, the Fund is required to disclose an average brokerage commission
rate. The rate is calculated by dividing the total brokerage commissions paid on applicable
purchases and sales of portfolio securities for the period by the total number of related
shares purchased and sold. See accompanying notes to financial statements.
+Adjusted to an annual basis.
++Effective fiscal year 1996, expense ratio is based on total expense of the Fund before
reduction of earnings credits.
+++Total return does not reflect payment of a sales charge.
The information in these tables 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.
</TABLE>
Total returns
Total return is the sum of all of your returns for a given period,
assuming you reinvest all distributions. It is calculated by
taking the total value of shares you own at the end of the period
(including shares acquired by reinvestment), less the price of
shares you purchased at the beginning of the period.
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PAGE 9
Average annual total return is the annually compounded rate of
return over a given time period (usually two or more years). It is
the total return for the period converted to an equivalent annual
figure.
Average annual total returns as of Jan. 31, 1997
Purchase 1 year 5 years Since
made ago ago inception
Blue Chip:
Class A* +17.60% +15.57% +15.30%
Class B** +18.86% -- +30.90%
Class Y** +24.00% -- +33.78%
S&P 500 +26.33% +17.00% +16.29%***
*Inception date was March 5, 1990.
**Inception date was March 20, 1995.
***Measurement period started April 1, 1990.
Cumulative total returns as of Jan. 31, 1997
Purchase 1 year 5 years Since
made ago ago inception
Blue Chip:
Class A* +17.60% +106.33% +167.61%
Class B** +18.86% -- +65.69%
Class Y** +24.00% -- +72.65%
S&P 500 +26.33% +119.46% +180.97%***
*Inception date was March 5, 1990.
**Inception date was March 20, 1995.
***Measurement period started April 1, 1990.
These examples show total returns from hypothetical investments in
Class A, Class B and Class Y shares of the Fund. These returns are
compared to those of a popular index for the same periods. The
performance of Class B and Class Y will vary from the performance
of Class A based on differences in sales charges and fees. March
20, 1995 was the inception date for Class B and Class Y. Past
performance for Class Y for the periods prior to March 20, 1995 may
be calculated based on the performance of Class A, adjusted to
reflect differences in sales charges although not for other
differences in expenses.
For purposes of calculation, information about the Fund assumes:
o a sales charge of 5% for Class A shares
o redemption at the end of the period and deduction of the
applicable contingent deferred sales charge for Class B shares
o no sales charge for Class Y shares
o no adjustments for taxes an investor may have paid on the
reinvested income and capital gains
o a period of widely fluctuating securities prices. Returns
shown should not be considered a representation of the Fund's
future performance.
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PAGE 10
S&P 500, an unmanaged list of common stocks, is frequently used as
a general measure of market performance. The index reflects
reinvestment of all distributions and changes in market prices, but
excludes brokerage commissions or other fees.
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. Normally, the Fund
will own stock of 100 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's 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, not mirror, 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 quarterly
to keep the portfolio's structure similar (but not identical) to
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: Stock prices 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.
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PAGE 11
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 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. This does not, however,
limit the portion of the Fund's assets at risk to 5%. The Fund is
not limited as to the percentage of its assets that may be invested
in permissible investments, including derivatives, except as
otherwise explicitly provided in this prospectus or the SAI. For
further information, see the futures appendix in the SAI.
Securities and other instruments that are illiquid: A security or
other instrument is illiquid if it 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 other instruments that are
illiquid.
Money market instruments: Short-term debt securities rated in the
top two grades or the equivalent are used to meet daily cash needs
and 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. The investment manager may change the investment strategy
without approval from a majority of the outstanding voting
securities or the board.
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PAGE 12
Lending portfolio securities: The Fund may lend its securities to
earn income so long as borrowers provide collateral equal to the
market value of the loans. The risks are that borrowers will not
provide collateral when required or return securities when due.
Unless a majority of the outstanding voting securities approve
otherwise, loans may not exceed 30% of the Fund's net assets.
Market index: Should the current market index become unavailable
for use by the Fund, the board 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.
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 assets would be invested in an investment
company with the same goal as the Fund, rather than invested
directly in a portfolio of securities.
Valuing Fund shares
The public offering price is the net asset value (NAV) adjusted for
the sales charge for Class A. It is the NAV for Class B and
Class Y.
The NAV is the value of a single Fund share. The NAV usually
changes daily, and is calculated at the close of business, normally
3 p.m. Central time, each business day (any day the New York Stock
Exchange is open).
To establish the net assets, all securities are valued as of the
close of each business day. In valuing assets:
o Securities (except bonds) and assets with available market
values are valued on that basis.
o Securities maturing in 60 days or less are valued at amortized
cost.
o Bonds and assets without readily available market values are
valued according to methods selected in good faith by the
board.
How to purchase, exchange or redeem shares
Alternative purchase arrangements
The Fund offers three different classes of shares - Class A, Class
B and Class Y. The primary differences among the classes are in
the sales charge structures and in their ongoing expenses. These
differences are summarized in the table below. You may choose the
class that best suits your circumstances and objectives.
<PAGE>
PAGE 13
<TABLE><CAPTION>
Sales charge and
distribution
(12b-1) fee Service fee Other information
<S> <C> <C> <C>
Class A Maximum initial 0.175% of average Initial sales charge
sales charge of daily net assets waived or reduced
5%; no 12b-1 fee for certain purchases
Class B No initial sales 0.175% of average Shares convert to
charge; maximum CDSC daily net assets Class A after eight
of 5% declines to 0% years; CDSC waived in
after six years; 12b-1 certain circumstances
fee of 0.75% of average
daily net assets
Class Y None None Available only to
certain qualifying
institutional
investors
</TABLE>
Conversion of Class B shares to Class A shares - Eight calendar
years after Class B shares are 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 the
same pro rata portion as other Class B shares.
Considerations in determining whether to purchase Class A or Class
B shares - You should consider the information below in determining
whether to purchase Class A or Class B shares. The distribution
fee (included in "Ongoing expenses") and sales charges are
structured so that you will have approximately the same total
return at the end of eight years regardless of which class you
chose.
Sales charges on purchase or redemption
If you purchase Class A If you purchase Class B
shares shares
o You will not have all o All of your money is
of your purchase price invested in shares of
invested. Part of your stock. However, you will
purchase price will go pay a sales charge if you
to pay the sales charge. redeem your shares within
You will not pay a sales six years of purchase.
charge when you redeem
your shares.
o You will be able to o No reductions of the
take advantage of sales charge are
reductions in the sales available for large
charge. purchases.
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PAGE 14
If your investments in IDS funds that are subject to a sales charge
total $250,000 or more, you are better off paying the reduced sales
charge in Class A than paying the higher fees in Class B. If you
qualify for a waiver of the sales charge, you should purchase Class
A shares.
Ongoing expenses
If you purchase Class A If you purchase Class B
shares shares
o Your shares will have o The distribution and
a lower expense ratio transfer agency fees for
than Class B shares Class B will cause your
because Class A does not shares to have a higher
pay a distribution fee expense ratio and to pay
and the transfer agency lower dividends than
fee for Class A is lower Class A shares. After
than the fee for Class B. eight years, Class B
As a result, Class A shares shares will convert to
will pay higher dividends Class A shares and you
than Class B shares. will no longer be
subject to higher fees.
You should consider how long you plan to hold your shares and
whether the accumulated higher fees and CDSC on Class B shares
prior to conversion would be less than the initial sales charge on
Class A shares. Also consider to what extent the difference would
be offset by the lower expenses on Class A shares. To help you in
this analysis, the example in the "Sales charge and Fund expenses"
section of the prospectus illustrates the charges applicable to
each class of shares.
Class Y shares - Class Y shares are offered to certain
institutional investors. Class Y shares are sold without a front-
end sales charge or a CDSC and are not subject to either a service
fee or a distribution fee. The following investors are eligible to
purchase Class Y shares:
o Qualified employee benefit plans* if the plan:
- uses a daily transfer recordkeeping service offering
participants daily access to IDS funds and has
- at least $10 million in plan assets or
- 500 or more participants; or
- does not use daily transfer recordkeeping and has
- at least $3 million invested in funds of the IDS MUTUAL
FUND GROUP or
- 500 or more participants.
o Trust companies or similar institutions, and charitable
organizations that meet the definition in Section 501(c)(3) of
the Internal Revenue Code.* These must have at least $10
million invested in funds of the IDS MUTUAL FUND GROUP.
o Nonqualified deferred compensation plans* whose participants
are included in a qualified employee benefit plan described
above.<PAGE>
PAGE 15
* Eligibility must be determined in advance by American Express
Financial Advisors. To do so, contact your financial advisor.
How to purchase shares
If you're investing in this Fund for the first time, you'll need to
set up an account. Your financial advisor will help you fill out
and submit an application. Once your account is set up, you can
choose among several convenient ways to invest.
Important: When opening an account, you must provide AEFC with
your correct Taxpayer Identification Number (Social Security or
Employer Identification number). See "Distributions and taxes."
When you purchase shares for a new or existing account, the price
you pay per share is determined at the close of business on the day
your investment is received and accepted at the Minneapolis
headquarters.
Purchase policies:
o Investments must be received and accepted in the Minneapolis
headquarters on a business day before 3 p.m. Central time to
be included in your account that day and to receive that day's
share price. Otherwise, your purchase will be processed the
next business day and you will pay the next day's share price.
o The minimums allowed for investment may change from time to
time.
o Wire orders can be accepted only on days when your bank, AEFC,
the Fund and Norwest Bank Minneapolis are open for business.
o Wire purchases are completed when wired payment is received
and the Fund accepts the purchase.
o AEFC and the Fund are not responsible for any delays that
occur in wiring funds, including delays in processing by the
bank.
o You must pay any fee the bank charges for wiring.
o The Fund reserves the right to reject any application for any
reason.
o If your application does not specify which class of shares you
are purchasing, it will be assumed that you are investing in
Class A shares.
<PAGE>
PAGE 16
<TABLE><CAPTION>
Three ways to invest
<S> <C> <C>
1
By regular account Send your check and application Minimum amounts
(or your name and account number Initial investment: $2,000
if you have an established account) Additional
to: investments: $ 100
American Express Financial Advisors Inc.Account balances: $ 300*
P.O. Box 74 Qualified retirement
Minneapolis, MN 55440-0074 accounts: none
Your financial advisor will help
you with this process.
2
By scheduled Contact your financial advisor Minimum amounts
investment plan to set up one of the following Initial investment: $100
scheduled plans: Additional
investments: $100/mo.
o automatic payroll deduction Account balances: none
(on active plans of
o bank authorization monthly payments)
o direct deposit of
Social Security check
o other plan approved by the Fund
3
By wire If you have an established account, If this information is not
you may wire money to: included, the order may be
rejected and all money
Norwest Bank Minneapolis received by the Fund, less
Routing No. 091000019 any costs the Fund or AEFC
Minneapolis, MN incurs, will be returned
Attn: Domestic Wire Dept. promptly.
Give these instructions: Minimum amounts
Credit IDS Account #00-30-015 Each wire investment: $1,000
for personal account # (your
account number) for (your name).
</TABLE>
*If your account balance falls below $300, you will be asked in
writing to bring it up to $300 or establish a scheduled investment
plan. If you don't do so within 30 days, your shares can be
redeemed and the proceeds mailed to you.
How to exchange shares
You can exchange your shares of the Fund at no charge for shares of
the same class of any other publicly offered fund in the IDS MUTUAL
FUND GROUP available in your state. Exchanges into IDS Tax-Free
Money Fund must be made from Class A shares. For complete
information, including fees and expenses, read the prospectus
carefully before exchanging into a new fund.
If your exchange request arrives at the Minneapolis headquarters
before the close of business, your shares will be redeemed at the
net asset value set for that day. The proceeds will be used to
purchase new fund shares the same day. Otherwise, your exchange
will take place the next business day at that day's net asset
value.
For tax purposes, an exchange represents a redemption and purchase
and may result in a gain or loss. However, you cannot create a tax
loss (or reduce a taxable gain) by exchanging from the Fund within
91 days of your purchase. For further explanation, see the SAI.
<PAGE>
PAGE 17
How to redeem shares
You can redeem your shares at any time. American Express
Shareholder Service will mail payment within seven days after
receiving your request.
When you redeem shares, the amount you receive may be more or less
than the amount you invested. Your shares will be redeemed at net
asset value, minus any applicable sales charge, at the close of
business on the day your request is accepted at the Minneapolis
headquarters. If your request arrives after the close of business,
the price per share will be the net asset value, minus any
applicable sales charge, at the close of business on the next
business day.
A redemption is a taxable transaction. If your proceeds from your
redemption are more or less than the cost of your shares, you will
have a gain or loss, which can affect your tax liability.
Redeeming shares held in an IRA or qualified retirement account may
subject you to certain federal taxes, penalties and reporting
requirements. Consult your tax advisor.
<TABLE><CAPTION>
Two ways to request an exchange or redemption of shares
<S> <C>
1
By letter Include in your letter:
o the name of the fund(s)
o the class of shares to be exchanged or redeemed
o your account number(s) (for exchanges, both funds must be registered in the same
ownership)
o your Taxpayer Identification Number (TIN)
o the dollar amount or number of shares you want to exchange or redeem
o signature of all registered account owners
o for redemptions, indicate how you want your money delivered to you
o any paper certificates of shares you hold
Regular mail:
American Express Shareholder Service
Attn: Redemptions
P.O. Box 534
Minneapolis, MN 55440-0534
Express mail:
American Express Shareholder Service
Attn: Redemptions
733 Marquette Ave.
Minneapolis, MN 55402
2
By phone
American Express Telephone o The Fund and AEFC will honor any telephone exchange or redemption request believed to be
Transaction Service: authentic and will use reasonable procedures to confirm that they are. This includes
800-437-3133 or asking identifying questions and tape recording calls. If reasonable
612-671-3800 procedures are not followed, the Fund or AEFC will be liable for any loss resulting from
fraudulent requests.
o Phone exchange and redemption privileges automatically apply to all accounts except
custodial, corporate or qualified retirement accounts unless you request these privileges
NOT apply by writing American Express Shareholder Service. Each registered owner must sign
the request.
o AEFC answers phone requests promptly, but you may experience delays when call volume is
high. If you are unable to get through, use mail procedure as an alternative.
o Acting on your instructions, your financial advisor may conduct telephone transactions
on your behalf.
o Phone privileges may be modified or discontinued at any time.
Minimum amount
Redemption: $100
Maximum amount
Redemption: $50,000
/TABLE
<PAGE>
PAGE 18
Exchange policies:
o You may make up to three exchanges within any 30-day period,
with each limited to $300,000. These limits do not apply to
scheduled exchange programs and certain employee benefit plans or
other arrangements through which one shareholder represents the
interests of several. Exceptions may be allowed with pre-approval
of the Fund.
o Exchanges must be made into the same class of shares of the new
fund.
o If your exchange creates a new account, it must satisfy the
minimum investment amount for new purchases.
o Once we receive your exchange request, you cannot cancel it.
o Shares of the new fund may not be used on the same day for
another exchange.
o If your shares are pledged as collateral, the exchange will be
delayed until written approval is obtained from the secured party.
o AEFC and the Fund reserve the right to reject any exchange,
limit the amount, or modify or discontinue the exchange privilege,
to prevent abuse or adverse effects on the Fund and its
shareholders. For example, if exchanges are too numerous or too
large, they may disrupt the Fund's investment strategies or
increase its costs.
Redemption policies:
o A "change of mind" option allows you to change your mind after
requesting a redemption and to use all or part of the proceeds to
purchase new shares in the same account from which you redeemed.
If you reinvest in Class A, you will purchase the new shares at net
asset value rather than the offering price on the date of a new
purchase. If you reinvest in Class B, any CDSC you paid on the
amount you are reinvesting also will be reinvested. To take
advantage of this option, send a written request within 30 days of
the date your redemption request was received. Include your
account number and mention this option. This privilege may be
limited or withdrawn at any time, and it may have tax consequences.
o A telephone redemption request will not be allowed within 30
days of a phoned-in address change.
Important: If you request a redemption of shares you recently
purchased by a check or money order that is not guaranteed, the
Fund will wait for your check to clear. It may take up to 10 days
from the date of purchase before a check is mailed to you. (A
check may be mailed earlier if your bank provides evidence
satisfactory to the Fund and AEFC that your check has cleared.)
<PAGE>
PAGE 19
<TABLE><CAPTION>
Three ways to receive payment when you redeem shares
<S> <C>
1
By regular or express mail o Mailed to the address on record.
o Payable to names listed on the account.
NOTE: You will be charged a fee if you
request express mail delivery.
2
By wire o Minimum wire redemption: $1,000.
o Request that money be wired to your bank.
o Bank account must be in the same
ownership as the IDS fund account.
NOTE: Pre-authorization required. For
instructions, contact your financial
advisor or American Express Shareholder Service.
3
By scheduled payout plan o Minimum payment: $50.
o Contact your financial advisor or American Express
Shareholder Service to set up regular
payments to you on a monthly, bimonthly,
quarterly, semiannual or annual basis.
o Purchasing new shares while under a payout
plan may be disadvantageous because of
the sales charges.
</TABLE>
Reductions and waivers of the sales charge
Class A - initial sales charge alternative
On purchases of Class A shares, you pay a 5% sales charge on the
first $50,000 of your total investment and less on investments
after the first $50,000:
Total investment Sales charge as a
percent of:*
Public Net
offering amount
price invested
Up to $50,000 5.0% 5.26%
Next $50,000 4.5 4.71
Next $400,000 3.8 3.95
Next $500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
* To calculate the actual sales charge on an investment greater
than $50,000 and less than $1,000,000, amounts for each applicable
increment must be totaled. See the SAI.
Reductions of the sales charge on Class A shares
Your sales charge may be reduced, depending on the totals of:
o the amount you are investing in this Fund now,
o the amount of your existing investment in this Fund, if any, and
<PAGE>
PAGE 20
o the amount you and your primary household group are investing or
have in other funds in the IDS MUTUAL FUND GROUP that carry a sales
charge. (The primary household group consists of accounts in any
ownership for spouses or domestic partners and their unmarried
children under 21. Domestic partners are individuals who maintain
a shared primary residence and have joint property or other
insurable interests.)
Other policies that affect your sales charge:
o IDS Tax-Free Money Fund and Class A shares of IDS Cash
Management Fund do not carry sales charges. However, you may count
investments in these funds if you acquired shares in them by
exchanging shares from IDS funds that carry sales charges.
o IRA purchases or other employee benefit plan purchases made
through a payroll deduction plan or through a plan sponsored by an
employer, association of employers, employee organization or other
similar entity, may be added together to reduce sales charges for
all shares purchased through that plan.
o If you intend to invest $1 million over a period of 13 months,
you can reduce the sales charges in Class A by filing a letter of
intent.
For more details, see the SAI.
Waivers of the sales charge for Class A shares
Sales charges do not apply to:
o Current or retired board members, officers or employees of the
Fund or AEFC or its subsidiaries, their spouses and unmarried
children under 21.
o Current or retired American Express financial advisors, their
spouses and unmarried children under 21.
o Qualified employee benefit plans* using a daily transfer
recordkeeping system offering participants daily access to IDS
funds.
(Participants in certain qualified plans for which the initial
sales charge is waived may be subject to a deferred sales charge of
up to 4% on certain redemptions. For more information, see the
SAI.)
o Shareholders who have at least $1 million invested in funds of
the IDS MUTUAL FUND GROUP. If the investment is redeemed in the
first year after purchase, a CDSC of 1% will be charged on the
redemption.
o Purchases made within 30 days after a redemption of shares (up
to the amount redeemed):
- of a product distributed by American Express Financial
Advisors in a qualified plan subject to a deferred sales
charge or
<PAGE>
PAGE 21
- in a qualified plan where American Express Trust Company has a
recordkeeping, trustee, investment management or investment
servicing relationship.
Send the Fund a written request along with your payment, indicating
the amount of the redemption and the date on which it occurred.
o Purchases made with dividend or capital gain distributions from
the same class of another fund in the IDS MUTUAL FUND GROUP that
has a sales charge.
o Purchases made through American Express Strategic Portfolio
Service (total amount of all investments made in the Strategic
Portfolio Service must be at least $50,000).
o Purchases made under the University of Texas System ORP.
*Eligibility must be determined in advance by American Express
Financial Advisors. To do so, contact your financial advisor.
Class B - contingent deferred sales charge alternative
Where a CDSC is imposed on a redemption, it is based on the amount
of the redemption and the number of calendar years, including the
year of purchase, between purchase and redemption. The following
table shows the declining scale of percentages that apply to
redemptions during each year after a purchase:
If a redemption is The percentage rate
made during the for the CDSC is:
First year 5%
Second year 4%
Third year 4%
Fourth year 3%
Fifth year 2%
Sixth year 1%
Seventh year 0%
If the amount you are redeeming reduces the current net asset value
of your investment in Class B shares below the total dollar amount
of all your purchase payments during the last six years (including
the year in which your redemption is made), the CDSC is based on
the lower of the redeemed purchase payments or market value.
The following example illustrates how the CDSC is applied. Assume
you had invested $10,000 in Class B shares and that your investment
had appreciated in value to $12,000 after 15 months, including
reinvested dividend and capital gain distributions. You could
redeem any amount up to $2,000 without paying a CDSC ($12,000
current value less $10,000 purchase amount). If you redeemed
$2,500, the CDSC would apply only to the $500 that represented part
of your original purchase price. The CDSC rate would be 4% because
a redemption after 15 months would take place during the second
year after purchase.
<PAGE>
PAGE 22
Because the CDSC is imposed only on redemptions that reduce the
total of your purchase payments, you never have to pay a CDSC on
any amount you redeem that represents appreciation in the value of
your shares, income earned by your shares or capital gains. In
addition, when determining the rate of any CDSC, your redemption
will be made from the oldest purchase payment you made. Of course,
once a purchase payment is considered to have been redeemed, the
next amount redeemed is the next oldest purchase payment. By
redeeming the oldest purchase payments first, lower CDSCs are
imposed than would otherwise be the case.
Waivers of the contingent deferred sales charge
The CDSC on Class B shares will be waived on redemptions of shares:
o In the event of the shareholder's death,
o Purchased by any board member, officer or employee of a fund or
AEFC or its subsidiaries,
o Held in a trusteed employee benefit plan,
o Held in IRAs or certain qualified plans for which American
Express Trust Company acts as custodian, such as Keogh plans, tax-
sheltered custodial accounts or corporate pension plans, provided
that the shareholder is:
- at least 59-1/2 years old, and
- taking a retirement distribution (if the redemption is part
of a transfer to an IRA or qualified plan in a product
distributed by American Express Financial Advisors, or a
custodian-to-custodian transfer to a product not distributed
by American Express Financial Advisors, the CDSC will not be
waived), or
- redeeming under an approved substantially equal periodic
payment arrangement.
For investors in Class A shares who have over $1 million invested
in one year, the 1% CDSC on redemption of those shares will be
waived in the same circumstances described for Class B.
Special shareholder services
Services
To help you track and evaluate the performance of your investments,
AEFC provides these services:
Quarterly statements listing all of your holdings and transactions
during the previous three months.
Yearly tax statements featuring average-cost-basis reporting of
capital gains or losses if you redeem your shares along with
distribution information which simplifies tax calculations.
A personalized mutual fund progress report detailing returns on
your initial investment and cash-flow activity in your account. It
calculates a total return to reflect your individual history in
owning Fund shares. This report is available from your financial
advisor.
<PAGE>
PAGE 23
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
American Express Shareholder Service
Fund performance, objectives and account inquiries
612-671-3733
TTY Service
For the hearing impaired
800-846-4852
American Express Infoline
Automated account information (TouchToneR phones only), including
current Fund prices and performance, account values and recent
account transactions
National/Minnesota: 800-272-4445
Mpls./St. Paul area: 671-1630
Distributions and taxes
As a shareholder you are entitled to your share of the Fund's net
income and any net gains realized on its investments. The Fund
distributes dividends and capital gain distributions to qualify as
a regulated investment company and to avoid paying corporate income
and excise taxes. Dividend and capital gain distributions will
have tax consequences you should know about.
Dividend and capital gain distributions
The Fund's net investment income from dividends and interest is
distributed to you at the end of each calendar quarter as
dividends. Short-term capital gains are distributed at the end of
the calendar year and are included in net investment income. Long-
term capital gains are realized whenever a security held for more
than one year is sold for a higher price. The Fund will offset any
net realized capital gains by any available capital loss
carryovers. Net realized long-term capital gains, if any, are
distributed at the end of the calendar year as capital gain
distributions. Before they're distributed, both net investment
income and net long-term capital gains are included in the value of
each share. After they're distributed, the value of each share
drops by the per-share amount of the distribution. (If your
distributions are reinvested, the total value of your holdings will
not change.)
Dividends for each class will be calculated at the same time, in
the same manner and will be the same amount prior to deduction of
expenses. Expenses attributable solely to a class of shares will
be paid exclusively by that class.
<PAGE>
PAGE 24
Reinvestments
Dividends and capital gain distributions are automatically
reinvested in additional shares in the same class of the Fund,
unless:
o you request the Fund in writing or by phone to pay
distributions to you in cash, or
o you direct the Fund to invest your distributions in the same
class of another publicly available IDS fund for which you've
previously opened an account.
The reinvestment price is the net asset value at close of business
on the day the distribution is paid. (Your quarterly statement
will confirm the amount invested and the number of shares
purchased.)
If you choose cash distributions, you will receive only those
declared after your request has been processed.
If the U.S. Postal Service cannot deliver the checks for the cash
distributions, we will reinvest the checks into your account at the
then-current net asset value and make future distributions in the
form of additional shares.
Taxes
Distributions are subject to federal income tax and also may be
subject to state and local taxes. Distributions are taxable in the
year the Fund declares them regardless of whether you take them in
cash or reinvest them.
Each January, you will receive a tax statement showing the kinds
and total amount of all distributions you received during the
previous year. You must report distributions on your tax returns,
even if they are reinvested in additional shares.
Buying a dividend creates a tax liability. This means buying
shares shortly before a 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.
<PAGE>
PAGE 25
If you don't provide the TIN, or the TIN you report is incorrect,
you could be subject to backup withholding of 31% of taxable
distributions and proceeds from certain sales and exchanges. You
also could be subject to further penalties, such as:
o a $50 penalty for each failure to supply your correct TIN
o a civil penalty of $500 if you make a false statement that
results in no backup withholding
o criminal penalties for falsifying information
You also could be subject to backup withholding because you failed
to report interest or dividends on your tax return as required.
How to determine the correct TIN
Use the Social Security or
For this type of account: Employer Identification number
of:
Individual or joint account The individual or individuals
listed on the account
Custodian account of a minor The minor
(Uniform Gifts/Transfers to
Minors Act)
A living trust The grantor-trustee (the person
who puts the money into the
trust)
An irrevocable trust, pension The legal entity (not the
trust or estate personal representative or
trustee, unless no legal entity
is designated in the account
title)
Sole proprietorship The owner
Partnership The partnership
Corporate The corporation
Association, club or The organization
tax-exempt organization
For details on TIN requirements, ask your financial advisor or
local American Express Financial Advisors office for federal Form
W-9, "Request for Taxpayer Identification Number and
Certification."
Important: This information is a brief and selective summary of
certain federal tax rules that apply to this Fund. Tax matters are
highly individual and complex, and you should consult a qualified
tax advisor about your personal situation.
<PAGE>
PAGE 26
How the Fund is organized
Shares
IDS Market Advantage Series, Inc. currently is composed of two
funds, each issuing its own series of capital stock: IDS Blue Chip
Advantage Fund and IDS Small Company Index Fund. Each fund is
owned by its shareholders. Each 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 a fund. Par value is one
cent per share. Both full and fractional shares can be issued.
The shares of each fund making up IDS Market Advantage Series, Inc.
represent an interest in that fund's assets only (and profits or
losses), and, in the event of liquidation, each share of a fund
would have the same rights to dividends and assets as every other
share of that fund.
Voting rights
As a shareholder, you have voting rights over the Fund's management
and fundamental policies. You are entitled to one vote for each
share you own. Shares of the Fund have cumulative voting rights.
Each class has exclusive voting rights with respect to the
provisions of the Fund's distribution plan that pertain to a
particular class and other matters for which separate class voting
is appropriate under applicable law.
Shareholder meetings
The Fund does not hold annual shareholder meetings. However, the
board members may call meetings at their discretion, or on demand
by holders of 10% or more of the outstanding shares, to elect or
remove board members.
Board members and officers
Shareholders elect a board that oversees the operations of the Fund
and chooses its officers. Its officers are responsible for day-to-
day business decisions based on policies set by the board. The
board has named an executive committee that has authority to act on
its behalf between meetings. Board members and officers serve 47
IDS and IDS Life funds and 15 Master Trust portfolios, except for
William H. Dudley, who does not serve the nine IDS Life funds.
Board members and officers of the Fund
President and interested board member
William R. Pearce
President and director, Board Services Corporation (provides
administrative services to boards including the boards of the IDS
and IDS Life funds and Master Trust portfolios).
<PAGE>
PAGE 27
Independent board members
H. Brewster Atwater, Jr.
Former chairman and chief executive officer, General Mills, Inc.
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.
Melvin R. Laird
Senior counsellor for national and international affairs, The
Reader's Digest Association, Inc.
Alan K. Simpson
Former United States Senator for Wyoming.
Edson W. Spencer
Former chairman and chief executive officer, Honeywell, Inc.
Wheelock Whitney
Chairman, Whitney Management Company.
C. Angus Wurtele
Chairman of the board, The Valspar Corporation.
Interested board members who are officers and/or employees of AEFC
William H. Dudley
Executive vice president, AEFC.
David R. Hubers
President and chief executive officer, AEFC.
John R. Thomas
Senior vice president, AEFC.
Officers who also are officers and/or employees of AEFC
Peter J. Anderson
Senior vice president, AEFC. Vice President - Investments for the
Fund.
Melinda S. Urion
Senior vice president and chief financial officer, AEFC. Treasurer
for the Fund.
<PAGE>
PAGE 28
Other officer
Leslie L. Ogg
Vice president, treasurer and corporate secretary of Board Services
Corporation. Vice president, general counsel and secretary for the
Fund.
Refer to the SAI for the board members' and officers' biographies.
Investment manager
The Fund pays AEFC for managing its assets. Under its Investment
Management Services Agreement, AEFC is paid a fee for these
services based on the average daily net assets of the Fund, as
follows:
Assets Annual rate
(billions) at each asset level
First $0.25 0.440%
Next 0.25 0.415
Next 0.25 0.390
Next 0.25 0.365
Over 1.0 0.340
For the fiscal year ended Jan. 31, 1997, the Fund paid AEFC a total
investment management fee of 0.42% of its average daily net assets.
Under the Agreement, the Fund also pays taxes, brokerage
commissions and nonadvisory expenses.
Administrator and transfer agent
The Fund pays AEFC for shareholder accounting and transfer agent
services under two agreements. The first agreement, the
Administrative Services Agreement, has a declining annual rate
beginning at 0.04% and decreasing to 0.02% as assets increase. The
second agreement, the Transfer Agency Agreement, has an annual fee
per shareholder account as follows:
o Class A $15
o Class B $16
o Class Y $15
Distributor
The Fund has an exclusive distribution agreement with American
Express Financial Advisors, a wholly owned subsidiary of AEFC.
Financial advisors representing American Express Financial Advisors
provide information to investors about individual investment
programs, the Fund and its operations, new account applications,
and exchange and redemption requests. The cost of these services
is paid partially by the Fund's sales charges.
Persons who buy Class A shares pay a sales charge at the time of
purchase. Persons who buy Class B shares are subject to a
contingent deferred sales charge on a redemption in the first six
years and pay an asset-based sales charge (also known as a 12b-1
<PAGE>
PAGE 29
plan) of 0.75% of the Fund's average daily net assets. Class Y
shares are sold without a sales charge and without an asset-based
sales charge.
Financial advisors may receive different compensation for selling
Class A, Class B and Class Y shares. Portions of the sales charge
also may be paid to securities dealers who have sold the Fund's
shares or to banks and other financial institutions. The amounts
of those payments range from 0.8% to 4% of the Fund's offering
price depending on the monthly sales volume.
Under a Shareholder Service Agreement, the Fund also pays a fee for
service provided to shareholders by financial advisors and other
servicing agents. The fee is calculated at a rate of 0.175% of the
Fund's average daily net assets attributable to Class A and Class B
shares.
Total expenses paid by the Fund's Class A shares for the fiscal
year ended Jan. 31, 1997, were 0.89% of its average daily net
assets. Expenses for Class B and Class Y were 1.65% and 0.72%,
respectively.
About American Express Financial Corporation
General information
The AEFC family of companies offers not only mutual funds but also
insurance, annuities, investment certificates and a broad range of
financial management services.
Besides managing investments for all 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, 1997, were more
than $152 billion.
American Express Financial Advisors serves individuals and
businesses through its nationwide network of more than 177 offices
and more than 8,350 advisors.
Other AEFC subsidiaries provide investment management and related
services for pension, profit sharing, employee savings and
endowment funds of businesses and institutions.
AEFC is located at IDS Tower 10, Minneapolis, MN 55440-0010. It is
a wholly owned subsidiary of American Express Company (American
Express), a financial services company with headquarters at
American Express Tower, World Financial Center, New York, NY 10285.
The Fund may pay brokerage commissions to broker-dealer affiliates
of AEFC.
<PAGE>
PAGE 30
IDS Small Company Index Fund
Prospectus
April 1, 1997
The goal of IDS Small Company Index Fund, a part of IDS Market
Advantage Series, Inc., is to achieve long-term capital
appreciation. The Fund attempts to mirror the performance of the
Standard & Poor's Small Capitalization Stock Index [REGISTERED]
(S&P SmallCap 600 Index [REGISTERED]) by investing in all or a
representative group of the equity securities comprising that
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 (SEC) and available for reference, along with other
related materials, on the SEC Internet web site
(http://www.sec.gov). The SAI is incorporated herein by reference.
For a free copy, contact American Express Shareholder Service.
Like all mutual fund shares, 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.
Please note that the Fund:
o is not a bank deposit
o is not federally insured
o is not endorsed by any bank or government agency
o is not guaranteed to achieve its goal
American Express Shareholder Service
P.O. Box 534
Minneapolis, MN
55440-0534
612-671-3733
TTY: 800-846-4852
<PAGE>
PAGE 31
Table of contents
The Fund in brief
Goal
Investment policies and risks
Manager and distributor
Portfolio manager
Alternative purchase arrangements
Sales charge and Fund expenses
Performance
Financial highlights
Total returns
Investment policies and risks
Facts about investments and their risks
Alternative investment option
Valuing Fund shares
How to purchase, exchange or redeem shares
Alternative purchase arrangements
How to purchase shares
How to exchange shares
How to redeem shares
Reductions and waivers of the sales charge
Special shareholder services
Services
Quick telephone reference
Distributions and taxes
Dividend and capital gain distributions
Reinvestments
Taxes
How to determine the correct TIN
How the Fund is organized
Shares
Voting rights
Shareholder meetings
Board members and officers
Investment manager
Administrator and transfer agent
Distributor
About American Express Financial Corporation
General information
Appendix
Description of derivative instruments
<PAGE>
PAGE 32
The Fund in brief
Goal
IDS Small Company Index Fund (the Fund) seeks to provide
shareholders with long-term capital appreciation. Because any
investment involves risk, achieving this goal cannot be guaranteed.
Only shareholders can change the investment objective of the Fund.
Investment policies and risks
The Fund is a diversified mutual fund that invests primarily in
common stocks of small-capitalization companies that are expected
to provide investment results that correspond to the performance of
the S&P SmallCap 600 Index* (Index). This Index is composed of
approximately 600 companies located in the United States. These
companies are chosen to be a part of the S&P 600 Index based upon
their market size, liquidity and industry group representation. As
of Jan. 31, 1997, stocks in the S&P SmallCap 600 Index had market
capitalization of between $45,477,688 million and $2,675,815,500
billion. To be included in the Index, stock selections are also
screened by Standard & Poor's Corporation for trading volume, share
turnover, ownership concentration, share price and bid/ask spreads.
Because the Fund invests in many of the stocks included in the S&P
SmallCap 600 Index, your investment will be subject to the risks of
investments in such companies. Some of the companies included in
the Index do not have the financial strength needed to do well in
difficult times and larger companies typically offer more price
stability. The S&P SmallCap 600 Index has above-average risk and
may fluctuate more than the Standard & Poor's 500 Stock Price
Index, which invests in stocks of larger, more established firms.
Small-capitalization companies also often sell limited numbers of
products, which can make it harder for them to compete with medium
and large companies. An index fund holding all or a representative
group of the 600 stocks in the S&P SmallCap 600 Index, like the
Fund, reduces certain risks of a more actively managed fund, such
as the risk of individual stock selection and seeks to provide
investors with returns corresponding to the performance of the
smaller-sized company sector of the market. It is not the Fund's
intention to replicate the Index at all times.
*"Standard & Poor's," "Standard & Poor's Small Capitalization Stock
Index" and "S&P SmallCap 600" are trademarks of McGraw-Hill, Inc.
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 $150 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.
<PAGE>
PAGE 33
Portfolio manager
Guru Baliga joined AEFC in 1991 as a research analyst. He became
portfolio manager of this Fund and IDS Research Opportunities Fund
in August 1996. He has been portfolio manager of IDS Blue Chip
Advantage Fund since 1994. He was appointed to the portfolio
management team of Total Return Portfolio in 1995, and is also a
portfolio manager of IDS Advisory accounts.
Alternative purchase arrangements
The Fund offers its shares in three classes. Class A shares are
subject to a sales charge at the time of purchase. Class B shares
are subject to a contingent deferred sales charge (CDSC) on
redemptions made within six years of purchase and an annual
distribution (12b-1) fee. Class Y shares are sold without a sales
charge to qualifying institutional investors.
Sales charge and Fund expenses
Shareholder transaction expenses are incurred directly by an
investor on the purchase or redemption of Fund shares. Fund
operating expenses are paid out of Fund assets for each class of
shares. Operating expenses are reflected in the Fund's daily share
price and dividends, and are not charged directly to shareholder
accounts.
Shareholder transaction expenses
Class A Class B Class Y
Maximum sales charge on purchases*
(as a percentage of offering price).......5% 0% 0%
Maximum deferred sales charge
imposed on redemptions (as a
percentage of original purchase price)....0% 5% 0%
Annual Fund operating expenses
(as a percentage of average daily net assets):
Class A Class B Class Y
Management fee** 0.00% 0.00% 0.00%
12b-1 fee 0.00% 0.75% 0.00%
Other expenses*** 1.00% 1.01% 0.82%
Total**** 1.00% 1.76% 0.82%
*This charge may be reduced depending on your total investments in
IDS funds. See "Reductions of the sales charge."
**Absent fee waivers, the management fee would be 0.38% for each
class.
***Other expenses include an administrative services fee, a
shareholder services fee for Class A and Class B, a transfer agency
fee and other nonadvisory expenses. Absent fee waivers and expense
reimbursements, other expenses would be 1.10% for Class A, 1.47%
for Class B and 0.84% for Class Y.
****AEFC and American Express Financial Advisors have agreed to
waive certain fees and reimburse expenses, with the exception of
12b-1 fees, to the extent that total expenses for Class A shares
exceed 1.00% for a minimum period ending July 31, 1997. Any waiver
<PAGE>
PAGE 34
or reimbursement will apply to each class on a pro rata basis.
Absent fee waivers and expense reimbursements, total expenses would
be 1.48% for Class A, 2.60% for Class B and 1.22% for Class Y.
Example: Suppose for each year for the next 10 years, Fund
expenses are as above and annual return is 5%. If you sold your
shares at the end of the following years, for each $1,000 invested,
you would pay total expenses of:
1 year 3 years 5 years 10 years
Class A $60 $80 $103 $167
Class B $68 $95 $116 $188**
Class B* $18 $55 $ 96 $188**
Class Y $ 8 $26 $ 46 $102
*Assuming Class B shares are not redeemed at the end of the period.
**Based on conversion of Class B shares to Class A shares after
eight years.
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.
<PAGE>
PAGE 35
Performance
Financial highlights
<TABLE><CAPTION>
Performance
Financial highlights
Fiscal period ended Jan. 31,
Per share income and capital changes*
<S> <C> <C> <C>
Class A Class B Class Y
1997** 1997** 1997**
Net asset value,
beginning of period $5.00 $5.00 $5.00
___________________________________________________________________________________________
Income from investment operations:
Net investment income .02 .02 .02
Net gains (both .52 .50 .52
realized and unrealized)
___________________________________________________________________________________________
Total from investment operations .54 .52 .54
___________________________________________________________________________________________
Less distributions:
Dividends from net investment income (.03) (.02) (.03)
___________________________________________________________________________________________
Net asset value, $5.51 $5.50 $5.51
end of period
___________________________________________________________________________________________
Ratios/supplemental data
Class A Class B Class Y
1997** 1997** 1997**
Net assets, end of $95 $42 $ --
period (in millions)
Ratio of expenses to 1.00%+# 1.76%+# .82%+#
average daily net assets++
Ratio of net income to 1.55%+ .63%+ 1.93%+
average daily net assets
Portfolio turnover rate 48% 48% 48%
(excluding short-term
securities)
Total return+++ 10.8% 10.5% 10.9%
Average brokerage $0.0266 $0.0266 $0.0266
commission rate##
___________________________________________________________________________________________
*For a share outstanding throughout the period. Rounded to the nearest cent.
**Inception date. Period from Aug. 19, 1996 to Jan. 31, 1997.
+Adjusted to an annual basis.
++Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
+++Total return does not reflect payment of a sales charge.
#During the period from Aug. 19, 1996 to Jan. 31, 1997, AEFC reimbursed the Fund for
certain expenses. Had AEFC not done so, the annual ratios of expenses would have been
1.48%, 2.60% and 1.22% for Class A, B, and Y, respectively.
##The Fund is required to disclose an average brokerage commission rate. The rate is calculated
by dividing the total brokerage commissions paid on applicable purchases and sales of portfolio
securities for the period by the total number of related shares purchased and sold.
The information in these tables has been audited by KPMG Peat Marwick LLP, independent auditors. The independent auditor's 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.
</TABLE>
<PAGE>
PAGE 36
Total returns
Total return is the sum of all of your returns for a given period,
assuming you reinvest all distributions. It is calculated by
taking the total value of shares you own at the end of the period
(including shares acquired by reinvestment), less the price of
shares you purchased at the beginning of the period.
Average annual total return is the annually compounded rate of
return over a given time period (usually two or more years). It is
the total return for the period converted to an equivalent annual
figure.
Average annual total return as of Jan. 31, 1997
Since inception*
Class A + 5.30%
Class B* +10.46%
Class Y* +10.86%
*Inception date was Aug. 19, 1996.
The following table shows the performance of the S&P SmallCap 600
Index for the ten years ending in 1996. Although the Index was
first published in 1994, Standard & Poor's reconstructed its
performance for earlier years. The past performance of the S&P
SmallCap 600 Index should not be viewed as representative of the
index's or the Fund's future performance. The fees and costs
involved in the operation of the Fund mean that the performance of
a share of stock in the Fund may not equal the performance of the
S&P SmallCap 600 Index even if the performance of the assets held
by the Fund do equal that performance.
S&P SmallCap 600 Index with Dividends Reinvested
Annual Percentage Change
1987 -13.50
1988 +19.49
1989 +13.89
1990 -9.90
1991 +48.49
1992 +21.04
1993 +18.79
1994 -4.77
1995 +29.96
1996 +32.11
Source: Standard & Poor's Corporation.
These examples show total returns from hypothetical investments in
Class A, Class B and Class Y shares of the Fund. The performance
of Class B and Class Y will vary from the performance of Class A
based on differences in sales charges and fees.
<PAGE>
PAGE 37
For purposes of calculation, information about the Fund assumes:
o a sales charge of 5% for Class A shares
o redemption at the end of the period and deduction of the
applicable contingent deferred sales charge for Class B shares
o no sales charge for Class Y shares
o no adjustments for taxes an investor may have paid on the
reinvested income and capital gains
o a period of widely fluctuating securities prices. Returns
shown should not be considered a representation of the Fund's
future performance.
The S&P SmallCap 600 Index is a market-weighted index, with each
stock affecting the index in proportion to its market value.
Standard & Poor's Corporation is responsible for selecting and
maintaining the list of stocks to be included in the index.
Inclusion in the index in no way implies an opinion by Standard &
Poor's Corporation as to attractiveness as an investment. This
unmanaged index tracks the common stock performance of 600 small-
capitalized U.S. companies in various industries. The Fund may
invest in common stocks that may not be listed in the S&P SmallCap
600 Index. The Index reflects reinvestment of all distributions
and changes in market prices, but excludes brokerage commissions or
other fees. The Fund is not promoted, sponsored or endorsed by,
nor in any way affiliated with Standard & Poor's.
Investment policies and risks
The Fund invests primarily in a representative group of the stocks
comprising the S&P SmallCap 600 Index. The Fund is not managed
according to traditional methods of "active" investment management,
instead it follows a passive or indexing investment approach under
which stocks are generally purchased or sold in order to match the
performance of the S&P SmallCap 600 Index. Generally, the
portfolio manager will not select securities for the Fund's
investment portfolio based upon traditional economic, financial and
market analyses or forecasting.
The Fund seeks to mirror the performance of the S&P SmallCap 600
Index by replicating the S&P SmallCap 600 Index or by investing in
a statistically selected sample of the approximately 600 stocks
included in the S&P SmallCap 600 Index. The Fund will invest in as
many stocks as necessary to closely track the performance of the
S&P SmallCap 600 Index. Under normal market conditions, the Fund
will invest at least 80% of its net assets in stocks of issuers
that comprise the S&P SmallCap 600 Index. As part of its
investment strategy, the Fund also may hold cash or its equivalent
or invest in short-term fixed income securities, which may cause
its performance to differ from that of the S&P SmallCap 600 Index.
The Fund will attempt to minimize any such differences through
transactions involving stock index futures contracts, options on
stock indices, and/or options on stock index futures contracts.
In addition, the Fund may purchase and sell options on equity
securities, lend its portfolio securities and purchase securities
on a when-issued or delayed delivery basis. These techniques are
described below under "Facts about investments and their risks" and
further information about some of them is included in the SAI.
<PAGE>
PAGE 38
The stocks of the S&P SmallCap 600 Index included in the Fund's
investment portfolio may be selected by utilizing a statistical
sampling. The Fund generally will select stocks by closely
approximating the risks, fundamentals, industry weightings and
other characteristics of the stocks listed on the S&P SmallCap 600
Index. Over the long term, AEFC seeks a correlation between the
performance of the Fund and that of the S&P SmallCap 600 Index of
0.95 or better. It is not possible to attain a perfect correlation
between the performance of the Fund and the S&P SmallCap 600 Index
on a regular basis. In the unlikely event that a correlation of
0.95 or better is not achieved, the board will consider alternative
arrangements.
While the Fund will not precisely match the S&P SmallCap 600
Index's performance, the Fund will attempt to minimize the
variation between its performance and that of the index. The
Fund's ability to mirror performance of the S&P SmallCap 600 Index
may be affected by factors such as the size of the Fund's
portfolio, transaction costs, management fees and expenses,
brokerage commissions and fees, the extent and timing of cash flows
into and out of the Fund, the Fund's policy of minimizing
transaction costs and tax liability from capital gain
distributions, and changes in securities markets and the index
itself.
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
Because of the risks associated with investing in the small
companies that comprise the S&P SmallCap 600 Index, the Fund is
intended to be a long-term investment vehicle and is not designed
to provide you with a means of speculating on short-term market
movements.
Small-capitalization common stocks: Stocks of smaller companies
may be subject to more abrupt or erratic price movements than
stocks of larger, established companies or the stock market as a
whole. Among the reasons for greater price volatility of stocks of
smaller companies are the less than certain growth prospects of
smaller firms, the lower degree of liquidity in the markets for
such stocks, and the greater exposure of small-size companies to
changing economic conditions. Also, small companies often have
limited product lines, smaller markets or fewer financial
resources. Therefore, some of the securities in which the Fund
invests involve substantial risk and may be considered speculative.
Market risk: The Fund is subject to market risk because it invests
primarily in common stocks. Market risk is the possibility that
common stock prices will decline over short or even extended
periods. The U.S. stock market tends to be cyclical, with periods
when stock prices generally rise and periods when stock prices
generally decline.
<PAGE>
PAGE 39
Derivative instruments: The portfolio manager may use derivative
instruments in addition to securities to achieve investment
performance. Derivative instruments include futures, options and
forward contracts. Such instruments may be used to maintain cash
reserves while remaining fully invested, to offset anticipated
declines in values of investments, to facilitate trading, to reduce
transaction costs or to pursue higher investment returns.
Derivative instruments are characterized by requiring little or no
initial payment and a daily change in price based on or derived
from a security, a currency, a group of securities or currencies,
or an index. A number of strategies or combination of instruments
can be used to achieve the desired investment performance
characteristics. A small change in the value of the underlying
security, currency or index will cause a sizable gain or loss in
the price of the derivative instrument. Derivative instruments
allow the portfolio manager to change the investment performance
characteristics very quickly and at lower costs. Risks include
losses of premiums, rapid changes in prices, defaults by other
parties and inability to close such instruments. The Fund will use
derivative instruments only to achieve the same investment
performance characteristics it could achieve by directly holding
those securities and currencies permitted under the investment
policies. The Fund will designate cash or appropriate liquid
assets to cover its portfolio obligations. No more than 5% of the
Fund's net assets can be used at any one time for good faith
deposits on futures and premiums for options on futures that do not
offset existing investment positions. This does not, however,
limit the portion of the Fund's assets at risk to 5%. The Fund is
not limited as to the percentage of its assets that may be invested
in permissible investments, including derivatives, except as
otherwise explicitly provided in this prospectus or the SAI. For
descriptions of these and other types of derivative instruments,
see the Appendix to this prospectus and the SAI.
Securities and other instruments that are illiquid: A security or
other instrument is illiquid if it cannot be sold quickly in the
normal course of business. Some investments cannot be resold to
the U.S. public because of their terms or government regulations.
Securities and instruments, however, can be sold in private sales,
and many may be sold to other institutions and qualified buyers or
on foreign markets. The portfolio manager will follow guidelines
established by the board and consider relevant factors such as the
nature of the security and the number of likely buyers when
determining whether a security is illiquid. No more than 10% of
the Fund's net assets will be held in securities and other
instruments that are illiquid.
Money market instruments: Short-term debt securities rated in the
top two grades or the equivalent are used to meet daily cash needs
and at various times to hold assets until better investment
opportunities arise. Generally, less than 25% of the Fund's total
assets are in these money market instruments. However, for
temporary defensive purposes these investments could exceed that
amount for a limited period of time.
<PAGE>
PAGE 40
The investment policies described above, including the Fund's
investment in stocks listed on the S&P SmallCap 600 Index, may be
changed by the board.
Lending portfolio securities: The Fund may lend its securities to
earn income so long as borrowers provide collateral equal to the
market value of the loans. The risks are that borrowers will not
provide collateral when required or return securities when due.
Unless a majority of the outstanding voting securities approve
otherwise, loans may not exceed 30% of the Fund's net assets.
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 assets would be invested in an investment
company with the same goal as the Fund, rather than invested
directly in a portfolio of securities.
Valuing Fund shares
The public offering price is the net asset value (NAV) adjusted for
the sales charge for Class A. It is the NAV for Class B and
Class Y.
The NAV is the value of a single Fund share. The NAV usually
changes daily, and is calculated at the close of business, normally
3 p.m. Central time, each business day (any day the New York Stock
Exchange is open).
To establish the net assets, all securities are valued as of the
close of each business day. In valuing assets:
o Securities (except bonds) and assets with available market
values are valued on that basis
o Securities maturing in 60 days or less are valued at amortized
cost
o Bonds and assets without readily available market values are
valued according to methods selected in good faith by the
board
How to purchase, exchange or redeem shares
Alternative purchase arrangements
The Fund offers three different classes of shares - Class A, Class
B and Class Y. The primary differences among the classes are in
the sales charge structures and in their ongoing expenses. These
differences are summarized in the table below. You may choose the
class that best suits your circumstances and objectives.
<PAGE>
PAGE 41
<TABLE><CAPTION>
Sales charge and
distribution
(12b-1) fee Service fee Other information
<S> <C> <C> <C>
Class A Maximum initial 0.175% of average Initial sales charge
sales charge of daily net assets waived or reduced
5%; no 12b-1 fee for certain purchases
Class B No initial sales 0.175% of average Shares convert to
charge; maximum CDSC daily net assets Class A after eight
of 5% declines to 0% years; CDSC waived in
after six years; 12b-1 certain circumstances
fee of 0.75% of average
daily net assets
Class Y None None Available only to
certain qualifying
institutional
investors
</TABLE>
Conversion of Class B shares to Class A shares - Eight calendar
years after Class B shares are 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 the
same pro rata portion as other Class B shares.
Considerations in determining whether to purchase Class A or Class
B shares - You should consider the information below in determining
whether to purchase Class A or Class B shares. The distribution
fee (included in "Ongoing expenses") and sales charges are
structured so that you will have approximately the same total
return at the end of eight years regardless of which class you
chose.
Sales charges on purchase or redemption
If you purchase Class A If you purchase Class B
shares shares
o You will not have all o All of your money is
of your purchase price invested in shares of
invested. Part of your stock. However, you will
purchase price will go pay a sales charge if you
to pay the sales charge. redeem your shares within
You will not pay a sales six years of purchase.
charge when you redeem
your shares.
o You will be able to o No reductions of the
take advantage of sales charge are
reductions in the sales available for large
charge. purchases.<PAGE>
PAGE 42
If your investments in IDS funds that are subject to a sales charge
total $250,000 or more, you are better off paying the reduced sales
charge in Class A than paying the higher fees in Class B. If you
qualify for a waiver of the sales charge, you should purchase Class
A shares.
Ongoing expenses
If you purchase Class A If you purchase Class B
shares shares
o Your shares will have o The distribution and
a lower expense ratio transfer agency fees for
than Class B shares Class B will cause your
because Class A does not shares to have a higher
pay a distribution fee expense ratio and to pay
and the transfer agency lower dividends than
fee for Class A is lower Class A shares. After
than the fee for Class B. eight years, Class B
As a result, Class A shares shares will convert to
will pay higher dividends Class A shares and you
than Class B shares. will no longer be
subject to higher fees.
You should consider how long you plan to hold your shares and
whether the accumulated higher fees and CDSC on Class B shares
prior to conversion would be less than the initial sales charge on
Class A shares. Also consider to what extent the difference would
be offset by the lower expenses on Class A shares. To help you in
this analysis, the example in the "Sales charge and Fund expenses"
section of the prospectus illustrates the charges applicable to
each class of shares.
Class Y shares - Class Y shares are offered to certain
institutional investors. Class Y shares are sold without a front-
end sales charge or a CDSC and are not subject to either a service
fee or a distribution fee. The following investors are eligible to
purchase Class Y shares:
o Qualified employee benefit plans* if the plan:
- uses a daily transfer recordkeeping service offering
participants daily access to IDS funds and has
- at least $10 million in plan assets or
- 500 or more participants; or
- does not use daily transfer recordkeeping and has
- at least $3 million invested in funds of the IDS MUTUAL
FUND GROUP or
- 500 or more participants.
o Trust companies or similar institutions, and charitable
organizations that meet the definition in Section 501(c)(3) of
the Internal Revenue Code.* These must have at least $10
million invested in funds of the IDS MUTUAL FUND GROUP.
<PAGE>
PAGE 43
o Nonqualified deferred compensation plans* whose participants
are included in a qualified employee benefit plan described
above.
* Eligibility must be determined in advance by American Express
Financial Advisors. To do so, contact your financial advisor.
How to purchase shares
If you're investing in this Fund for the first time, you'll need to
set up an account. Your financial advisor will help you fill out
and submit an application. Once your account is set up, you can
choose among several convenient ways to invest.
Important: When opening an account, you must provide AEFC with
your correct Taxpayer Identification Number (Social Security or
Employer Identification number). See "Distributions and taxes."
When you purchase shares for a new or existing account, the price
you pay per share is determined at the close of business on the day
your investment is received and accepted at the Minneapolis
headquarters.
Purchase policies:
o Investments must be received and accepted in the Minneapolis
headquarters on a business day before 3 p.m. Central time to
be included in your account that day and to receive that day's
share price. Otherwise, your purchase will be processed the
next business day and you will pay the next day's share price.
o The minimums allowed for investment may change from time to
time.
o Wire orders can be accepted only on days when your bank, AEFC,
the Fund and Norwest Bank Minneapolis are open for business.
o Wire purchases are completed when wired payment is received
and the Fund accepts the purchase.
o AEFC and the Fund are not responsible for any delays that
occur in wiring funds, including delays in processing by the
bank.
o You must pay any fee the bank charges for wiring.
o The Fund reserves the right to reject any application for any
reason.
o If your application does not specify which class of shares you
are purchasing, it will be assumed that you are investing in
Class A shares.
<PAGE>
PAGE 44
Three ways to invest
<TABLE><CAPTION>
1
<S> <C> <C>
By regular account Send your check and application Minimum amounts
(or your name and account number Initial investment: $2,000
if you have an established account) Additional
to: investments: $ 100
American Express Financial Advisors Inc.Account balances: $ 300*
P.O. Box 74 Qualified retirement
Minneapolis, MN 55440-0074 accounts: none
Your financial advisor will help
you with this process.
2
By scheduled Contact your financial advisor Minimum amounts
investment plan to set up one of the following Initial investment: $100
scheduled plans: Additional
investments: $100/mo.
o automatic payroll deduction Account balances: none
(on active plans of
o bank authorization monthly payments)
o direct deposit of
Social Security check
o other plan approved by the Fund
3
By wire If you have an established account, If this information is not
you may wire money to: included, the order may be
rejected and all money
Norwest Bank Minneapolis received by the Fund, less
Routing No. 091000019 any costs the Fund or AEFC
Minneapolis, MN incurs, will be returned
Attn: Domestic Wire Dept. promptly.
Give these instructions: Minimum amounts
Credit IDS Account #00-30-015 Each wire investment: $1,000
for personal account # (your
account number) for (your name).
*If your account balance falls below $300, you will be asked in writing to bring it up to $300 or establish a scheduled
investment plan. If you don't do so within 30 days, your shares can be redeemed and the proceeds mailed to you.
</TABLE>
How to exchange shares
You can exchange your shares of the Fund at no charge for shares of
the same class of any other publicly offered fund in the IDS MUTUAL
FUND GROUP available in your state. Exchanges into IDS Tax-Free
Money Fund must be made from Class A shares. For complete
information, including fees and expenses, read the prospectus
carefully before exchanging into a new fund.
If your exchange request arrives at the Minneapolis headquarters
before the close of business, your shares will be redeemed at the
net asset value set for that day. The proceeds will be used to
purchase new fund shares the same day. Otherwise, your exchange
will take place the next business day at that day's net asset
value.
For tax purposes, an exchange represents a redemption and purchase
and may result in a gain or loss. However, you cannot create a tax
loss (or reduce a taxable gain) by exchanging from the Fund within
91 days of your purchase. For further explanation, see the SAI.
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How to redeem shares
You can redeem your shares at any time. American Express
Shareholder Service will mail payment within seven days after
receiving your request.
When you redeem shares, the amount you receive may be more or less
than the amount you invested. Your shares will be redeemed at net
asset value, minus any applicable sales charge, at the close of
business on the day your request is accepted at the Minneapolis
headquarters. If your request arrives after the close of business,
the price per share will be the net asset value, minus any
applicable sales charge, at the close of business on the next
business day.
A redemption is a taxable transaction. If your proceeds from your
redemption are more or less than the cost of your shares, you will
have a gain or loss, which can affect your tax liability.
Redeeming shares held in an IRA or qualified retirement account may
subject you to certain federal taxes, penalties and reporting
requirements. Consult your tax advisor.
Two ways to request an exchange or redemption of shares
<TABLE><CAPTION>
1
<S> <C>
By letter Include in your letter:
o the name of the fund(s)
o the class of shares to be exchanged or redeemed
o your account number(s) (for exchanges, both funds must be registered in the same
ownership)
o your Taxpayer Identification Number (TIN)
o the dollar amount or number of shares you want to exchange or redeem
o signature of all registered account owners
o for redemptions, indicate how you want your money delivered to you
o any paper certificates of shares you hold
Regular mail:
American Express Shareholder Service
Attn: Redemptions
P.O. Box 534
Minneapolis, MN 55440-0534
Express mail:
American Express Shareholder Service
Attn: Redemptions
733 Marquette Ave.
Minneapolis, MN 55402
2
By phone
American Express Telephone o The Fund and AEFC will honor any telephone exchange or redemption request believed to be
Transaction Service: authentic and will use reasonable procedures to confirm that they are. This includes
800-437-3133 or asking identifying questions and tape recording calls. If reasonable
612-671-3800 procedures are not followed, the Fund or AEFC will be liable for any loss resulting from
fraudulent requests.
o Phone exchange and redemption privileges automatically apply to all accounts except
custodial, corporate or qualified retirement accounts unless you request these privileges
NOT apply by writing American Express Shareholder Service. Each registered owner must sign
the request.
o AEFC answers phone requests promptly, but you may experience delays when call volume is
high. If you are unable to get through, use mail procedure as an alternative.
<PAGE>
PAGE 46
o Acting on your instructions, your financial advisor may conduct telephone transactions
on your behalf.
o Phone privileges may be modified or discontinued at any time.
Minimum amount
Redemption: $100
Maximum amount
Redemption: $50,000
</TABLE>
Exchange policies:
o You may make up to three exchanges within any 30-day period,
with each limited to $300,000. These limits do not apply to
scheduled exchange programs and certain employee benefit plans or
other arrangements through which one shareholder represents the
interests of several. Exceptions may be allowed with pre-approval
of the Fund.
o Exchanges must be made into the same class of shares of the new
fund.
o If your exchange creates a new account, it must satisfy the
minimum investment amount for new purchases.
o Once we receive your exchange request, you cannot cancel it.
o Shares of the new fund may not be used on the same day for
another exchange.
o If your shares are pledged as collateral, the exchange will be
delayed until written approval is obtained from the secured party.
o AEFC and the Fund reserve the right to reject any exchange,
limit the amount, or modify or discontinue the exchange privilege,
to prevent abuse or adverse effects on the Fund and its
shareholders. For example, if exchanges are too numerous or too
large, they may disrupt the Fund's investment strategies or
increase its costs.
Redemption policies:
o A "change of mind" option allows you to change your mind after
requesting a redemption and to use all or part of the proceeds to
purchase new shares in the same account from which you redeemed.
If you reinvest in Class A, you will purchase the new shares at net
asset value rather than the offering price on the date of a new
purchase. If you reinvest in Class B, any CDSC you paid on the
amount you are reinvesting also will be reinvested. To take
advantage of this option, send a written request within 30 days of
the date your redemption request was received. Include your
account number and mention this option. This privilege may be
limited or withdrawn at any time, and it may have tax consequences.
o A telephone redemption request will not be allowed within 30
days of a phoned-in address change.
<PAGE>
PAGE 47
Important: If you request a redemption of shares you recently
purchased by a check or money order that is not guaranteed, the
Fund will wait for your check to clear. It may take up to 10 days
from the date of purchase before a check is mailed to you. (A
check may be mailed earlier if your bank provides evidence
satisfactory to the Fund and AEFC that your check has cleared.)
Three ways to receive payment when you redeem shares
<TABLE><CAPTION>
1
<S> <C>
By regular or express mail o Mailed to the address on record.
o Payable to names listed on the account.
NOTE: The express mail delivery charges
you pay will vary depending on the
courier you select.
2
By wire o Minimum wire redemption: $1,000.
o Request that money be wired to your bank.
o Bank account must be in the same
ownership as the IDS fund account.
NOTE: Pre-authorization required. For
instructions, contact your financial
advisor or American Express Shareholder Service.
3
By scheduled payout plan o Minimum payment: $50.
o Contact your financial advisor or American Express
Shareholder Service to set up regular
payments to you on a monthly, bimonthly,
quarterly, semiannual or annual basis.
o Purchasing new shares while under a payout
plan may be disadvantageous because of
the sales charges.
</TABLE>
Reductions and waivers of the sales charge
Class A - initial sales charge alternative
On purchases of Class A shares, you pay a 5% sales charge on the
first $50,000 of your total investment and less on investments
after the first $50,000:
Total investment Sales charge as a
percent of:*
Public Net
offering amount
price invested
Up to $50,000 5.0% 5.26%
Next $50,000 4.5 4.71
Next $400,000 3.8 3.95
Next $500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
* To calculate the actual sales charge on an investment greater
than $50,000 and less than $1,000,000, amounts for each applicable
increment must be totaled. See the SAI.
<PAGE>
PAGE 48
Reductions of the sales charge on Class A shares
Your sales charge may be reduced, depending on the totals of:
o the amount you are investing in this Fund now,
o the amount of your existing investment in this Fund, if any, and
o the amount you and your primary household group are investing or
have in other funds in the IDS MUTUAL FUND GROUP that carry a sales
charge. (The primary household group consists of accounts in any
ownership for spouses or domestic partners and their unmarried
children under 21. Domestic partners are individuals who maintain
a shared primary residence and have joint property or other
insurable interests.)
Other policies that affect your sales charge:
o IDS Tax-Free Money Fund and Class A shares of IDS Cash
Management Fund do not carry sales charges. However, you may count
investments in these funds if you acquired shares in them by
exchanging shares from IDS funds that carry sales charges.
o IRA purchases or other employee benefit plan purchases made
through a payroll deduction plan or through a plan sponsored by an
employer, association of employers, employee organization or other
similar entity, may be added together to reduce sales charges for
all shares purchased through that plan.
o If you intend to invest $1 million over a period of 13 months,
you can reduce the sales charges in Class A by filing a letter of
intent.
For more details, see the SAI.
Waivers of the sales charge for Class A shares
Sales charges do not apply to:
o Current or retired board members, officers or employees of the
Fund or AEFC or its subsidiaries, their spouses and unmarried
children under 21.
o Current or retired American Express financial advisors, their
spouses and unmarried children under 21.
o Qualified employee benefit plans* using a daily transfer
recordkeeping system offering participants daily access to IDS
funds.
(Participants in certain qualified plans for which the initial
sales charge is waived may be subject to a deferred sales charge of
up to 4% on certain redemptions. For more information, see the
SAI.)
<PAGE>
PAGE 49
o Shareholders who have at least $1 million invested in funds of
the IDS MUTUAL FUND GROUP. If the investment is redeemed in the
first year after purchase, a CDSC of 1% will be charged on the
redemption.
o Purchases made within 30 days after a redemption of shares (up
to the amount redeemed):
- of a product distributed by American Express Financial
Advisors in a qualified plan subject to a deferred sales
charge or
- in a qualified plan where American Express Trust Company has a
recordkeeping, trustee, investment management or investment
servicing relationship.
Send the Fund a written request along with your payment, indicating
the amount of the redemption and the date on which it occurred.
o Purchases made with dividend or capital gain distributions from
another fund in the IDS MUTUAL FUND GROUP that has a sales charge.
o Purchases made through American Express Strategic Portfolio
Service (total amount of all investments made in the Strategic
Portfolio Service must be at least $50,000).
o Purchases made under the University of Texas System ORP.
*Eligibility must be determined in advance by American Express
Financial Advisors. To do so, contact your financial advisor.
Class B - contingent deferred sales charge alternative
Where a CDSC is imposed on a redemption, it is based on the amount
of the redemption and the number of calendar years, including the
year of purchase, between purchase and redemption. The following
table shows the declining scale of percentages that apply to
redemptions during each year after a purchase:
If a redemption is The percentage rate
made during the for the CDSC is:
First year 5%
Second year 4%
Third year 4%
Fourth year 3%
Fifth year 2%
Sixth year 1%
Seventh year 0%
If the amount you are redeeming reduces the current net asset value
of your investment in Class B shares below the total dollar amount
of all your purchase payments during the last six years (including
the year in which your redemption is made), the CDSC is based on
the lower of the redeemed purchase payments or market value.
The following example illustrates how the CDSC is applied. Assume
you had invested $10,000 in Class B shares and that your investment
had appreciated in value to $12,000 after 15 months, including
<PAGE>
PAGE 50
reinvested dividend and capital gain distributions. You could
redeem any amount up to $2,000 without paying a CDSC ($12,000
current value less $10,000 purchase amount). If you redeemed
$2,500, the CDSC would apply only to the $500 that represented part
of your original purchase price. The CDSC rate would be 4% because
a redemption after 15 months would take place during the second
year after purchase.
Because the CDSC is imposed only on redemptions that reduce the
total of your purchase payments, you never have to pay a CDSC on
any amount you redeem that represents appreciation in the value of
your shares, income earned by your shares or capital gains. In
addition, when determining the rate of any CDSC, your redemption
will be made from the oldest purchase payment you made. Of course,
once a purchase payment is considered to have been redeemed, the
next amount redeemed is the next oldest purchase payment. By
redeeming the oldest purchase payments first, lower CDSCs are
imposed than would otherwise be the case.
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
American Express Shareholder Service
Fund performance, objectives and account inquiries
612-671-3733
TTY Service
For the hearing impaired
800-846-4852
<PAGE>
PAGE 51
American Express Infoline
Automated account information (TouchToneR phones only), including
current Fund prices and performance, account values and recent
account transactions
National/Minnesota: 800-272-4445
Mpls./St. Paul area: 671-1630
Distributions and taxes
As a shareholder you are entitled to your share of the Fund's net
income and any net gains realized on its investments. The Fund
distributes dividends and capital gain distributions to qualify as
a regulated investment company and to avoid paying corporate income
and excise taxes. Dividend and capital gain distributions will
have tax consequences you should know about.
Dividend and capital gain distributions
The Fund's net investment income from dividends and interest is
distributed to you by the end of the calendar year as dividends.
Short-term capital gains are included in net investment income.
Long-term capital gains are realized whenever a security held for
more than one year is sold for a higher price. The Fund will
offset any net realized capital gains by any available capital loss
carryovers. Net realized long-term capital gains, if any, are
distributed at the end of the calendar year as capital gain
distributions. Before they are distributed, both net investment
income and net long-term capital gains are included in the value of
each share. After they are distributed, the value of each share
drops by the per-share amount of the distribution. (If your
distributions are reinvested, the total value of your holdings will
not change.)
Dividends for each class will be calculated at the same time, in
the same manner and will be the same amount prior to deduction of
expenses. Expenses attributable solely to a class of shares will
be paid exclusively by that class.
Reinvestments
Dividends and capital gain distributions are automatically
reinvested in additional shares in the same class of the Fund,
unless:
o you request the Fund in writing or by phone to pay
distributions to you in cash, or
o you direct the Fund to invest your distributions in the same
class of another publicly available IDS fund for which you've
previously opened an account.
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.)
<PAGE>
PAGE 52
If you choose cash distributions, you will receive only those
declared after your request has been processed.
If the U.S. Postal Service cannot deliver the checks for the cash
distributions, we will reinvest the checks into your account at the
then-current net asset value and make future distributions in the
form of additional shares.
Taxes
Distributions are subject to federal income tax and also may be
subject to state and local taxes. Distributions are taxable in the
year the Fund declares them regardless of whether you take them in
cash or reinvest them.
Each January, you will receive a tax statement showing the kinds
and total amount of all distributions you received during the
previous year. You must report distributions on your tax returns,
even if they are reinvested in additional shares.
Buying a dividend creates a tax liability. This means buying
shares shortly before a 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, or the TIN you report is incorrect,
you could be subject to backup withholding of 31% of taxable
distributions and proceeds from certain sales and exchanges. You
also could be subject to further penalties, such as:
o a $50 penalty for each failure to supply your correct TIN
o a civil penalty of $500 if you make a false statement that
results in no backup withholding
o criminal penalties for falsifying information
You also could be subject to backup withholding because you failed
to report interest or dividends on your tax return as required.
<PAGE>
PAGE 53
How to determine the correct TIN
Use the Social Security or
For this type of account: Employer Identification number
of:
Individual or joint account The individual or individuals
listed on the account
Custodian account of a minor The minor
(Uniform Gifts/Transfers to
Minors Act)
A living trust The grantor-trustee (the person
who puts the money into the
trust)
An irrevocable trust, pension The legal entity (not the
trust or estate personal representative or
trustee, unless no legal entity
is designated in the account
title)
Sole proprietorship The owner
Partnership The partnership
Corporate The corporation
Association, club or The organization
tax-exempt organization
For details on TIN requirements, ask your financial advisor or
local American Express Financial Advisors office for federal Form
W-9, "Request for Taxpayer Identification Number and
Certification."
Important: This information is a brief and selective summary of
certain federal tax rules that apply to this Fund. Tax matters are
highly individual and complex, and you should consult a qualified
tax advisor about your personal situation.
How the Fund is organized
Shares
IDS Market Advantage Series, Inc. currently is composed of two
funds, each issuing its own series of capital stock: IDS Blue Chip
Advantage Fund and IDS Small Company Index Fund. Each fund is
owned by its shareholders. Each 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 a fund. Par value is one
cent per share. Both full and fractional shares can be issued.
<PAGE>
PAGE 54
The shares of each fund making up IDS Market Advantage Series, Inc.
represent an interest in that fund's assets only (and profits or
losses), and, in the event of liquidation, each share of a fund
would have the same rights to dividends and assets as every other
share of that fund.
Voting rights
As a shareholder, you have voting rights over the Fund's management
and fundamental policies. You are entitled to one vote for each
share you own. Shares of the Fund have cumulative voting rights.
Each class has exclusive voting rights with respect to the
provisions of the Fund's distribution plan that pertain to a
particular class and other matters for which separate class voting
is appropriate under applicable law.
Shareholder meetings
The Fund does not hold annual shareholder meetings. However, the
board members may call meetings at their discretion, or on demand
by holders of 10% or more of the outstanding shares, to elect or
remove board members.
Board members and officers
Shareholders elect a board that oversees the operations of the Fund
and chooses its officers. Its officers are responsible for day-to-
day business decisions based on policies set by the board. The
board has named an executive committee that has authority to act on
its behalf between meetings. Board members and officers serve 47
IDS and IDS Life funds and 15 Master Trust portfolios, except for
William H. Dudley who does not serve on the nine IDS Life funds.
Board members and officers of the Fund
President and interested board member
William R. Pearce
President and director, Board Services Corporation (provides
administrative services to boards including the boards of the IDS
and IDS Life funds and Master Trust portfolios).
Independent board members
H. Brewster Atwater, Jr.
Former chairman and chief executive officer, General Mills, Inc.
Lynne V. Cheney
Distinguished fellow, American Enterprise Institute for Public
Policy Research.
Robert F. Froehlke
Former president of all funds in the IDS MUTUAL FUND GROUP.
Heinz F. Hutter
Former president and chief operating officer, Cargill, Inc.
<PAGE>
PAGE 55
Anne P. Jones
Attorney and telecommunications consultant.
Melvin R. Laird
Senior counsellor for national and international affairs, The
Reader's Digest Association, Inc.
Alan K. Simpson
Former United States senator for Wyoming.
Edson W. Spencer
Former chairman and chief executive officer, Honeywell, Inc.
Wheelock Whitney
Chairman, Whitney Management Company.
C. Angus Wurtele
Chairman of the board, The Valspar Corporation.
Interested board members who are officers and/or employees of AEFC
William H. Dudley
Executive vice president, AEFC.
David R. Hubers
President and chief executive officer, AEFC.
John R. Thomas
Senior vice president, AEFC.
Officers who also are officers and/or employees of AEFC
Peter J. Anderson
Senior vice president, AEFC. Vice president - Investments for the
Fund.
Melinda S. Urion
Senior vice president and chief financial officer, AEFC. Treasurer
for the Fund.
Other officer
Leslie L. Ogg
Vice president, treasurer and corporate secretary of Board
Services. Vice president, general counsel and secretary.
Refer to the SAI for the board members' and officers' biographies.
Investment manager
The Fund pays AEFC for managing its assets. Under its Investment
Management Services Agreement, AEFC is paid a fee for these
<PAGE>
PAGE 56
services based on the average daily net assets of the Fund, as
follows:
Assets Annual rate
(billions) at each asset level
First $0.25 0.38%
Next 0.25 0.37
Next 0.25 0.36
Next 0.25 0.35
Over 1.0 0.34
For the fiscal period ended Jan. 31, 1997, the Fund paid AEFC a
total investment management fee of 0.00% of its average daily net
assets. Absent fee waivers, the management fee would be 0.38% for
each class. Under the Agreement, the Fund also pays taxes,
brokerage commissions and nonadvisory expenses.
Administrator and transfer agent
The Fund pays AEFC for shareholder accounting and transfer agent
services under two agreements. The first agreement, the
Administrative Services Agreement, has a declining annual rate
beginning at 0.10% and decreasing to 0.02% as assets increase.
The second agreement, the Transfer Agency Agreement, has an annual
fee per shareholder account as follows:
o Class A $15
o Class B $16
o Class Y $15
Until August 18, 1997, AEFC will pay expenses (excluding taxes and
brokerage commissions) in excess of 1.0% of average daily net
assets, on an annual basis.
Distributor
The Fund has an exclusive distribution agreement with American
Express Financial Advisors, a wholly-owned subsidiary of AEFC.
Financial advisors representing American Express Financial Advisors
provide information to investors about individual investment
programs, the Fund and its operations, new account applications,
and exchange and redemption requests. The cost of these services
is paid partially by the Fund's sales charges.
Persons who buy Class A shares pay a sales charge at the time of
purchase. Persons who buy Class B shares are subject to a
contingent deferred sales charge on a redemption in the first six
years and pay an asset-based sales charge (also known as a 12b-1
plan) of 0.75% of the Fund's average daily net assets. Class Y
shares are sold without a sales charge and without an asset-based
sales charge.
Financial advisors may receive different compensation for selling
Class A, Class B and Class Y shares. Portions of the sales charge
<PAGE>
PAGE 57
also may be paid to securities dealers who have sold the Fund's
shares or to banks and other financial institutions. The amounts
of those payments range from 0.8% to 4% of the Fund's offering
price depending on the monthly sales volume.
Under a Shareholder Service Agreement, the Fund also pays a fee for
service provided to shareholders by financial advisors and other
servicing agents. The fee is calculated at a rate of 0.175% of the
Fund's average daily net assets attributable to Class A and Class B
shares.
Total expenses paid by the Fund's Class A shares for the fiscal
year ended Jan. 31, 1997, were 1.00% of its average daily net
assets. Expenses for Class B and Class Y were 1.76% and 0.82%,
respectively.
About American Express Financial Corporation
General information
The AEFC family of companies offers not only mutual funds but also
insurance, annuities, investment certificates and a broad range of
financial management services.
Besides managing investments for all 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, 1997 were more
than $150 billion.
American Express Financial Advisors serves individuals and
businesses through its nationwide network of more than 177 offices
and more than 8,350 advisors.
Other AEFC subsidiaries provide investment management and related
services for pension, profit sharing, employee savings and
endowment funds of businesses and institutions.
AEFC is located at IDS Tower 10, Minneapolis, MN 55440-0010. It is
a wholly owned subsidiary of American Express Company (American
Express), a financial services company with headquarters at
American Express Tower, World Financial Center, New York, NY 10285.
The Fund may pay brokerage commissions to broker-dealer affiliates
of AEFC.
<PAGE>
PAGE 58
Appendix
Descriptions of derivative instruments
What follows are brief descriptions of derivative instruments the
Fund may use. At various times the Fund may use some or all of
these instruments and is not limited to these instruments. It may
use other similar types of instruments if they are consistent with
the Fund's investment goal and policies. For more information on
these instruments, see the SAI.
Options and futures contracts. An option is an agreement to buy or
sell an instrument at a set price during a certain period of time.
A futures contract is an agreement to buy or sell an instrument for
a set price on a future date. The Fund may buy and sell options
and futures contracts to manage its exposure to changing interest
rates, security prices and currency exchange rates. Options and
futures may be used to hedge the Fund's investments against price
fluctuations or to increase market exposure.
Indexed securities. The value of indexed securities is linked to
currencies, interest rates, commodities, indexes or other financial
indicators. Most indexed securities are short- to intermediate-
term fixed income securities whose values at maturity or interest
rates rise or fall according to the change in one or more specified
underlying instruments. Indexed securities may be more volatile
than the underlying instrument itself.
Structured products. Structured products are over-the-counter
financial instruments created specifically to meet the needs of one
or a small number of investors. The instrument may consist of a
warrant, an option or a forward contract embedded in a note or any
of a wide variety of debt, equity and/or currency combinations.
Risks of structured products include the inability to close such
instruments, rapid changes in the market and defaults by other
parties.
<PAGE>
PAGE 59
IDS MARKET ADVANTAGE SERIES, INC.
STATEMENT OF ADDITIONAL INFORMATION
FOR
IDS BLUE CHIP ADVANTAGE FUND
April 1, 1997
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, 1997, and it is to be used with the
prospectus dated April 1, 1997, and the Annual Report for the
fiscal year ended Jan. 31, 1997.
<PAGE>
PAGE 60
TABLE OF CONTENTS
Goal and Investment PoliciesSee Prospectus
Additional Investment Policies................................p.3
Security Transactions.........................................p.6
Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation........................p.7
Performance Information.......................................p.7
Valuing Fund Shares...........................................p.9
Investing in the Fund.........................................p.10
Redeeming Shares..............................................p.14
Pay-out Plans.................................................p.15
Taxes.........................................................p.16
Agreements....................................................p.18
Organizational Information....................................p.21
Board Members and Officers....................................p.21
Independent Auditors..........................................p.25
Financial StatementsSee Annual Report
Prospectus....................................................p.26
Appendix A: Stock Index Futures Contracts and Related
Call Options.....................................p.27
Appendix B: Dollar-Cost Averaging............................p.32
<PAGE>
PAGE 61
ADDITIONAL INVESTMENT POLICIES
These are investment policies in addition to those presented in the
prospectus. Unless holders of a majority of the outstanding voting
securities agree to make the change the Fund will not:
'Act as an underwriter (sell securities for others). However,
under the securities laws, the Fund may be deemed to be an
underwriter when it purchases securities directly from the issuer
and later resells them.
'Borrow money or property, except as a temporary measure for
extraordinary or emergency purposes, in an amount not exceeding
one-third of the market value of its total assets (including
borrowings) less liabilities (other than borrowings) immediately
after the borrowing. The Fund has not borrowed in the past and has
no present intention to borrow.
'Make cash loans if the total commitment amount exceeds 5% of the
Fund's total assets.
'Concentrate in any one industry. According to the present
interpretation by the Securities and Exchange Commission (SEC),
this means no more than 25% of the Fund's total assets, based on
current market value at time of purchase, can be invested in any
one industry.
'Purchase more than 10% of the outstanding voting securities of an
issuer.
'Invest more than 5% of its total assets in securities of any one
company, government or political subdivision thereof, except the
limitation will not apply to investments in securities issued by
the U.S. government, its agencies or instrumentalities, and except
that up to 25% of the Fund's total assets may be invested without
regard to this 5% limitation.
'Buy or sell real estate, unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent
the Fund from investing in securities or other instruments backed
by real estate or securities of companies engaged in the real
estate business or real estate investment trusts. For purposes of
this policy, real estate includes real estate limited partnerships.
'Buy or sell physical commodities unless acquired as a result of
ownership of securities or other instruments, except this shall not
prevent the Fund from buying or selling options and futures
contracts or from investing in securities or other instruments
backed by, or whose value is derived from, physical commodities.
'Make a loan of any part of its assets to American Express
Financial Corporation (AEFC), to the board members and officers of
AEFC or to its own board members and officers.
<PAGE>
PAGE 62
'Lend Fund securities in excess of 30% of its net assets. The
current policy of the Fund's board is to make these loans, either
long- or short-term, to broker-dealers. In making loans, the Fund
gets the market price in cash, U.S. government securities, letters
of credit or such other collateral as may be permitted by
regulatory agencies and approved by the board. If the market price
of the loaned securities goes up, the Fund will get additional
collateral on a daily basis. The risks are that the borrower may
not provide additional collateral when required or return the
securities when due. During the existence of the loan, the Fund
receives cash payments equivalent to all interest or other
distributions paid on the loaned securities. A loan will not be
made unless the investment manager believes the opportunity for
additional income outweighs the risks.
Unless changed by the board, 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 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 futures
contracts are not deemed to be a pledge of assets.
'Invest more than 5% of its total assets in securities of
companies, including any predecessors, that have a record of less
than three years continuous operations.
'Invest in a company to control or manage it.
'Invest more than 10% of its total assets in securities of
investment companies.
'Invest more than 5% of its net assets in warrants.
'Invest in exploration or development programs, such as oil, gas or
mineral leases.
'Purchase securities of an issuer if the board members and officers
of the Fund and of AEFC hold more than a certain percentage of the
issuer's outstanding securities. If the holdings of all board
members and officers of the Fund and of AEFC who own more than 0.5%
of an issuer's securities are added together, and if in total they
own more than 5%, the Fund will not purchase securities of that
issuer.
'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-<PAGE>
PAGE 63
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,
will consider any relevant factors including the frequency of
trades, the number of dealers willing to purchase or sell the
security and the nature of marketplace trades.
In determining the liquidity of commercial paper issued in
transactions not involving a public offering under Section 4(2) of
the Securities Act of 1933, the investment manager, under
guidelines established by the board, will evaluate relevant factors
such as the issuer and the size and nature of its commercial paper
programs, the willingness and ability of the issuer or dealer to
repurchase the paper, and the nature of the clearance and
settlement procedures for the paper.
The Fund may make contracts to purchase securities for a fixed
price at a future date beyond normal settlement time (when-issued
securities or forward commitments). Under normal market
conditions, the Fund does not intend to commit more than 5% of its
total assets to these practices. The Fund does not pay for the
securities or receive dividends or interest on them until the
contractual settlement date. The Fund will designate cash or
liquid high-grade debt securities at least equal in value to its
commitments to purchase the securities. When-issued securities or
forward commitments are subject to market fluctuations and they may
affect the Fund's total assets the same as owned securities.
The Fund may maintain a portion of its assets in cash and cash-
equivalent investments. The cash-equivalent investments the Fund
may use are short-term U.S. and Canadian government securities and
negotiable certificates of deposit, non-negotiable fixed-time
deposits, bankers' acceptances and letters of credit of banks or
savings and loan associations having capital, surplus and undivided
profits (as of the date of its most recently published annual
financial statements) in excess of $100 million (or the equivalent
in the instance of a foreign branch of a U.S. bank) at the date of
investment. Any cash-equivalent investments in foreign securities
will be subject to the limitations on foreign investments described
in the prospectus. The Fund also may purchase short-term corporate
notes and obligations rated in the top two classifications by
Moody's Investors Service, Inc. (Moody's) or Standard & Poor's
Corporation (S&P) or the equivalent and may use repurchase
agreements with broker-dealers registered under the Securities
Exchange Act of 1934 and with commercial banks. A risk of a
repurchase agreement is that if the seller seeks the protection of
the bankruptcy laws, the Fund's ability to liquidate the security
involved could be impaired.
Notwithstanding any of the Fund's other investment policies, the
Fund may invest its assets in an open-end management investment
company having substantially the same investment objectives, <PAGE>
PAGE 64
policies and restrictions as the Fund for the purpose of having
those assets managed as part of a combined pool.
For a discussion on stock index futures contracts and related call
options, see Appendix A.
SECURITY TRANSACTIONS
Subject to policies set by the board, AEFC is authorized to
determine, consistent with the Fund's investment goal and policies,
which securities will be purchased, held or sold. In determining
where the buy and sell orders are to be placed, AEFC has been
directed to use its best efforts to obtain the best available price
and the most favorable execution except where otherwise authorized
by the board. 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.
AEFC has a strict Code of Ethics that prohibits its affiliated
personnel from engaging in personal investment activities that
compete with or attempt to take advantage of planned portfolio
transactions for any fund in the IDS MUTUAL FUND GROUP. AEFC
carefully monitors compliance with its Code of Ethics.
The Fund paid total brokerage commissions of $1,362,614 for the
fiscal year ended Jan. 31, 1997, $6,144 for fiscal year 1996, and
$190,235 for fiscal year 1995. 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.
As of the fiscal year ended Jan. 31, 1997, the Fund held securities
of its regular brokers or dealers or of the parent of those brokers
or dealers that derived more than 15% of gross revenue from
securities-related activities as presented below:
Value of Securities
Owned at End of
Name of Issuer Fiscal Year
NationsBank $34,776,000
Dean Witter 2,451,438
Bank of America 1,398,966
Travelers Group 6,789,528
The portfolio turnover rate was 128% in the fiscal year ended Jan.
31, 1997, and 126% in fiscal year 1996. Higher turnover rates may
result in higher brokerage expenses.
<PAGE>
PAGE 65
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH AMERICAN
EXPRESS FINANCIAL CORPORATION
Affiliates of American Express Company (American Express) (of which
AEFC is a wholly owned subsidiary) may engage in brokerage and
other securities transactions on behalf of the Fund according to
procedures adopted by the Fund's board and to the extent consistent
with applicable provisions of the federal securities laws. AEFC
will use an American Express affiliate only if (i) AEFC determines
that the Fund will receive prices and executions at least as
favorable as those offered by qualified independent brokers
performing similar brokerage and other services for the Fund and
(ii) the affiliate charges the Fund commission rates consistent
with those the affiliate charges comparable unaffiliated customers
in similar transactions and if such use is consistent with terms of
the Investment Management Services Agreement.
AEFC may direct brokerage to compensate an affiliate. AEFC will
receive research on South Africa from New Africa Advisors, a
wholly-owned subsidiary of Sloan Financial Group. AEFC owns 100%
of IDS Capital Holdings Inc. which in turn owns 40% of Sloan
Financial Group. New Africa Advisors will send research to AEFC
and in turn AEFC will direct trades to a particular broker. The
broker will have an agreement to pay New Africa Advisors. All
transactions will be on a best execution basis. Compensation
received will be reasonable for the services rendered.
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:
<TABLE><CAPTION>
For the Fiscal Year Ended Jan. 31,
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995
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
American (1) $43,722 3.27% 5.13% $0 $0
Enterprise
Investment
Services Inc.
</TABLE>
(1) Wholly owned subsidiary of AEFC.
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 <PAGE>
PAGE 66
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
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, <PAGE>
PAGE 67
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 Feb. 3, 1997, 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>
Class A $687,812,791 divided by 76,593,852 equals $8.98
Class B 302,384,785 33,861,678 8.93
Class Y 76,786,822 8,550,871 8.98
</TABLE>
In determining net assets before shareholder transactions, the
Fund's securities are valued as follows as of the close of business
of the New York Stock Exchange (the Exchange):
'Securities, except bonds other than convertibles, traded on a
securities exchange for which a last-quoted sales price is readily
available are valued at the last-quoted sales price on the exchange
where such security is primarily traded.
'Securities traded on a securities exchange for which a last-quoted
sales price is not readily available are valued at the mean of the
closing bid and asked prices, looking first to the bid and asked
prices on the exchange where the security is primarily traded and,
if none exist, to the over-the-counter market.
'Securities included in the NASDAQ National Market System are
valued at the last-quoted sales price in this market.
'Securities included in the NASDAQ National Market System for which
a last-quoted sales price is not readily available, and other
securities traded over-the-counter but not included in the NASDAQ
National Market System are valued at the mean of the closing bid
and asked prices.
'Futures and options traded on major exchanges are valued at the
last-quoted sales price on their primary exchange.
'Foreign securities traded outside the United States are generally
valued as of the time their trading is complete, which is usually
different from the close of the Exchange. Foreign securities
quoted in foreign currencies are translated into U.S. dollars at
the current rate of exchange. Occasionally, events affecting the
value of such securities may occur between such times and the close
of the Exchange that will not be reflected in the computation of
the Fund's net asset value. If events materially affecting the
value of such securities occur during such period, these securities
will be valued at their fair value according to procedures decided
upon in good faith by the board.
<PAGE>
PAGE 68
'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 Exchange, AEFC and the Fund will be closed on the following
holidays: New Year's Day, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
INVESTING IN THE FUND
Sales Charge
Shares of the Fund are sold at the public offering price determined
at the close of business on the day an application is accepted.
The public offering price is the net asset value of one share plus
a sales charge, if applicable. For Class B and Class Y, there is
no initial sales charge so the public offering price is the same as
the net asset value. For Class A, the public offering price for an
investment of less than $50,000, made Feb. 3, 1997, was determined
by dividing the net asset value of one share, $8.98, by 0.95 (1.00-
0.05 for a maximum 5% sales charge) for a public offering price of
$9.45. 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:
<PAGE>
PAGE 69
Within each increment,
sales charge as a
percentage of:
Public Net
Amount of Investment Offering Price Amount Invested
First $ 50,000 5.0% 5.26%
Next 50,000 4.5 4.71
Next 400,000 3.8 3.95
Next 500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
Sales charges on an investment greater than $50,000 and less than
$1,000,000 are calculated for each increment separately and then
totaled. The resulting total sales charge, expressed as a
percentage of the public offering price and of the net amount
invested, will vary depending on the proportion of the investment
at different sales charge levels.
For example, compare an investment of $60,000 with an investment of
$85,000. The $60,000 investment is composed of $50,000 that incurs
a sales charge of $2,500 (5.0% x $50,000) and $10,000 that incurs a
sales charge of $450 (4.5% x $10,000). The total sales charge of
$2,950 is 4.92% of the public offering price and 5.17% of the net
amount invested.
In the case of the $85,000 investment, the first $50,000 also
incurs a sales charge of $2,500 (5.0% x $50,000) and $35,000 incurs
a sales charge of $1,575 (4.5% x $35,000). The total sales charge
of $4,075 is 4.79% of the public offering price and 5.04% of the
net amount invested.
The following table shows the range of sales charges as a
percentage of the public offering price and of the net amount
invested on total investments at each applicable level.
On total investment, sales
charge as a percentage of
Public Net
Offering Price Amount Invested
Amount of Investment ranges from:
First $ 50,000 5.00% 5.26%
More than 50,000 to 100,000 5.00-4.50 5.26-4.71
More than 100,000 to 500,000 4.50-3.80 4.71-3.95
More than 500,000 to 999,999 3.80-2.00 3.95-2.04
$1,000,000 or more 0.00 0.00
The initial sales charge is waived for certain qualified plans that
meet the requirements described in the prospectus. Participants in
these qualified plans may be subject to a deferred sales charge on
certain redemptions. The deferred sales charge on certain
redemptions will be waived if the redemption is a result of a
participant's death, disability, retirement, attaining age 59 1/2,<PAGE>
PAGE 70
loans or hardship withdrawals. The deferred sales charge varies
depending on the number of participants in the qualified plan and
total plan assets as follows:
Deferred Sales Charge
Number of Participants
Total Plan Assets 1-99 100 or more
Less than $1 million 4% 0%
$1 million or more 0% 0%
_________________________________________________________
Class A - Reducing the Sales Charge
Sales charges are based on the total amount of your investments in
the Fund. The amount of all prior investments plus any new
purchase is referred to as your "total amount invested." For
example, suppose you have made an investment of $20,000 and later
decide to invest $40,000 more. Your total amount invested would be
$60,000. As a result, $10,000 of your $40,000 investment qualifies
for the lower 4.5% sales charge that applies to investments of more
than $50,000 and up to $100,000.
The total amount invested includes any shares held in the Fund in
the name of a member of your primary household group. (The primary
household group consists of accounts in any ownership for spouses
or domestic partners and their unmarried children under 21.
Domestic partners are individuals who maintain a shared primary
residence and have joint property or other insurable interests.)
For instance, if your spouse already has invested $20,000 and you
want to invest $40,000, your total amount invested will be $60,000
and therefore you will pay the lower charge of 4.5% on $10,000 of
the $40,000.
Until a spouse remarries, the sales charge is waived for spouses
and unmarried children under 21 of deceased board members, officers
or employees of the Fund or AEFC or its subsidiaries and deceased
advisors.
The total amount invested also includes any investment you or your
immediate family already have in the other publicly offered funds
in the IDS MUTUAL FUND GROUP where the investment is subject to a
sales charge. For example, suppose you already have an investment
of $30,000 in another IDS 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 <PAGE>
PAGE 71
employers, employee organization or other similar entity, may be
added together to reduce sales charges for shares purchased through
that plan.
Class A - Letter of Intent (LOI)
If you intend to invest $1 million over a period of 13 months, you
can reduce the sales charges in Class A by filing a LOI. The
agreement can start at any time and will remain in effect for 13
months. Your investment will be charged normal sales charges until
you have invested $1 million. At that time, your account will be
credited with the sales charges previously paid. Class A
investments made prior to signing an LOI may be used to reach the
$1 million total, excluding Cash Management Fund and Tax-Free Money
Fund. However, we will not adjust for sales charges on investments
made prior to the signing of the LOI. If you do not invest $1
million by the end of 13 months, there is no penalty, you'll just
miss out on the sales charge adjustment. A LOI is not an option
(absolute right) to buy shares.
Here's an example. You file a LOI to invest $1 million and make an
investment of $100,000 at that time. You pay the normal 5% sales
charge on the first $50,000 and 4.5% sales charge on the next
$50,000 of this investment. Let's say you make a second investment
of $900,000 (bringing the total up to $1 million) one month before
the 13-month period is up. On the date that you bring your total
to $1 million, AEFC makes an adjustment to your account. The
adjustment is made by crediting your account with additional
shares, in an amount equivalent to the sales charge previously
paid.
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.
<PAGE>
PAGE 72
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.
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
the same class of another fund in the IDS MUTUAL FUND GROUP 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 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:<PAGE>
PAGE 73
'The Exchange closes for reasons other than the usual weekend and
holiday closings or trading on the Exchange is restricted, or
'Disposal of the Fund's securities is not reasonably practicable or
it is not reasonably practicable for the Fund to determine the fair
value of its net assets, or
'The SEC, under the provisions of the Investment Company Act of
1940 (the 1940 Act), as amended, declares a period of emergency to
exist.
Should the Fund stop selling shares, the board may make a deduction
from the value of the assets held by the Fund to cover the cost of
future liquidations of the assets so as to distribute fairly these
costs among all shareholders.
The Fund has elected to be governed by Rule 18f-1 under the 1940
Act, which obligates the Fund to redeem shares in cash, with
respect to any one shareholder during any 90-day period, up to
lesser of $250,000 or 1% of the net assets of the Fund at the
beginning of the period. Although redemptions in excess of this
limitation would normally be paid in cash, the Fund reserves the
right to make these payments in whole or in part in securities or
other assets in case of an emergency, or if the payment of a
redemption in cash would be detrimental to the existing
shareholders of the Fund as determined by the board. In these
circumstances, the securities distributed would be valued as set
forth in the prospectus. Should the Fund distribute securities, a
shareholder may incur brokerage fees or other transaction costs in
converting the securities to cash.
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.
<PAGE>
PAGE 74
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.
Plan #3: Redemption of a fixed dollar amount
If you decide on a fixed dollar amount, whatever number of shares
is necessary to make the payment will be redeemed in regular
installments until the account is closed.
Plan #4: Redemption of a percentage of net asset value
Payments are made based on a fixed percentage of the net asset
value of the shares in the account computed on the day of each
payment. Percentages range from 0.25% to 0.75%. For example, if
you are on this plan and arrange to take 0.5% each month, you will
get $50 if the value of your account is $10,000 on the payment
date.
TAXES
If you buy shares in the Fund and then exchange into another fund,
it is considered a sale and subsequent purchase of shares. Under
the tax laws, if this exchange is done within 91 days, any sales
charge waived on Class A shares on a subsequent purchase of shares <PAGE>
PAGE 75
applies to the new shares acquired in the exchange. Therefore, you
cannot create a tax loss or reduce a tax gain attributable to the
sales charge when exchanging shares within 91 days.
Retirement Accounts
If you have a nonqualified investment in the Fund and you wish to
move part or all of those shares to an IRA or qualified retirement
account in the Fund, you can do so without paying a sales charge.
However, this type of exchange is considered a sale of shares and
may result in a gain or loss for tax purposes. In addition, this
type of exchange may result in an excess contribution under IRA or
qualified plan regulations if the amount exchanged plus the amount
of the initial sales charge applied to the amount exchanged exceeds
annual contribution limitations. For example: If you were to
exchange $2,000 in Class A shares from a nonqualified account to an
IRA without considering the 5% ($100) initial sales charge
applicable to that $2,000, you may be deemed to have exceeded
current IRA annual contribution limitations. You should consult
your tax advisor for further details about this complex subject.
Net investment income dividends received should be treated as
dividend income for federal income tax purposes. Corporate
shareholders are generally entitled to a deduction equal to 70% of
that portion of the Fund's dividend that is attributable to
dividends the Fund received from domestic (U.S.) securities. For
the fiscal year ended Jan. 31, 1997, 18.85% 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.
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.
This is a brief summary that relates to federal income taxation
only. Shareholders should consult their tax advisor as to the <PAGE>
PAGE 76
application of federal, state and local income tax laws to Fund
distributions.
AGREEMENTS
Investment Management Services Agreement
The Fund has an Investment Management Services Agreement with AEFC.
For its services, AEFC is paid a fee based on the following
schedule:
Assets Annual rate at
(billions) each asset level
First $0.25 0.440%
Next 0.25 0.415
Next 0.25 0.390
Next 0.25 0.365
Over 1.0 0.340
On Jan. 31, 1997, the daily rate applied to the Fund's net assets
was equal to 0.399% on an annual basis. The fee is calculated for
each calendar day on the basis of net assets as of the close of
business two business days prior to the day for which the
calculation is made.
The management fee is paid monthly. Under the agreement, the total
amount paid was $2,565,671 for the fiscal year ended Jan. 31, 1997,
$951,438 for fiscal year 1996, and $706,350 for fiscal year 1995.
Under the agreement, the Fund also pays taxes, brokerage
commissions and nonadvisory expenses, which include custodian fees;
audit and certain legal fees; fidelity bond premiums; registration
fees for shares; office expenses; consultants' fees; compensation
of board members, officers and employees; corporate filing fees;
organizational expenses; expenses incurred in connection with
lending securities of the Fund; and expenses properly payable by
the Fund, approved by the board. Under the agreement, the Fund
paid nonadvisory expenses of $646,315 for the fiscal year ended
Jan. 31, 1997, $264,215 for fiscal year 1996, and $125,741 for
fiscal year 1995.
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:
<PAGE>
PAGE 77
Assets Annual rate
(billions) each asset level
First $0.25 0.040%
Next 0.25 0.035
Next 0.25 0.030
Next 0.25 0.025
Over 1.0 0.020
On Jan. 31, 1997, the daily rate applied to the Fund's net assets
was equal to 0.032% on an annual basis. The fee is calculated for
each calendar day on the basis of net assets as of the close of
business two business days prior to the day for which the
calculation is made. Under the agreement, the Fund paid fees of
$217,983 for the fiscal year ended Jan. 31, 1997.
Transfer Agency Agreement
The Fund has a Transfer Agency Agreement with AEFC. This agreement
governs AEFC's responsibility for administering and/or performing
transfer agent functions, for acting as service agent in connection
with dividend and distribution functions and for performing
shareholder account administration agent functions in connection
with the issuance, exchange and redemption or repurchase of the
Fund's shares. Under the agreement, AEFC will earn a fee from the
Fund determined by multiplying the number of shareholder accounts
at the end of the day by a rate determined for each class per year
and dividing by the number of days in the year. The rate for Class
A and Class Y is $15 per year and 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. Under the agreement,
the Fund paid fees of $1,004,344 for the fiscal year ended Jan. 31,
1997.
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 $5,916,606 for the
fiscal year ended Jan. 31, 1997. After paying commissions to
personal financial advisors, and other expenses, the amount
retained was $-1,403,139. The amounts were $1,265,670 and
$1,046,290 for fiscal year 1996, and $531,537 and $357,415 for
fiscal year 1995.
Additional information about commissions and compensation for the
fiscal year ended Jan. 31, 1997, is contained in the following
table:
<PAGE>
PAGE 78
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Net Compensation
Name of Underwriting on Redemption
Principal Discounts and and Brokerage Other
Underwriter Commissions Repurchases Commissions Compensation
AEFC None None $43,722* $1,090,018**
American
Express
Financial
Advisors $5,916,606 None None None
</TABLE>
*For further information see "Brokerage Commissions Paid to Brokers
Affiliated with AEFC."
**Distribution fees paid pursuant to the Plan and Agreement of
Distribution.
Shareholder Service Agreement
The Fund pays a fee for service provided to shareholders by
financial advisors and other servicing agents. The fee is
calculated at a rate of 0.175% of the Fund's average daily net
assets attributable to Class A and Class B shares.
Plan and Agreement of Distribution
For Class B shares, to help American Express Financial Advisors
defray the cost of distribution and servicing, not covered by the
sales charges received under the Distribution Agreement, the Fund
and American Express Financial Advisors entered into a Plan and
Agreement of Distribution (Plan). These costs cover almost all
aspects of distributing the Fund's shares except compensation to
the sales force. A substantial portion of the costs are not
specifically identified to any one fund in the IDS MUTUAL FUND
GROUP. Under the Plan, American Express Financial Advisors is paid
a fee at an annual rate of 0.75% of the Fund's average daily net
assets attributable to Class B shares.
The Plan must be approved annually by the board, including a
majority of the disinterested board members, if it is to continue
for more than a year. At least quarterly, the board must review
written reports concerning the amounts expended under the Plan and
the purposes for which such expenditures were made. The Plan and
any agreement related to it may be terminated at any time by vote
of a majority of board members who are not interested persons of
the Fund and have no direct or indirect financial interest in the
operation of the Plan or in any agreement related to the Plan, or
by vote of a majority of the outstanding voting securities of the
Fund's Class B shares 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 1940 Act,
as amended. The Plan may not be amended to increase the amount to
be spent for distribution without shareholder approval, and all <PAGE>
PAGE 79
material amendments to the Plan must be approved by a majority of
the board members, including a majority of the board members who
are not interested persons of the Fund and who do not have a
financial interest in the operation of the Plan or any agreement
related to it. The selection and nomination of disinterested board
members is the responsibility of the other disinterested board
members. No board member who is not an interested person, has any
direct or indirect financial interest in the operation of the Plan
or any related agreement. For the fiscal year ended Jan. 31, 1997,
under the agreement, the Fund paid fees of $1,090,018.
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. For its
services, the Fund pays the custodian a maintenance charge and a
charge per transaction in addition to reimbursing the custodian's
out-of-pocket expenses.
Total fees and expenses
The Fund paid total fees and nonadvisory expenses of $6,524,059 for
the fiscal year ended Jan. 31, 1997.
ORGANIZATIONAL INFORMATION
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 Avenue, Suite 2810, Minneapolis, MN 55402-3268.
BOARD MEMBERS AND OFFICERS
The following is a list of the Fund's board members. They serve 15
Master Trust portfolios and 47 IDS and IDS Life funds (except for
William H. Dudley, who does not serve on the nine IDS Life fund
boards. All shares have cumulative voting rights with respect to
the election of board members.
H. Brewster Atwater, Jr.
Born in 1931
4900 IDS Tower
Minneapolis, MN
Former chairman and chief executive officer, General Mills, Inc.
Director, Merck & Co., Inc. and Darden Restaurants, Inc.
<PAGE>
PAGE 80
Lynne V. Cheney'
Born in 1941
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W.
Washington, D.C.
Distinguished Fellow AEI. Former Chair of National Endowment of
the Humanities. Director, The Reader's Digest Association Inc.,
Lockheed-Martin, Union Pacific Resources and FPL Group, Inc.
(holding company for Florida Power and Light).
William H. Dudley**
Born in 1932
2900 IDS Tower
Minneapolis, MN
Executive vice president and director of AEFC.
Robert F. Froehlke+
Born in 1922
1201 Yale Place
Minneapolis, MN
Former president of all funds in the IDS MUTUAL FUND GROUP.
Director, the ICI Mutual Insurance Co., Institute for Defense
Analyses, Marshall Erdman and Associates, Inc. (architectural
engineering) and Public Oversight Board of the American Institute
of Certified Public Accountants.
David R. Hubers+**
Born in 1943
2900 IDS Tower
Minneapolis, MN
President, chief executive officer and director of AEFC.
Previously, senior vice president, finance and chief financial
officer of AEFC.
Heinz F. Hutter+'
Born in 1929
P.O. Box 2187
Minneapolis, MN
Former president and chief operating officer, Cargill, Incorporated
(commodity merchants and processors).
Anne P. Jones
Born in 1935
5716 Bent Branch Rd.
Bethesda, MD
<PAGE>
PAGE 81
Attorney and telecommunications consultant. Former partner, law
firm of Sutherland, Asbill & Brennan. Director, Motorola, Inc. and
C-Cor Electronics, Inc.
Melvin R. Laird
Born in 1922
Reader's Digest Association, Inc.
1730 Rhode Island Ave., N.W.
Washington, D.C.
Senior counsellor for national and international affairs, The
Reader's Digest Association, Inc. Former nine-term U.S.
Congressman, U.S. Secretary of Defense and Presidential Counsellor.
Director, 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).
William R. Pearce+*
Born in 1927
901 S. Marquette Ave.
Minneapolis, MN
President and director, Board Services Corporation (provides
administrative services to boards). Director, trustee and officer
of registered investment companies whose boards are served by the
company. Former vice chairman of the board, Cargill, Incorporated
(commodity merchants and processors).
Alan K. Simpson
Born in 1931
1202 Sunshine Ave.
Cody, WY
Former three-term United States Senator for Wyoming. Former
Assistant Republican Leader, U.S. Senate. Director, PacifiCorp
(electric power).
Edson W. Spencer+
Born in 1926
4900 IDS Center
80 S. 8th St.
Minneapolis, MN
President, Spencer Associates Inc. (consulting). Former chairman
of the board and chief executive officer, Honeywell Inc. Director,
Boise Cascade Corporation (forest products). Member of
International Advisory Council of NEC (Japan).
<PAGE>
PAGE 82
John R. Thomas**
Born in 1937
2900 IDS Tower
Minneapolis, MN
Senior vice president and director of AEFC.
Wheelock Whitney+
Born in 1926
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN
Chairman, Whitney Management Company (manages family assets).
C. Angus Wurtele'
Born in 1934
Valspar Corporation
Suite 1700
Foshay Tower
Minneapolis, MN
Chairman of the board and retired chief executive officer, The
Valspar Corporation (paints). Director, Bemis Corporation
(packaging), Donaldson Company (air cleaners & mufflers) and
General Mills, Inc. (consumer foods).
+ Member of executive committee.
' Member of joint audit committee.
* Interested person by reason of being an officer and employee of
the Fund.
**Interested person by reason of being an officer, board member,
employee and/or shareholder of AEFC or American Express.
The board also has appointed officers who are responsible for day-
to-day business decisions based on policies it has established.
In addition to Mr. Pearce, who is president, the Fund's other
officers are:
Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN
Vice president, treasurer and corporate secretary of Board Services
Corporation. Vice president, general counsel and secretary for the
Fund.
Officers who also are officers and/or employees of AEFC
Peter J. Anderson
Born in 1942
IDS Tower 10
Minneapolis, MN
Director and senior vice president-investments of AEFC. Vice
president - investments for the Fund.
<PAGE>
PAGE 83
Melinda S. Urion
Born in 1953
IDS Tower 10
Minneapolis, MN
Director, senior vice president and chief financial officer of
AEFC. Director and executive vice president and controller of IDS
Life Insurance Company. Treasurer for the Fund.
Members of the board who are not officers of the Fund or AEFC
receive an annual fee of $400 and the chair of the Contracts
Committee receives an additional $90. Board members receive a $50
per day attendance fee for board meetings. The attendance fee for
meetings of the Contracts and Investments Review Committees is $50;
for meetings of the Audit Committee and Personnel Committee $25 and
for traveling from out-of state $8. Expenses for attending
meetings are reimbursed.
During the fiscal year ended Jan. 31, 1997, the members of the
board, for attending up to 26 meetings, received the following
compensation:
<TABLE><CAPTION>
Compensation Table
<S> <C> <C> <C> <C>
Pension or Estimated
Aggregate Retirement annual Total cash
compensation benefits benefit compensation
from the accrued as upon from the IDS
Board member Fund Fund expenses* retirement MUTUAL FUND GROUP
H. Brewster Atwater, Jr. $350 $ 0 $ 0 $27,100
(part of year)
Lynne V. Cheney 802 271 125 83,200
Robert F. Froehlke 850 863 96 86,300
Heinz F. Hutter 823 355 60 83,800
Anne P. Jones 827 203 125 84,600
Donald M. Kendall 155 0 71 18,500
(part of year)
Melvin R. Laird 796 0 90 82,600
Lewis W. Lehr 143 0 70 18,000
(part of year)
Alan K. Simpson 137 0 0 10,800
(part of year)
Edson W. Spencer 990 0 67 91,400
Wheelock Whitney 864 271 125 87,000
C. Angus Wurtele 844 423 124 85,800
</TABLE>
*The Fund had a retirement plan for its independent board members.
The plan was terminated April 30, 1996.
On Jan. 31, 1997, the Fund's board members and officers as a group
owned less than 1% of the outstanding shares. During the fiscal
year ended Jan. 31, 1997, no board member or officer earned more
than $60,000 from this Fund. All board members and officers as a
group earned $10,401, including $2,386 of retirement plan benefits,
from this Fund.
INDEPENDENT AUDITORS
The financial statements contained in the Annual Report to
shareholders for the fiscal year ended Jan. 31, 1997, were audited<PAGE>
PAGE 84
by independent auditors, KPMG Peat Marwick LLP, 4200 Norwest
Center, 90 S. Seventh St., Minneapolis, MN 55402-3900. The
independent auditors also provide other accounting and tax-related
services as requested by the Fund.
FINANCIAL STATEMENTS
The Independent Auditors' Report and the Financial Statements,
including Notes to the Financial Statements and the Schedule of
Investments in Securities, contained in the Annual Report to
shareholders for the fiscal year ended Jan. 31, 1997, 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,
1997, is hereby incorporated in this SAI by reference.
<PAGE>
PAGE 85
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.
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 $1,000.
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 <PAGE>
PAGE 86
transactions is different from that of margin in security
transactions in that futures contract margin does not involve
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<PAGE>
PAGE 87
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
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 also may 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 <PAGE>
PAGE 88
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,
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 indexes will depend on whether
such option is a section 1256 contract. If the option is a non-
equity, the fund will either make a 1256(d) election and treat the
option as a mixed straddle or mark to market the option at fiscal
year end and treat the gain/loss as 40% short-term and 60% long-
term. Certain provisions of the Internal Revenue Code may 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 <PAGE>
PAGE 89
received depending upon whether gains or losses are incurred. All
contracts and options will be valued at the last-quoted sales price
on their primary exchange.
<PAGE>
PAGE 90
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 technique 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 on a regular basis
through changing market conditions, including times when the price
of their shares falls or the market declines, to accumulate shares
in a fund to meet long-term goals.
Dollar-cost averaging
___________________________________________________________________
Regular Market Price Shares
Investment of a Share Acquired
$100 $6.00 16.7
100 4.00 25.0
100 4.00 25.0
100 6.00 16.7
100 5.00 20.0
$500 $25.00 103.4
Average market price of a share over 5 periods:
$5.00 ($25.00 divided by 5).
The average price you paid for each share:
$4.84 ($500 divided by 103.4).
<PAGE>
PAGE 91
IDS MARKET ADVANTAGE SERIES, INC.
STATEMENT OF ADDITIONAL INFORMATION
FOR
IDS SMALL COMPANY INDEX FUND
April 1, 1997
This Statement of Additional Information (SAI) is not a
prospectus. It should be read together with the prospectus, 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, 1997, and it is to be used with the
prospectus dated April 1, 1997 and the Annual Report for the fiscal
period ended Jan. 31, 1997.
<PAGE>
PAGE 92
TABLE OF CONTENTS
Page
Goal and Investment Policies.......................See Prospectus
Additional Investment Policies.............................. 3
Security Transactions....................................... 6
Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation................... 8
Performance Information..................................... 9
Valuing Fund Shares......................................... 12
Investing in the Fund....................................... 13
Redeeming Shares............................................ 18
Pay-Out Plans............................................... 18
Taxes....................................................... 20
Agreements.................................................. 21
Organizational Information.................................. 24
Board Members and Officers.................................. 24
Compensation for Board Members.............................. 28
Independent Auditors........................................ 28
Financial Statements........................................ 29
Prospectus.................................................. 29
APPENDIX A: Options and Stock Index Futures Contracts....... 30
APPENDIX B: Dollar-Cost Averaging........................... 38
<PAGE>
PAGE 93
ADDITIONAL INVESTMENT POLICIES
These are investment policies in addition to those presented in the
prospectus. The policies below are fundamental policies of the
Fund and may be changed only with shareholder approval. Unless
holders of a majority of the outstanding voting securities agree to
make the change, approved by shareholders, the Fund will not:
Act as an underwriter (sell securities for others). However, under
the securities laws, the Fund may be deemed to be an underwriter
when it purchases securities directly from the issuer and later
resells them.
Borrow money or property, except as a temporary measure for
extraordinary or emergency purposes, in an amount not exceeding
one-third of the market value of its total assets (including
borrowings) less liabilities (other than borrowings) immediately
after the borrowing. The Fund has not borrowed in the past and has
no present intention to borrow.
Make cash loans if the total commitment amount exceeds 5% of the
Fund's total assets.
Concentrate in any one industry. According to the present
interpretation by the Securities and Exchange Commission (SEC),
this means no more than 25% of the Fund's total assets, based on
current market value at time of purchase, can be invested in any
one industry.
Purchase more than 10% of the outstanding voting securities of an
issuer.
Invest more than 5% of its total assets in securities of any one
company, government or political subdivision thereof, except the
limitation will not apply to investments in securities issued by
the U.S. government, its agencies or instrumentalities, and except
that up to 25% of the Fund's total assets may be invested without
regard to this 5% limitation.
Buy or sell real estate, unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent
the Fund from investing in securities or other instruments backed
by real estate or securities of companies engaged in the real
estate business or real estate investment trusts. For purposes of
this policy, real estate includes real estate limited partnerships.
Buy or sell physical commodities unless acquired as a result of
ownership of securities or other instruments, except this shall not
prevent the Fund from buying or selling financial instruments (such
as options and futures contracts) or from investing in securities
or other instruments backed by, or whose value is derived from,
physical commodities.
<PAGE>
PAGE 94
Make a loan of any part of its assets to American Express Financial
Corporation (AEFC), to the board members and officers of AEFC or to
its own board members and officers.
Purchase securities of an issuer if the board members and officers
of the Fund and of AEFC hold more than a certain percentage of the
issuer's outstanding securities. If the holdings of all board
members and officers of the Fund and of AEFC who own more than 0.5%
of an issuer's securities are added together, and if in total they
own more than 5%, the Fund will not purchase securities of that
issuer.
Lend Fund securities in excess of 30% of its net assets. The
current policy of the Fund's board is to make these loans, either
long- or short-term to broker-dealers. In making loans, the Fund
receives the market price in cash, U.S. government securities,
letters of credit or such other collateral as may be permitted by
regulatory agencies and approved by the board. If the market price
of the loaned securities goes up, the Fund will get additional
collateral on a daily basis. The risks are that the borrower may
not provide additional collateral when required or return the
securities when due. During the existence of the loan, the Fund
receives cash payments equivalent to all interest or other
distributions paid on the loaned securities. A loan will not be
made unless AEFC believes the opportunity for additional income
outweighs the risks.
Unless changed by the board, the Fund will not:
Buy on margin or sell short, but it may make margin payments in
connection with transactions in options, futures contracts and
other financial instruments.
Pledge or mortgage its assets beyond 15% of total assets. If the
Fund were ever to do so, valuation of the pledged or mortgaged
assets would be based on market values. For purposes of this
policy, collateral arrangements for margin deposits are not deemed
to be a pledge of assets.
Invest more than 5% of its total assets in securities of companies,
including any predecessors, that have a record of less than three
years continuous operations.
Invest more than 10% of its total assets in securities of
investment companies.
Invest in a company to control or manage it.
Invest in exploration or development programs, such as oil, gas or
mineral leases.
Invest more than 5% of its net assets in warrants.
<PAGE>
PAGE 95
Invest more than 10% of its net assets in securities and other
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, nonnegotiable
fixed-time deposits, over-the-counter options.
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.
In determining the liquidity of Rule 144A securities, which are
unregistered securities offered to qualified institutional buyers,
and interest-only and principal-only, fixed mortgage-backed
securities (IOs and POs) issued by the U.S. government or its
agencies and instrumentalities, the investment manger, under
guidelines established by the board, will consider any relevant
factors including frequency of trades, the number of dealers
willing to purchase or sell the security and the nature of
marketplace trades.
In determining the liquidity of commercial paper issued in
transactions not involving a public offering under Section 4(2) of
the Securities Act of 1933, the investment manager, under
guidelines established by the board, will evaluate relevant factors
such as the issuer and the size and nature of its commercial paper
programs, the willingness and ability of the issuer or dealer to
repurchase the paper, and the nature of the clearance and
settlement procedures for the paper.
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 investment in foreign securities
will be subject to the limitations on foreign investments described
in the prospectus. The Fund also may purchase short-term corporate
notes and obligations rated in the top two classifications by
Moody's Investors Service, Inc. (Moody's) or Standard & Poor's <PAGE>
PAGE 96
Corporation (S&P) or the equivalent and may use repurchase
agreements with broker-dealers registered under the Securities
Exchange Act of 1934 and with commercial banks. A risk of a
repurchase agreement is that if the seller seeks the protection of
the bankruptcy laws, the Fund's ability to liquidate the security
involved could be impaired.
Notwithstanding any of the Fund's other investment policies, the
Fund may invest its assets in an open-end management investment
company having substantially the same investment objectives,
policies and restrictions as the Fund for the purpose of having
those assets managed as part of a combined pool.
For a discussion of options and stock index futures contracts, see
Appendix A.
SECURITY TRANSACTIONS
Subject to policies set by the board, AEFC is authorized to
determine, consistent with the Fund's investment goal and policies,
which securities will be purchased, held or sold. In determining
where the buy and sell orders are to be placed, AEFC has been
directed to use its best efforts to obtain the best available price
and the most favorable execution, except when otherwise authorized
by the board. In selecting broker-dealers to execute transactions,
AEFC may consider the price of the security, including commission
or mark-up, the size and difficulty of the order, the reliability,
integrity, financial soundness and general operation and execution
capabilities of the broker, the broker's expertise in particular
markets, and research services provided by the broker.
AEFC has a strict Code of Ethics that prohibits its affiliated
personnel from engaging in personal investment activities that
compete with or attempt to take advantage of planned portfolio
transactions for any Fund in the IDS MUTUAL FUND GROUP. AEFC
carefully monitors compliance with its Code of Ethics.
On occasion, it may be desirable to compensate a broker for
research services or for brokerage services by paying a commission
that might not otherwise be charged or a commission in excess of
the amount another broker might charge. The board has adopted a
policy authorizing AEFC to do so to the extent authorized by law,
if AEFC determines, in good faith, that such commission is
reasonable in relation to the value of the brokerage or research
services provided by a broker or dealer, viewed either in the light
of that transaction or AEFC's overall responsibilities to the funds
in the IDS MUTUAL FUND GROUP and other accounts for which it acts
as investment advisor.
Research provided by brokers supplements AEFC's own research
activities. Such services include economic data on, and analysis
of, U.S. and foreign economies; information on specific industries;
information about specific companies, including earnings estimates;
<PAGE>
PAGE 97
purchase recommendations for stocks and bonds; portfolio strategy
services; political, economic, business and industry trend
assessments; historical statistical information; market data
services providing information on specific issues and prices; and
technical analysis of various aspects of the securities markets,
including technical charts. Research services may take the form of
written reports, computer software or personal contact by telephone
or at seminars or other meetings. AEFC has obtained, and in the
future may obtain, computer hardware from brokers, including but
not limited to personal computers that will be used exclusively for
investment decision-making purposes, which include the research,
portfolio management and trading functions and other services to
the extent permitted under an interpretation by the SEC.
When paying a commission that might not otherwise be charged or a
commission in excess of the amount another broker might charge,
AEFC must follow procedures authorized by the board. To date, three
procedures have been authorized. One procedure permits AEFC to
direct an order to buy or sell a security traded on a national
securities exchange to a specific broker for research services it
has provided. The second procedure permits AEFC, in order to
obtain research, to direct an order on an agency basis to buy or
sell a security traded in the over-the-counter market to a firm
that does not make a market in that security. The commission paid
generally includes compensation for research services. The third
procedure permits AEFC, in order to obtain research and brokerage
services, to cause the Fund to pay a commission in excess of the
amount another broker might have charged. AEFC has advised the
Fund that it is necessary to do business with a number of brokerage
firms on a continuing basis to obtain services such as the handling
of large orders, the willingness of a broker to risk its own money
by taking a position in a security, and the specialized handling of
a particular group of securities that only certain brokers may be
able to offer. As a result of this arrangement, some portfolio
transactions may not be effected at the lowest commission, but AEFC
believes it may obtain better overall execution. AEFC has assured
the Fund that under all three procedures the amount of commission
paid will be reasonable and competitive in relation to the value of
the brokerage services performed or research provided.
All transactions, including the foregoing, shall be placed on the
basis of obtaining the best available price and the most favorable
execution. In so doing, if in the professional opinion of the
person responsible for selecting the broker or dealer, several
firms can execute the transaction on the same basis, consideration
will be given by such person to those firms offering research
services. Such services may be used by AEFC in providing advice to
all the funds in the IDS MUTUAL FUND GROUP even though it is not
possible to relate the benefits to any particular fund or account.
<PAGE>
PAGE 98
Each investment decision made for the Fund is made independently
from any decision made for another fund in the IDS MUTUAL FUND
GROUP or other accounts advised by AEFC or any of its subsidiaries.
When the Fund buys or sells the same security as another Fund or
account, AEFC carries out the purchase or sale in a way the Fund
agrees in advance is fair. Although sharing in large transactions
may adversely affect the price or volume purchased or sold by the
Fund, the Fund hopes to gain an overall advantage in execution.
AEFC has assured the Fund it will continue to seek ways to reduce
brokerage costs.
On a periodic basis, AEFC makes a comprehensive review of the
broker-dealers and the overall reasonableness of their commissions.
The review evaluates execution, operational efficiency and research
services.
The Fund paid total brokerage commissions of $148,303 for the
period from Aug. 19, 1996 to Jan. 31, 1997. 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.
As of the fiscal period ended Jan. 31, 1997, the Fund held
securities of its regular brokers or dealers or of the parents of
those brokers or dealers that derived more than 15% of gross
revenue from securities-related activities as presented below:
Value of Securities
Owned at End of
Name of Issuer Fiscal Period
Alex Brown $564,450
IFG Network Securities Inc. 238,000
Legg Mason 384,625
Piper Jaffrey 146,288
Quick & Reilly 413,863
Raymond James & Associates, Inc. 312,825
The portfolio turnover rate was 48% in the fiscal period ended Jan.
31, 1997.
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH
AMERICAN EXPRESS FINANCIAL CORPORATION
Affiliates of American Express Company (American Express) (of which
AEFC is a wholly-owned subsidiary) may engage in brokerage and
other securities transactions on behalf of the Fund according to
procedures adopted by the Fund's board and to the extent consistent
with applicable provisions of the federal securities laws. AEFC
will use an American Express affiliate only if (i) AEFC determines
that the Fund will receive prices and executions at least as <PAGE>
PAGE 99
favorable as those offered by qualified independent brokers
performing similar brokerage and other services for the Fund and
(ii) the affiliate charges the Fund commission rates consistent
with those the affiliate charges comparable unaffiliated customers
in similar transactions and if such use is consistent with terms of
the Investment Management Services Agreement.
AEFC may direct brokerage to compensate an affiliate. AEFC will
receive research on South Africa from New Africa Advisors, a
wholly-owned subsidiary of Sloan Financial Group. AEFC owns 100%
of IDS Capital Holdings, Inc. which in turn owns 40% of Sloan
Financial Group. New Africa Advisors will send research to AEFC,
and in turn AEFC will direct trades to a particular broker. The
broker will have an agreement to pay New Africa Advisors. All
transactions will be on a best execution basis. Compensation
received will be reasonable for the services rendered.
No brokerage commissions were paid to brokers affiliated with AEFC
for the most recent fiscal period.
PERFORMANCE INFORMATION
The Fund may quote various performance figures to illustrate past
performance. Average annual total return to be used by the Fund
will be based on standardized methods of computing performance as
required by the SEC. An explanation of these 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:
n
P(l+T) = 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)
Standard & Poor's Small Capitalization Stock(Registered Trademark)
Index total return
The Standard & Poor's Small Capitalization Stock Index ("S&P
SmallCap 600(Registered Trademark) Index") consists of 600 domestic
stocks chosen for market size, liquidity (bid/asked spread,
ownership, share turnover and number of no trade days) and industry
<PAGE>
PAGE 100
group representation. It is a market value weighted index. The
weighted average market capitalization as of November 30, 1995 is
$684 million.
The S&P SmallCap 600 Index is valued at the end of every day using
composite prices and available shares. Standard & Poor's
Corporation ("S&P") does not use an index divisor method for
calculating the index. A geometric rate of return is calculated
from the daily valuations.
To calculate the total return for the S&P SmallCap 600 Index for a
given time period, add the indexed dividend to the closing Index
value. Then, divide this number by the closing S&P SmallCap 600
Index value at the beginning of the time period. The indexed
dividend is an index number that represents the dividend
distribution of the companies in the Index. It is calculated by
adding the total daily dividends (based on the ex-dividend date)
for all of the stocks in the Index for a given time period, and
then converting that sum to an indexed number by dividing it by the
same Index Divisor that is used to calculate the actual S&P
SmallCap 600 Index.
The general formula to calculate the indexed dividend is:
Total Daily Dividends = Indexed Dividend
Latest Index Divisor
The Daily Indexed Dividend for the S&P SmallCap 600 Index on
December 5, 1994, can be calculated using the above formula and the
appropriate index divisor -- 1990.5639.
7.9928 = Indexed Dividend
1900.5639
Indexed Dividend = 0.00421
S&P uses the ex-dividend date rather than the payment date to
determine the total daily dividends for each day because the
marketplace price adjustment for the dividend occurs on the ex-
date. Treatment of special dividends, such as stock dividends and
extraordinary dividends, paid by companies in the S&P SmallCap 600
Index is decided on a case-by-case basis.
The S&P SmallCap 600 Index total-return calculation assumes the
reinvestment of dividends on a daily basis. Monthly, quarterly,
and annual total-return numbers for the S&P SmallCap 600 Index are
calculated by daily compounding of the reinvested dividends. The
table below calculates the 1994 annual total return for the S&P
SmallCap 600 Index by compounding the monthly total returns, which
are based on compounded daily total returns. The year-to-date
total-return index is also calculated assuming daily reinvestment
of dividends; however, the base period is the last day of the prior
year.
<PAGE>
PAGE 101
The total return calculations for the S&P SmallCap 600 Index
industry groups are calculated with dividends reinvested on a
MONTHLY, not a daily basis. The quarterly and annual industry
total return numbers are calculated by compounding the monthly
total returns.
The Fund is not sponsored, endorsed, sold or promoted by S&P. S&P
makes no representation or warranty, express or implied, to any
member of the public regarding the advisability of investing in
securities generally or in the Fund particularly or the ability of
the S&P SmallCap 600 Index to track general stock market
performance. The S&P SmallCap 600 Index is determined, composed
and calculated by S&P without regard to the Fund. S&P has no
obligation to take the needs of the Fund into consideration in
determining, composing or calculating the S&P SmallCap 600 Index.
S&P is not responsible for and has not participated in the
determination of the prices and amount of the Fund shares or the
timing of the issuance or sale of those shares or in the
determination or calculation of the equation by which the shares
are to be converted into cash. S&P has no obligation or liability
in connection with the administration, marketing or trading of the
Fund's shares.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE
S&P SMALLCAP 600 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL
HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS
THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED AS TO RESULTS
TO BE OBTAINED BY THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE
USE OF THE S&P SMALLCAP 600 INDEX OR ANY DATA INCLUDED THEREIN. S&P
MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE WITH RESPECT TO THE S&P SMALLCAP 600 INDEX OR ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO
EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE,
INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
Aggregate total return
The Fund may calculate aggregate total return for a class for
certain periods representing the cumulative change in the value of
an investment in the Fund over a specified period of time according
to the following formula:
ERV - P
P
where: P = a hypothetical initial payment of $1,000
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of a period, at the
end of the period (or fractional portion thereof)
<PAGE>
PAGE 102
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,
BusinessWeek, 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,
Morningstar, 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 Feb. 3, 1997, the first business day following the end of the
fiscal period, 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>
Class A $95,169,816 divided by 17,272,199 equals $5.51
Class B 41,655,218 7,573,676 5.50
Class Y 1,108 201 5.51
</TABLE>
In determining net assets before shareholder transactions, the
Fund's securities are valued as follows as of the close of business
of the New York Stock Exchange (the Exchange):
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 (NASDAQ)
are valued at the last-quoted sales price in this market.
Securities included in NASDAQ for which a last-quoted sales price
is not readily available, and other securities traded over-the-
counter but not included in the NASDAQ 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.
<PAGE>
PAGE 103
Foreign securities traded outside the United States are generally
valued as of the time their trading is complete, which is usually
different from the close of the Exchange. Foreign securities
quoted in foreign currencies are translated into U.S. dollars at
the current rate of exchange. Occasionally, events affecting the
value of such securities may occur between such times and the close
of the Exchange that will not be reflected in the computation of
the Fund's net asset value. If events materially affecting the
value of such securities occur during such period, these securities
will be valued at their fair value according to procedures decided
upon in good faith by the 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 Exchange, AEFC and the Fund will be closed on the following
holidays: New Year's Day, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
INVESTING IN THE FUND
Sales Charge
Shares of the Fund are sold at the public offering price determined
at the close of business on the day an application is accepted.
The public offering price is the net asset value of one share plus
a sales charge, if applicable. For Class B and Class Y, there is
no initial sales charge so the public offering price is the same as
the net asset value. For Class A, the public offering price for an
investment of less than $50,000 made Feb. 3, 1997 is determined by
dividing the net asset value of one share, $5.51, by 0.95 <PAGE>
PAGE 104
(1.00-0.05 for a maximum 5% sales charge) to get the public
offering price of $5.80. The sales charge is paid to American
Express Financial Advisors by the person buying the shares.
Class A - Calculation of the Sales Charge
Sales charges are determined as follows:
Within each increment,
sales charge as a
percentage of:
Public Net
Amount of Investment Offering Price Amount Invested
First $ 50,000 5.0% 5.26%
Next 50,000 4.5 4.71
Next 400,000 3.8 3.95
Next 500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
Sales charges on an investment greater than $50,000 and less than
$1,000,000 are calculated for each increment separately and then
totaled. The resulting total sales charge, expressed as a
percentage of the public offering price and of the net amount
invested, will vary depending on the proportion of the investment
at different sales charge levels.
For example, compare an investment of $60,000 with an investment of
$85,000. The $60,000 investment is composed of $50,000 that incurs
a sales charge of $2,500 (5.0% x $50,000) and $10,000 that incurs a
sales charge of $450 (4.5% x $10,000). The total sales charge of
$2,950 is 4.92% of the public offering price and 5.17% of the net
amount invested.
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.
<PAGE>
PAGE 105
On total investment,
sales charge as a
percentage of:
Public Net
Amount of Investment Offering Price Amount Invested
ranges from:
First $ 50,000 5.00% 5.26%
More than 50,000 to 100,000 5.00-4.50 5.26-4.71
More than 100,000 to 500,000 4.50-3.80 4.71-3.95
More than 500,000 to 999,999 3.80-2.00 3.95-2.04
$1,000,000 or more 0.0 0.00
The initial sales charge is waived for certain qualified plans that
meet the requirements described in the prospectus. Participants in
these qualified plans may be subject to a deferred sales charge on
certain redemptions. The deferred sales charge on certain
redemptions will be waived if the redemption is a result of a
participant's death, disability, retirement, attaining age 59 1/2,
loans or hardship withdrawals. The deferred sales charge only
applies to plans with less than $1 million in assets and fewer than
100 participants.
Class A - Reducing the Sales Charge
Sales charges are based on the total amount of your investments in
the Fund. The amount of all prior investments plus any new
purchase is referred to as your "total amount invested." For
example, suppose you have made an investment of $20,000 and later
decide to invest $40,000 more. Your total amount invested would be
$60,000. As a result, $10,000 of your $40,000 investment qualifies
for the lower 4.5% sales charge that applies to investments of more
than $50,000 and up to $100,000.
The total amount invested includes any shares held in the Fund in
the name of a member of your primary household group. (The primary
household group consists of accounts in any ownership for spouses
or domestic partners and their unmarried children under 21.
Domestic partners are individuals who maintain a shared primary
residence and have joint property or other insurable interests.
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, board
members, officers or employees of the Fund or AEFC or its
subsidiaries and of deceased advisors.
<PAGE>
PAGE 106
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 $30,000 in another IDS fund. If you invest $40,000 more in this
Fund, your total amount invested in the funds will be $70,000 and
therefore $20,000 of your $40,000 investment will incur a 4.5%
sales charge.
Finally, Individual Retirement Account (IRA) purchases, or other
employee benefit plan purchases made through a payroll deduction
plan or through a plan sponsored by an employer, association of
employers, employee organization or other similar entity, may be
added together to reduce sales charges for shares purchased through
that plan.
Class A - Letter of Intent (LOI)
If you intend to invest $1 million over a period of 13 months, you
can reduce the sales charges in Class A by filing a LOI. The
agreement can start at any time and will remain in effect for 13
months. Your investment will be charged normal sales charges until
you have invested $1 million. At that time, your account will be
credited with the sales charges previously paid. Class A
investments made prior to signing a LOI may be used to reach the $1
million total, excluding Cash Management Fund and Tax-Free Money
Fund. However, we will not adjust for sales charges on investments
made prior to the signing of the LOI. If you do not invest $1
million by the end of 13 months, there is no penalty, you'll just
miss out on the sales charge adjustment. A LOI is not an option
(absolute right) to buy shares.
Here's an example. You file a LOI to invest $1 million and make an
investment of $100,000 at that time. You pay the normal 5% sales
charge on the first $50,000 and 4.5% sales charge on the next
$50,000 of this investment. Let's say you make a second investment
of $900,000 (bringing the total up to $1 million) one month before
the 13-month period is up. On the date that you bring your total
to $1 million, AEFC makes an adjustment. The adjustment is made by
crediting your account with additional shares, in an amount
equivalent to the sales charge previously paid to your account.
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.
<PAGE>
PAGE 107
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.
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 distributions
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.
<PAGE>
PAGE 108
REDEEMING SHARES
You have a right to redeem your shares at any time. For an
explanation of redemption procedures, please see the prospectus.
DURING AN EMERGENCY, the board can suspend the computation of net
asset value, stop accepting payments for purchase of shares or
suspend the duty of the Fund to redeem shares for more than seven
days. Such emergency situations would occur if:
The Exchange closes for reasons other than the usual weekend and
holiday closings or trading on the Exchange is restricted, or
Disposal of the Fund's securities is not reasonably practicable or
it is not reasonably practicable for the Fund to determine the fair
value of its net assets, or
The SEC, under the provisions of the Investment Company Act of 1940
(the 1940 Act) declares a period of emergency to exist.
Should the Fund stop selling shares, the board may make a deduction
from the value of the assets held by the Fund to cover the cost of
future liquidations of the assets so as to distribute fairly these
costs among all shareholders.
The Fund has elected to be governed by Rule 18f-1 under the 1940
Act, which obligates the Fund to redeem shares in cash, with
respect to any one shareholder during any 90-day period, up to the
lesser of $250,000 or 1% of the net assets of the Fund at the
beginning of the period. Although redemptions in excess of this
limitation would normally be paid in cash, the Fund reserves the
right to make these payments in whole or in part in securities or
other assets in case of an emergency, or if the payment of a
redemption in cash would be detrimental to the existing
shareholders of the Fund as determined by the board. In these
circumstances, the securities distributed would be valued as set
forth in the prospectus. Should the Fund distribute securities, a
shareholder may incur brokerage fees or other transaction costs in
converting the securities to cash.
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 <PAGE>
PAGE 109
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.
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 <PAGE>
PAGE 110
you are on this plan and arrange to take 0.5% each month, you will
get $50 if the value of your account is $10,000 on the payment
date.
TAXES
If you buy shares in the Fund and then exchange into another fund,
it is considered a sale and subsequent purchase of shares. Under
the tax laws, if this exchange is done within 91 days, any sales
charge waived on Class A shares on a subsequent purchase of shares
applies to the new shares acquired in the exchange. Therefore, you
cannot create a tax loss or reduce a tax gain attributable to the
sales charge when exchanging shares within 91 days.
Retirement Accounts
If you have a nonqualified investment in the Fund and you wish to
move part or all of those shares to an IRA or qualified retirement
account in the Fund, you can do so without paying a sales charge.
However, this type of exchange is considered a sale of shares and
may result in a gain or loss for tax purposes. In addition, this
type of exchange may result in an excess contribution under IRA or
qualified plan regulations if the amount exchanged plus the amount
of the initial sales charge applied to the amount exchanged exceeds
annual contribution limitations. For example: If you were to
exchange $2,000 in Class A shares from a non-qualified account to
an IRA without considering the 5% ($100) initial sales charge
applicable to that $2,000, you may be deemed to have exceeded
current IRA annual contribution limitations. You should consult
your tax advisor for further details about this complex subject.
Net investment income dividends received should be treated as
dividend income for federal income tax purposes. Corporate
shareholders are generally entitled to a deduction equal to 70% of
that portion of the Fund's dividend that is attributable to
dividends the Fund received from domestic (U.S.) securities. For
the fiscal period ended Jan. 31, 1997, 100% 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.
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.
<PAGE>
PAGE 111
The Fund may be subject to U.S. taxes resulting from holdings in a
passive foreign investment company (PFIC). A foreign corporation
is a PFIC when 75% or more of its gross income for the taxable year
is passive income or if 50% or more of the average value of its
assets consists of assets that produce or could produce passive
income.
This is a brief summary that relates to federal income taxation
only. Shareholders should consult their tax advisor as to the
application of federal, state and local income tax laws to Fund
distributions.
AGREEMENTS
Investment Management Services Agreement
The Fund has an Investment Management Services Agreement with AEFC.
For its services, AEFC is paid a fee based on the following
schedule:
Assets Annual rate at
(billions) each asset level
First $0.25 0.380%
Next 0.25 0.370
Next 0.25 0.360
Next 0.25 0.350
Over 1.0 0.340
On Jan. 31, 1997, the daily rate applied to the Fund's net assets
was equal to 0.00% on an annual basis. Absent fee waivers, the
management fee would be 0.38% for each class. The fee is
calculated for each calendar day on the basis of net assets as of
the close of business two business days prior to the day for which
the calculation is made. The management fee is paid monthly.
Under the current Agreement, the Fund also pays taxes, brokerage
commissions and nonadvisory expenses, which include custodian fees;
audit and certain legal fees; fidelity bond premiums; registration
fees for shares; Fund office expenses; consultants' fees;
compensation of board members, officers and employees; corporate
filing fees; organizational expenses; expenses incurred in
connection with lending securities to the Fund; and expenses
properly payable by the Fund, approved by the board.
Administrative Services Agreement
The Fund has an Administrative Services Agreement with AEFC. Under
this agreement, the Fund pays AEFC for providing administrative and
accounting services. The fee is calculated as follows:
<PAGE>
PAGE 112
Assets Annual rate at
(billions) each asset level
First $0.25 0.10%
Next 0.25 0.08
Next 0.25 0.06
Next 0.25 0.04
Over $1 0.02
On Jan. 31, 1997, the daily rate applied to the Fund's net assets
was equal to 0.10% on an annual basis. The fee is calculated for
each calendar day on the basis of net assets as of the close of
business two business days prior to the day for which the
calculation is made. Under the agreement, the Fund paid fees of
$30,667 for the fiscal period ended Jan. 31, 1997.
Transfer Agency Agreement
The Fund has a Transfer Agency Agreement with AEFC. This agreement
governs AEFC's responsibility for administering and/or performing
transfer agent functions, for acting as service agent in connection
with dividend and distribution functions and for performing
shareholder account administration agent functions in connection
with the issuance, exchange and redemption or repurchase of the
Fund's shares. Under the agreement, AEFC will earn a fee from the
Fund determined by multiplying the number of shareholder accounts
at the end of the day by a rate determined for each class per year
and dividing by the number of days in the year. The rate for Class
A and Class Y is $15 per year and 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. Under the agreement,
the Fund paid fees of $80,156 for the fiscal period ended Jan. 31,
1997.
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 $1,114,087 for the
fiscal period ended Jan. 31, 1997. After paying commissions to
personal financial advisors, and other expenses, the amount
retained was -$255,297.
Additional information about commissions and compensation for the
fiscal period ended Jan. 31, 1997, is contained in the following
table:
<PAGE>
PAGE 113
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Net Compensation
Name of Underwriting on Redemption
Principal Discounts and and Brokerage Other
Underwriter Commissions Repurchases Commissions Compensation
AEFC None None None $62,572*
American
Express
Financial
Advisors $1,114,087 None None None
*Distribution fees paid pursuant to the Plan and 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, 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, including a
majority of the disinterested board members, if it is to continue
for more than a year. At least quarterly, the board must review
written reports concerning the amounts expended under the Plan and
the purposes for which such expenditures were made. The Plan and
any agreement related to it may be terminated at any time by vote
of a majority of board members who are not interested persons of
the Fund and have no direct or indirect financial interest in the
operation of the Plan or in any agreement related to the Plan, or
by vote of a majority of the outstanding voting securities of the
Fund's Class B shares 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 1940 Act,
as amended. The Plan may not be amended to increase the amount to
be spent for distribution without shareholder approval, and all
material amendments to the Plan must be approved by a majority of
the board members, including a majority of the board members who <PAGE>
PAGE 114
are not interested persons of the Fund and who do not have a
financial interest in the operation of the Plan or any agreement
related to it. The selection and nomination of disinterested board
members is the responsibility of the other disinterested board
members. No interested person of the Fund, and no board member who
is not an interested person, has any direct or indirect financial
interest in the operation of the Plan or any related agreement.
For the fiscal period ended Jan. 31, 1997, under the agreement, the
Fund paid fees of $62,572.
Custodian Agreement
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. For its
services, the Fund pays the Custodian a maintenance charge and a
charge per transaction in addition to reimbursing the custodians
out-of-pocket expenses.
Total Fees and Expenses
The Fund paid total fees and nonadvisory expenses of $367,418 for
the fiscal period ended Jan. 31, 1997.
ORGANIZATIONAL INFORMATION
IDS Market Advantage Series, Inc., of which IDS Small Company Index
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.
BOARD MEMBERS AND OFFICERS
The following is a list of the Fund's board members. They serve 15
Master Trust Portfolios and 47 IDS and IDS Life funds (except for
William H. Dudley, who does not serve on the nine IDS Life fund
boards). All shares have cumulative voting rights with respect to
the election of board members.
H. Brewster Atwater, Jr.
Born in 1931
4900 IDS Tower
Minneapolis, Mn
Former chairman and chief executive officer, General Mills, Inc.
Director, Merck & Co., Inc. and Darden Restaurants, Inc.
<PAGE>
PAGE 115
Lynne V. Cheney'
Born in 1941
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W. Washington, D.C.
Distinguished Fellow, AEI. Former Chair of National Endowment of
the Humanities. Director, The Reader's Digest Association Inc.,
Lockheed-Martin, Union Pacific Resources and FPL Group Inc.
(holding company for Florida Power and Light).
William H. Dudley**
Born in 1932
2900 IDS Tower
Minneapolis, MN
Executive vice president and director of AEFC.
Robert F. Froehlke+
Born in 1922
1201 Yale Place
Minneapolis, MN
Former president of all funds in the IDS MUTUAL FUND GROUP.
Director, the ICI Mutual Insurance Co., Institute for Defense
Analyses, Marshall Erdman and Associates, Inc. (architectural
engineering) and Public Oversight Board of the American Institute
of Certified Public Accountants.
David R. Hubers+**
Born in 1943
2900 IDS Tower
Minneapolis, MN
President, chief executive officer and director of AEFC.
Previously, senior vice president, finance and chief financial
officer of AEFC.
Heinz F. Hutter+'
Born in 1929
P.O. Box 5724
Minneapolis, MN
Former president and chief operating officer, Cargill, Incorporated
(commodity merchants and processors).
Anne P. Jones
Born in 1935
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.<PAGE>
PAGE 116
Melvin R. Laird
Born in 1922
Reader's Digest Association, Inc.
1730 Rhode Island Ave., N.W.
Washington, D.C.
Senior counsellor for national and international affairs, The
Reader's Digest Association, Inc. Former nine-term U.S.
Congressman, U.S. Secretary of Defense and Presidential Counsellor.
Director, 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).
William R. Pearce+*
Born in 1927
901 S. Marquette Ave.
Minneapolis, MN
President and director, Board Services Corporation (provides
administrative services to boards). Director, trustee and officer
of registered investment companies whose boards are served by the
company. Former vice chairman of the board, Cargill, Incorporated
(commodity merchants and processors).
Alan K. Simpson
Born in 1931
1201 Sunshine Avenue
Cody, WY
Former three-term United States senator for Wyoming 1978-1996.
Former assistant Republican Leader, U.S. Senate. Director,
PacifiCorp (electric power).
Edson W. Spencer+
Born in 1926
4900 IDS Center
80 S. 8th St.
Minneapolis, MN
President, Spencer Associates Inc. (consulting). Former chairman
of the board and chief executive officer, Honeywell Inc. Director,
Boise Cascade Corporation (forest products). Member of
International Advisory Council of NEC (Japan).
John R. Thomas**
Born in 1937
2900 IDS Tower
Minneapolis, MN
Senior vice president and director of AEFC.
<PAGE>
PAGE 117
Wheelock Whitney+
Born in 1926
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN
Chairman, Whitney Management Company (manages family assets).
C. Angus Wurtele
Born in 1934
Valspar Corporation
Suite 1700
Minneapolis, MN
Chairman of the board and retired chief executive officer, The
Valspar Corporation (paints). Director, Bemis Corporation
(packaging), Donaldson Company (air cleaners & mufflers) and
General Mills, Inc. (consumer foods).
+ Member of executive committee.
' Member of joint audit committee.
* Interested person by reason of being an officer and employee of
the Fund.
**Interested person by reason of being an officer, board member,
employee and/or shareholder of AEFC or American Express.
The board also has appointed officers who are responsible for day--
to-day business decisions based on policies it has established.
In addition to Mr. Pearce, who is president, the Fund's other
officers are:
Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN
Vice president, treasurer and corporate secretary of Board Services
Corporation. Vice president, general counsel and secretary for the
Fund.
Officers who also are officers and/or employees of AEFC.
Peter J. Anderson
Born in 1942
IDS Tower 10
Minneapolis, MN
Director and senior vice president-investments of AEFC. Vice
president-investments for the Fund.
<PAGE>
PAGE 118
Melinda S. Urion
Born in 1953
IDS Tower 10
Minneapolis, MN
Director, senior vice president and chief financial officer of
AEFC. Director, executive vice president and controller of IDS
Life Insurance Company. Treasurer for the Fund.
Members of the board who are not officers of the Fund or AEFC
receive an annual fee of $800 and the chair of the Contracts
Committee receives an additional $90. Board members receive a $50
per day attendance fee for board meetings. The attendance fee for
meetings of the Contracts and Investment Review Committees is $50;
for meetings of the Audit Committee and Personnel Committee $25 and
for traveling from out-of-state $8. Expenses for attending
meetings are reimbursed. The Fund pays no fees or expenses to
board members until the assets of the Fund reach $20 million.
During the fiscal period ended Jan. 31, 1997, the members of the
board, for attending up to 26 meetings, received the following
compensation:
<TABLE><CAPTION>
Compensation Table
<S> <C> <C> <C> <C>
Pension or
Aggregate Retirement Estimated Total cash
compensation benefits annual compensation
from the accrued as benefit upon from the IDS
Board Member Fund Fund expenses* retirement MUTUAL FUND GROUP
H. Brewster Atwater, Jr. $275 $0 $0 $27,100
(part of year)
Lynne V. Cheney 377 0 0 83,200
Robert F. Froehlke 458 0 0 86,300
Heinz F. Hutter 408 0 0 83,800
Anne. P. Jones 402 0 0 84,600
Melvin R. Laird 343 0 0 82,600
Alan K. Simpson 109 0 0 10,800
(part of year)
Edson W. Spencer 433 0 0 91,400
Wheelock Whitney 458 0 0 87,000
C. Angus Wurtele 458 0 0 85,800
</TABLE>
On Jan. 31, 1997, the Fund's board members and officers as a group
owned less than 1% of the outstanding shares. During the fiscal
period ended Jan. 31, 1997, no board member or officer earned more
than $60,000 from this Fund. All board members and officers as a
group earned $4,184, including $ - 0 - of retirement plan benefits,
from this Fund.
INDEPENDENT AUDITORS
The financial statements contained in the Annual Report to
shareholders for the fiscal period ended Jan. 31, 1997, 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.<PAGE>
PAGE 119
FINANCIAL STATEMENTS
The Independent Auditor's Report and the Financial Statements,
including Notes to the Financial Statements and the Schedule of
Investments in Securities, contained in the Annual Report to
shareholders for the fiscal period ended Jan. 31, 1997, 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 Small Company Index Fund, dated April 1,
1997, is hereby incorporated in this SAI by reference.
<PAGE>
PAGE 120
APPENDIX A
OPTIONS AND STOCK INDEX FUTURES CONTRACTS
The Fund may buy or write options traded on any U.S. or foreign
exchange or in the over-the-counter market. The Fund may enter
into stock index futures contracts traded on any U.S. or foreign
exchange. The Fund also may buy or write put and call options on
these futures and on stock indexes. Options in the over-the-
counter market will be purchased only when the investment manager
believes a liquid secondary market exists for the options and only
from dealers and institutions the investment manager believes
present a minimal credit risk. In that case, or if a liquid
secondary market does not exist, the Fund could be required to buy
or sell securities at disadvantageous prices, thereby incurring
losses.
Options. An option is a contract. A person who buys a call option
for a security has the right to buy the security at a set price for
the length of the contract. A person who sells a call option is
called a writer. The writer of a call option agrees to sell the
security at the set price when the buyer wants to exercise the
option, no matter what the market price of the security is at that
time. A person who buys a put option has the right to sell a
security at a set price for the length of the contract. A person
who writes a put option agrees to buy the security at the set price
if the purchaser wants to exercise the option, no matter what the
market price of the security is at that time. An option is covered
if the writer owns the security (in the case of a call) or sets
aside the cash or securities of equivalent value (in the case of a
put) that would be required upon exercise.
The price paid by the buyer for an option is called a premium. In
addition the buyer generally pays a broker a commission. The
writer receives a premium, less another commission, at the time the
option is written. The cash received is retained by the writer
whether or not the option is exercised. A writer of a call option
may have to sell the security for a below-market price if the
market price rises above the exercise price. A writer of a put
option may have to pay an above-market price for the security if
its market price decreases below the exercise price. The risk of
the writer is potentially unlimited, unless the option is covered.
Options can be used to produce incremental earnings, protect gains
and facilitate buying and selling securities for investment
purposes. The use of options may benefit the Fund and its
shareholders by improving the Fund's liquidity and by helping to
stabilize the value of its net assets.
<PAGE>
PAGE 121
Buying Options. Put and call options may be used as a trading
technique to facilitate buying and selling securities for
investment reasons. They also may be used for investment. Options
are used as a trading technique to take advantage of any disparity
between the price of the underlying security in the securities
market and its price on the options market. It is anticipated the
trading technique will be utilized only to effect a transaction
when the price of the security plus the option price will be as
good or better than the price at which the security could be bought
or sold directly. When the option is purchased, the Fund pays a
premium and a commission. It then pays a second commission on the
purchase or sale of the underlying security when the option is
exercised. For recordkeeping and tax purposes, the price obtained
on the purchase of the underlying security will be the combination
of the exercise price, the premium and both commissions. When
using options as a trading technique, commissions on the option
will be set as if only the underlying securities were traded.
Put and call options also may be held by the Fund for investment
purposes. Options permit the Fund to experience the change in the
value of a security with a relatively small initial cash
investment.
The risk the Fund assumes when it buys an option is the loss of the
premium. To be beneficial to the fund, the price of the underlying
security must change within the time set by the option contract.
Furthermore, the change must be sufficient to cover the premium
paid, the commissions paid both in the acquisition of the option
and in a closing transaction or in the exercise of the option and
sale (in the case of a call) or purchase (in the case of a put) of
the underlying security. Even then the price change in the
underlying security does not ensure a profit since prices in the
option market may not reflect such a change.
Writing covered options. The Fund will write covered options when
it feels it is appropriate and will follow these guidelines:
All options written by the Fund will be covered. For covered call
options if a decision is made to sell the security, the Fund will
attempt to terminate the option contract through a closing purchase
transaction.
The Fund will deal only in standard option contracts traded on
national securities exchanges or those that may be quoted on NASDAQ
(a system of price quotations developed by the National Association
of Securities Dealers, Inc.).
The Fund will write options only as permitted under federal or
state laws or regulations, such as those that limit the amount of
total assets subject to the options.
<PAGE>
PAGE 122
Net premiums on call options closed or premiums on expired call
options are treated as short-term capital gains. Since the Fund is
taxed as a regulated investment company under the Internal Revenue
Code, any gains on options and other securities held less than
three months must be limited to less than 30% of its annual gross
income.
If a covered call option is exercised, the security is sold by the
Fund. The premium received upon writing the option is added to the
proceeds received from the sale of the security. The Fund will
recognize a capital gain or loss based upon the difference between
the proceeds and the security's basis. Premiums received from
writing outstanding call options are included as a deferred credit
in the Statement of Assets and Liabilities and adjusted daily to
the current market value.
Options are valued at the close of the New York Stock Exchange. An
option listed on a national exchange, CBOE or NASDAQ will be valued
at the last-quoted sales price or, if such a price is not readily
available, at the mean of the last bid and asked prices.
Stock Index Futures Contracts. Stock index futures contracts are
commodity contracts listed on commodity exchanges. They currently
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 <PAGE>
PAGE 123
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 sell the
S&P 500 Index at a specified future date at a contract value of 150
and the S&P 500 Index is at 152 on that future date, the Fund will
lose ($500 x (152-150) or $1,000.
Unlike the purchase or sale of an equity security, no price would
be paid or received by the Fund upon entering into 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
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
position in the contract more or less valuable, a process known as
marking to 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 or protect itself from changes in the
market. For example, the Fund may find itself with a high cash
position at the beginning of a market rally. 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 and benefit from the beginning <PAGE>
PAGE 124
stages of a rally. The buying program can then proceed and once it
is completed (or as it proceeds), the contracts can be closed.
Conversely, in the early stages of a market decline, market
exposure can be promptly offset by entering into stock index
futures contracts to sell units of an index and individual stocks
can be sold over a longer period under cover of the resulting short
contract position.
The Fund may enter into contracts with respect to any stock index
or sub-index. To hedge the Fund's portfolio successfully, however,
the Fund must enter into contracts with respect to indexes or sub-
indexes whose movements will have a significant correlation with
movements in the prices of the fund's portfolio securities.
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 opposition 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, the New York Stock Exchange
Composite Stock Index on the New York Futures Exchange and the
Value Line Composite Stock Index on the Kansas City Board of Trade.
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.
Such price movements, however, will be offset all or in part by the
price movements of the securities subject to the hedge. Of course,
there is no guarantee the price of the securities will correlate
with the price movements in the futures contract and thus provide
an offset to losses on a futures contract.
2. Hedging risks. There are several risks in using stock index
futures contracts as a hedging device. One risk arises because the
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 <PAGE>
PAGE 125
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 also may 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.
Another risk arises because of imperfect correlation between
movements in the value of the futures contracts and movements in
the value of securities subject to the hedge. If this occurred,
the Fund could lose money on the contracts and also experience a
decline in the value of its portfolio securities. While this could
occur, the investment manager believes that over time the value of
the Fund's portfolio will tend to move in the same direction as the
market indexes and will attempt to reduce this risk, to the extent
possible, by entering into futures contracts on indexes whose
movements it believes will have a significant correlation with
movements in the value of the fund's portfolio securities sought to
be hedged. It also is possible that if the Fund has hedged against
a decline in the value of the stocks held in its portfolio and
stock prices increase instead, the Fund will lose part or all of
the benefit of the increased value of its stock which it has hedged
because it will have offsetting losses in its futures positions.
In addition, in such situations, if the fund has insufficient cash,
it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising
market. The Fund may have to sell securities at a time when it may
be disadvantageous to do so.
Options on stock index futures contracts. Options on stock index
futures contracts are similar to options on stock except that
options on futures contracts given 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 and a
short position if the option is a put) 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) or is less than (in
the case of a put) 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.
<PAGE>
PAGE 126
Options on stock indexes. Options on 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 a put, 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 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. 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, 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 indexes will depend on whether
such option is a section 1256 contract. If the option is a
nonequity option, the Fund will either make a 1256(d) election and
treat the option as a mixed straddle or mark to market the option
at fiscal year end and treat the gain/loss as 40% short-term and
60% long-term. Certain provisions of the Internal Revenue Code may
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.
<PAGE>
PAGE 127
The IRS has ruled publicly that an exchange-traded call option is a
security for purposes of the 50%-of-assets test and that its issuer
is the issuer of the underlying security, not the writer of the
option, for purposes of the diversification requirements. In order
to avoid realizing a gain within the three-month period, the Fund
may be required to defer closing out a contract beyond the time
when it might otherwise be advantageous to do so. The Fund also
may be restricted in purchasing put options for the purpose of
hedging underlying securities because of applying the short sale
holding period rules with respect to such underlying securities.
Accounting for futures contracts will be according to generally
accepted accounting principles. Initial margin deposits will be
recognized as assets due from a broker (the Fund's agent in
acquiring the futures position). During the period the futures
contract is open, changes in value of the contract will be
recognized as unrealized gains or losses by marking to market on a
daily basis to reflect the market value of the contract at the end
of each day's trading. Variation margin payments will be made or
received depending upon whether gains or losses are incurred. All
contracts and options will be valued at the last-quoted sales price
on their primary exchange.
<PAGE>
PAGE 128
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
___________________________________________________________________
Regular Market Price Shares
Investment of a Share Acquired
$100 $ 6.00 16.7
100 4.00 25.0
100 4.00 25.0
100 6.00 16.7
100 5.00 20.0
$500 $25.00 103.4
Average market price of a share over 5 periods:
$5.00 ($25.00 divided by 5).
Average price you paid for each share:
$4.84 ($500 divided by 103.4).
<PAGE>
Independent auditors' report
The board and shareholders
IDS Market Advantage Series, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of IDS Blue Chip Advantage Fund (a
series of IDS Market Advantage Series, Inc.) as of January 31, 1997, and the
related statement of operations for the year then ended and the statements of
changes in net assets for each of the years in the two-year period then ended
and the financial highlights for each of the years in the six-year period ended
January 31, 1997, and for the period from March 5, 1990 (commencement of
operations) to January 31, 1991. These financial statements and the financial
highlights are the responsibility of fund management. Our responsibility is to
express an opinion on these financial statements and the financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased and sold but not received or delivered, we
request confirmations from brokers, and where replies are not received, we carry
out other appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IDS Blue Chip Advantage Fund at
January 31, 1997, and the results of its operations, changes in its net assets
and the financial highlights for the periods stated in the first paragraph
above, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 7, 1997
<PAGE>
Financial statements
Statement of assets and liabilities
IDS Blue Chip Advantage Fund
Jan. 31, 1997
Assets
Investments in securities, at value (Note 1)
(identified cost $995,278,440) $1,103,963,967
Cash in bank on demand deposit 801,403
Dividends receivable 736,304
Receivable for investment securities sold 19,048,095
--------------
Total assets $1,124,549,769
--------------
Liabilities
Payable for investment securities purchased 58,163,221
Accrued investment management services fee 11,437
Accrued distribution fee 6,044
Accrued service fee 4,646
Accrued transfer agency fee 4,269
Accrued administrative services fee 915
Other accrued expenses 298,339
--------------
Total liabilities 58,488,871
--------------
Net assets applicable to outstanding capital stock $1,066,060,898
--------------
Represented by
Capital stock -- $.01 par value $ 1,190,064
Additional paid-in-capital 900,930,226
Undistributed net investment income 244,455
Accumulated net realized gain (Note 1) 54,589,726
Unrealized appreciation (Note 4) 109,106,427
--------------
Total -- representing net assets applicable to
outstanding capital stock $1,066,060,898
==============
Net assets applicable to outstanding shares: Class A $ 687,120,460
Class B $ 302,197,157
Class Y $ 76,743,281
Net asset value per share of outstanding capital stock:
Class A shares 76,593,852 $ 8.97
Class B shares 33,861,678 $ 8.92
Class Y shares 8,550,871 $ 8.97
See accompanying notes to financial statements.
<PAGE>
Statement of operations
IDS Blue Chip Advantage Fund
Year ended Jan. 31, 1997
Investment income
Income:
Dividends (net of foreign taxes withheld of $19,073) $ 10,922,935
Interest 1,786,272
-----------
Total income 12,709,207
-----------
Expenses (Note 2):
Investment management services fee 2,565,671
Distribution fee -- Class B 1,090,018
Transfer agency fee 985,327
Incremental transfer agency fee -- Class B 19,017
Service fee
Class A 746,083
Class B 253,645
Administrative services fees and expenses 217,983
Compensation of board members 7,409
Compensation of officers 2,992
Custodian fees 84,264
Postage 92,277
Registration fees 374,545
Reports to shareholders 69,801
Audit fees 20,000
Administrative 2,598
Other 4,042
-----------
Total expenses 6,535,672
Earnings credits on cash balances (Note 2) (11,613)
-----------
Total net expenses 6,524,059
-----------
Investment income -- net 6,185,148
-----------
Realized and unrealized gain -- net
Net realized gain on security transactions 73,312,234
Net realized gain on financial futures contracts 4,528,357
---------
Net realized gain on investments 77,840,591
Net change in unrealized appreciation or depreciation 67,091,179
----------
Net gain on investments 144,931,770
-----------
Net increase in net assets resulting from operations $151,116,918
============
See accompanying notes to financial statements.
<PAGE>
Financial statements
Statements of changes in net assets
IDS Blue Chip Advantage Fund
Year ended Jan. 31,
Operations and distributions 1997 1996
Investment income -- net $ 6,185,148 $ 3,476,327
Net realized gain on investments 77,840,591 30,488,353
Net change in unrealized appreciation or depreciation 67,091,179 37,904,430
---------- ----------
Net increase in net assets resulting from operations 151,116,918 71,869,110
----------- ----------
Distributions to shareholders from:
Net investment income
Class A (4,932,940) (2,821,594)
Class B (792,370) (161,630)
Class Y (499,317) (367,124)
Net realized gain
Class A (23,865,453) (15,200,366)
Class B (10,006,369) (2,259,559)
Class Y (1,978,241) (1,716,563)
----------- -----------
Total distributions (42,074,690) (22,526,836)
------------ ------------
Capital share transactions (Note 5)
Proceeds from sales
Class A shares (Note 2) 512,364,398 89,141,849
Class B shares 235,221,663 39,708,806
Class Y shares 52,505,648 28,323,434
Reinvestment of distributions at net asset value
Class A shares 27,946,936 17,839,828
Class B shares 10,736,585 2,399,949
Class Y shares 2,477,558 2,083,688
Payments for redemptions
Class A shares (175,913,305) (53,709,365)
Class B shares (Note 2) (11,636,869) (2,952,873)
Class Y shares (13,337,249) (6,906,030)
------------ -----------
Increase in net assets from capital share
transactions 640,365,365 115,929,286
----------- -----------
Total increase in net assets 749,407,593 165,271,560
Net assets at beginning of year 316,653,305 151,381,745
----------- -----------
Net assets at end of year $1,066,060,898 $316,653,305
-------------- ------------
(including undistributed net investment income of
$244,455 and $283,934)
See accompanying notes to financial statements.
<PAGE>
Notes to financial statements
IDS Blue Chip Advantage Fund
- --------------------------------------------------------
1. Summary of significant accounting policies
IDS Blue Chip Advantage Fund (a series of IDS Market Advantage Series, Inc.) is
registered under the Investment Company Act of 1940 (as amended) as a
diversified, open-end management investment company. IDS Market Advantage Series
has 10 billion authorized shares of capital stock that can be allocated among
the separate series as designated by the board. The Fund invests in common
stocks that are included in a broad market index. The Fund offers Class A, Class
B and Class Y shares. Class A shares are sold with a front-end sales charge.
Class B shares may be subject to a contingent deferred sales charge. Class B
shares automatically convert to Class A after eight years. Class Y shares have
no sales charge and are offered only to qualifying institutional investors.
All classes of shares have identical voting, dividend, liquidation and other
rights, and the same terms and conditions, except that the level of distribution
fee, transfer agency fee and service fee (class specific expenses) differs among
classes. Income, expenses (other than class specific expenses) and realized and
unrealized gains or losses on investments are allocated to each class of shares
based upon its relative net assets.
Significant accounting policies followed by the Fund are summarized below:
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increase and decrease in net assets from operations
during the period. Actual results could differ from those estimates.
Valuation of securities
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price; securities for which market quotations
are not readily available are valued at fair value according to methods selected
in good faith by the board. Determination of fair value involves, among other
things, reference to market indexes, matrixes and data from independent brokers.
Short-term securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current interest
rates; those maturing in 60 days or less are valued at amortized cost.
Futures transactions
In order to gain exposure to or protect itself from changes in the market, the
Fund may buy stock index futures contracts. Risks of entering into futures
contracts include the possibility that there may be an illiquid market and that
a change in the value of the contract may not correlate with changes in the
value of the underlying securities.
Upon entering into a futures contract, the Fund is required to deposit either
cash or securities in an amount (initial margin) equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Fund each day. The variation margin payments are equal to the
daily changes in the contract value and are recorded as unrealized gains and
losses. The Fund recognizes a realized gain or loss when the contract is closed
or expires.
Federal taxes
Since the Fund's policy is to comply with all sections of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to shareholders, no provision for income or excise taxes is
required.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of the deferral of losses
on certain futures contracts, the recognition of certain foreign currency gains
(losses) as ordinary income (loss) for tax purposes and losses deferred due to
"wash sale" transactions. The character of distributions made during the year
from net investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the year that the income or realized gains (losses) were recorded by
the Fund.
Dividends to shareholders
Dividends from net investment income, declared and paid each calendar quarter,
are reinvested in additional shares of the Fund at net asset value or payable in
cash. Capital gains, when available, are distributed along with the last income
dividend of the calendar year.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date and interest income,
including level-yield amortization of premium and discount, is accrued daily.
- -------------------------------------------------------------------
2. Expenses and sales charges
Effective March 20, 1995, the Fund entered into agreements with American Express
Financial Advisors (AEFC) for managing its portfolio, providing administrative
services and serving as transfer agent. Under its Investment Management Services
Agreement, AEFC determines which securities will be purchased, held or sold. The
management fee is a percentage of the Fund's daily net assets in reducing
percentages from 0.44% to 0.34% annually.
Under an Administrative Services Agreement, the Fund pays AEFC for
administration and accounting services at a percentage of the Fund's average
daily net assets in reducing percentages from 0.04% to 0.02% annually.
Additional administrative services paid by the Fund are office expenses,
consultant's fees and compensation of officers and employees. Under this
agreement, the Fund also pays taxes, audit and certain legal fees, registration
fees for shares, compensation of board members, corporate filing fees,
organizational expenses and any other expenses properly payable by the Fund
approved by the board.
Under a separate Transfer Agency Agreement, AEFC maintains shareholder accounts
and records. The Fund pays AEFC an annual fee per shareholder account for this
service as follows:
o Class A $15
o Class B $16
o Class Y $15
Also effective March 20, 1995, the Fund entered into agreements with American
Express Financial Advisors Inc. for distribution and shareholder
servicing-related services. Under a Plan and Agreement of Distribution, the Fund
pays a distribution fee at an annual rate of 0.75% of the Fund's average daily
net assets attributable to Class B shares for distribution-related services.
Under a Shareholder Service Agreement, the Fund pays a fee for service provided
to shareholders by financial advisors and other 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.
Sales charges received by American Express Financial Advisors Inc. for
distributing Fund shares were $5,826,892 for Class A and $89,714 for Class B for
the year ended Jan. 31, 1997. The Fund also pays custodian fees to American
Express Trust Company, an affiliate of AEFC.
During the year ended Jan. 31, 1997, the Fund's custodian and transfer agency
fees were reduced by $11,613 as a result of earnings credits from overnight cash
balances.
Prior to April 30, 1996, the Fund had a retirement plan for its independent
board members. The plan was terminated April 30, 1996. The retirement plan
expense amounted to $2,386 for the period.
- --------------------------------------------------------
3. Securities transactions
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $1,294,932,753 and $749,464,627, respectively, for the
year ended Jan. 31, 1997. Realized gains and losses are determined on an
identified cost basis.
Brokerage commissions paid
to brokers affiliated with AEFC were $43,722 for the year
ended Jan. 31, 1997.
- --------------------------------------------------------
4. Financial futures contracts
Investments in securities at Jan. 31, 1997, included securities valued at
$12,454,750 that were pledged as collateral to cover initial margin deposits on
169 purchase contracts. The market value of the open contracts at Jan. 31, 1997
was $66,543,750 with a net unrealized gain of $420,900.
- -------------------------------------------------------
5. Capital share transactions
Transactions in shares of capital stock for the years indicated are as follows:
Year ended Jan. 31, 1997
Class A Class B Class Y
- -----------------------------------------------------------------------
Sold 61,579,642 28,522,302 6,248,025
Issued for reinvested 3,258,916 1,251,589 289,362
distributions
Redeemed (20,740,321) (1,387,337) (1,611,043)
- ------------------------------------------------------------------------
Net increase 44,098,237 28,386,554 4,926,344
- ------------------------------------------------------------------------
Year ended Jan. 31, 1996
Class A Class B* Class Y*
- -----------------------------------------------------------------------
Sold 12,676,537 5,554,078 4,313,563
Issued for reinvested 2,461,505 329,917 287,679
distributions
Redeemed (7,993,183) (408,871) (976,715)
- ------------------------------------------------------------------------
Net increase 7,144,859 5,475,124 3,624,527
- ------------------------------------------------------------------------
*Inception date was March 20, 1995.
- -------------------------------------------------------------------------
6. Financial highlights
"Financial highlights" showing per share data and selected information is
presented on pages 7 and 8 of the prospectus.
<PAGE>
<TABLE>
<CAPTION>
Investments in securities
IDS Blue Chip Advantage Fund (Percentages represent value of
Jan. 31, 1997 investments compared to net assets)
- --------------------------------------------------------------------------------------------------------------
Common stocks (93.2%)
Issuer Shares Value (a)
- --------------------------------------------------------------------------------------------------------------
Aerospace & defense (2.5%)
<S> <C> <C>
AlliedSignal 2,400 $ 168,600
Boeing 29,472 3,157,188
General Dynamics 20,300 1,433,687
Lockheed Martin 200 18,400
McDonnell Douglas 3,400 228,650
Raytheon 360,300 16,528,763
Rockwell Intl 82,300 5,411,225
-----------------------
Total 26,946,513
- --------------------------------------------------------------------------------------------------------------
Airlines (0.9%)
AMR 116,400 (b) 9,370,200
- --------------------------------------------------------------------------------------------------------------
Automotive & related (3.5%)
Chrysler 389,800 13,594,275
Ford Motor 188,100 6,042,712
General Motors 294,700 17,387,300
-----------------------
Total 37,024,287
- --------------------------------------------------------------------------------------------------------------
Banks and savings & loans (9.0%)
Bank of Boston 234,400 16,701,000
Barnett Banks 103,900 4,571,600
Citicorp 111,900 13,022,362
First Union 107,000 8,947,875
Great Western Financial 115,400 3,649,525
KeyCorp 77,400 4,053,825
Mellon Bank 68,200 5,089,425
NationsBank 322,000 34,776,000
Norwest 117,700 5,605,463
-----------------------
Total 96,417,075
- --------------------------------------------------------------------------------------------------------------
Beverages & tobacco (5.2%)
Anheuser-Busch 404,200 17,178,500
Coca-Cola 662,000 38,313,250
-----------------------
Total 55,491,750
- --------------------------------------------------------------------------------------------------------------
Building materials & construction (1.6%)
Georgia-Pacific 26,300 1,936,337
Sherwin-Williams 9,400 521,700
Temple-Inland 12,600 696,150
Tyco Intl 189,300 10,813,763
Weyerhaeuser 60,000 2,730,000
-----------------------
Total 16,697,950
- --------------------------------------------------------------------------------------------------------------
Chemicals (0.4%)
Engelhard 700 13,912
Monsanto 101,900 3,859,463
Praxair 3,900 180,862
-----------------------
Total 4,054,237
- --------------------------------------------------------------------------------------------------------------
Communications equipment & services (--%)
Andrew 1,900 (b) 109,131
Tellabs 2,200 (b) 90,612
-----------------------
Total 199,743
- --------------------------------------------------------------------------------------------------------------
Computers & office equipment (9.0%)
Cisco Systems 98,500 (b) 6,870,375
Compaq Computer 46,000 (b) 3,996,250
Computer Associates Intl 156,975 7,122,741
Dell Computer 17,400 (b) 1,150,575
First Data 361,700 13,021,200
Hewlett-Packard 192,700 10,140,837
Ikon Office Solutions 203,000 8,957,375
Microsoft 188,300 (b) 19,206,600
Oracle 259,550 (b) 10,090,006
Seagate Technology 24,400 (b) 1,256,600
Silicon Graphics 207,000 (b) 5,666,625
3Com 120,200 (b) 8,068,425
-----------------------
Total 95,547,609
- --------------------------------------------------------------------------------------------------------------
Electronics (0.3%)
AMP 70,000 2,852,500
Natl Semiconductor 3,300 (b) 91,575
-----------------------
Total 2,944,075
- --------------------------------------------------------------------------------------------------------------
Energy (1.4%)
Unocal 350,000 14,743,750
- --------------------------------------------------------------------------------------------------------------
Energy equipment & services (0.1%)
Fluor 11,800 839,275
- --------------------------------------------------------------------------------------------------------------
Financial services (1.8%)
Dean Witter 64,300 2,451,438
Federal Home Loan Mtge 337,400 10,206,350
Travelers Group 129,633 6,789,528
-----------------------
Total 19,447,316
- --------------------------------------------------------------------------------------------------------------
Food (2.0%)
CPC Intl 161,200 12,392,250
Quaker Oats 227,500 8,730,312
-----------------------
Total 21,122,562
- --------------------------------------------------------------------------------------------------------------
Health care (13.0%)
Abbott Laboratories 400 21,750
ALZA 136,000 (b) 3,927,000
American Home Products 357,000 22,624,875
Amgen 109,600 (b) 6,178,700
Baxter Intl 258,500 11,923,312
Boston Scientific 97,700 (b) 6,668,025
Bristol-Myers Squibb 38,200 4,851,400
Guidant 54,800 3,055,100
Johnson & Johnson 482,100 (d) 27,781,012
Lilly (Eli) 37,300 3,249,763
Medtronic 142,100 9,733,850
Merck 136,100 12,351,075
Pfizer 70,800 6,575,550
Pharmacia & Upjohn 21,500 800,875
Schering-Plough 253,100 19,140,688
-----------------------
Total 138,882,975
- --------------------------------------------------------------------------------------------------------------
Health care services (2.2%)
Service Corp Intl 472,200 13,693,800
Tenet Healthcare 192,300 (b) 5,192,100
United Healthcare 104,700 5,104,125
-----------------------
Total 23,990,025
- --------------------------------------------------------------------------------------------------------------
Household products (2.3%)
Colgate-Palmolive 54,000 5,224,500
Gillette 91,500 7,457,250
Procter & Gamble 106,900 12,346,950
-----------------------
Total 25,028,700
- --------------------------------------------------------------------------------------------------------------
Industrial equipment & services (2.6%)
Caterpillar 1,100 85,387
Deere & Co 280,000 11,970,000
Illinois Tool Works 192,200 15,688,325
-----------------------
Total 27,743,712
- --------------------------------------------------------------------------------------------------------------
Industrial transportation (0.4%)
Union Pacific 69,400 4,164,000
- --------------------------------------------------------------------------------------------------------------
Insurance (1.4%)
AON 56,100 3,625,463
UNUM 147,400 11,147,125
-----------------------
Total 14,772,588
- --------------------------------------------------------------------------------------------------------------
Media (0.7%)
Gannett 1,200 91,950
Time Warner 184,800 7,114,800
-----------------------
Total 7,206,750
- --------------------------------------------------------------------------------------------------------------
Metals (2.0%)
Aluminum Co of America 255,500 17,629,500
Freeport-McMoRan Copper & Gold 110,100 3,165,375
Phelps Dodge 11,200 782,600
-----------------------
Total 21,577,475
- --------------------------------------------------------------------------------------------------------------
Multi-industry conglomerates (7.1%)
Emerson Electric 247,600 24,450,500
General Electric 287,500 (d) 29,612,500
General Signal 217,600 9,846,400
Honeywell 32,400 2,336,850
Minnesota Mining & Mfg 82,100 6,999,025
Westinghouse Electric 114,000 2,094,750
-----------------------
Total 75,340,025
- --------------------------------------------------------------------------------------------------------------
Paper & packaging (2.1%)
Champion Int1 9,200 385,250
Crown Cork & Seal 244,500 14,058,750
Intl Paper 72,800 2,975,700
James River 24,700 793,488
Kimberly-Clark 47,300 4,611,750
Union Camp 400 18,950
-----------------------
Total 22,843,888
- --------------------------------------------------------------------------------------------------------------
Restaurants & lodging (0.6%)
Hilton Hotels 218,500 6,227,250
- --------------------------------------------------------------------------------------------------------------
Retail (6.1%)
American Stores 250,800 10,533,600
AutoZone 70,200 (b) 1,518,075
CUC Intl 228,200 5,647,950
Federated Dept Stores 208,700 (b) 6,861,012
Kroger 184,700 (b) 8,819,425
Lowe's 134,100 4,442,063
Rite Aid 232,700 9,308,000
Wal Mart Stores 763,600 18,135,500
-----------------------
Total 65,265,625
- --------------------------------------------------------------------------------------------------------------
Textiles & apparel (0.2%)
NIKE Cl B 12,700 862,013
VF 13,800 917,700
-----------------------
Total 1,779,713
- --------------------------------------------------------------------------------------------------------------
Utilities -- electric (2.8%)
Baltimore Gas & Electric 273,200 7,513,000
Central & South West 182,000 4,595,500
Consolidated Edison 324,900 10,071,900
Edison Intl 200,000 4,275,000
FPL Group 6,500 287,625
General Public Utilities 17,500 586,250
Houston Industries 127,400 2,882,425
-----------------------
Total 30,211,700
- --------------------------------------------------------------------------------------------------------------
Utilities -- telephone (7.2%)
AirTouch Communications 840,400 (b) 21,745,350
Ameritech 113,200 6,763,700
AT&T 232,200 9,142,875
BellSouth 223,000 9,895,625
GTE 223,400 10,499,800
MCI Communications 462,800 16,255,850
WorldCom 114,500 (b) 2,876,813
-----------------------
Total 77,180,013
- --------------------------------------------------------------------------------------------------------------
Foreign (4.8%)(c)
Barrick Gold 15,500 416,563
Northern Telecom 176,300 12,980,088
Royal Dutch Petroleum ADR 215,800 37,441,300
-----------------------
Total 50,837,951
- --------------------------------------------------------------------------------------------------------------
Total common stocks
(Cost: $885,213,205) $993,898,732
- --------------------------------------------------------------------------------------------------------------
Short-term securities (10.3%)
Issuer Annualized Amount Value (a)
yield on payable at
date of maturity
purchase
- --------------------------------------------------------------------------------------------------------------
U.S. government agency (0.2%)
Federal Home Loan Mtge Corp Disc Notes
02-19-97 5.24% $ 2,540,000 $ 2,533,358
- --------------------------------------------------------------------------------------------------------------
Commercial paper (9.2%)
Becton Dickinson
02-06-97 5.33 8,700,000 8,693,560
Bell Atlantic
02-06-97 5.31 5,311,000 5,307,091
BellSouth
02-04-97 5.45 6,800,000 6,796,912
Ciesco LP
03-04-97 5.32 1,900,000 1,891,345
Commerzbank U.S. Finance
02-10-97 5.31 4,800,000 4,793,640
Exxon Asset Management
02-04-97 5.36 12,600,000 (e) 12,594,372
Fleet Funding
03-13-97 5.35 5,607,000 (e) 5,573,856
Ford Motor Credit
02-03-97 5.24 15,000,000 14,995,633
Gateway Fuel
02-11-97 5.32 4,143,000 4,136,901
Novartis Finance
02-04-97 5.45 7,700,000 7,696,503
02-14-97 5.32 5,000,000 4,990,430
03-04-97 5.32 5,300,000 (e) 5,275,811
Siemens
02-05-97 5.35 3,500,000 3,497,927
UBS Finance
02-03-97 5.30 10,000,000 9,997,055
02-13-97 5.34 1,900,000 1,896,631
-----------------------
Total 98,137,667
- --------------------------------------------------------------------------------------------------------------
Letter of Credit (0.9%)
Bank of America
Formosa
02-06-97 5.35 1,400,000 1,398,966
Federal Home Loan Bank
02-05-97 5.35 8,000,000 7,995,244
-----------------------
Total 9,394,210
- --------------------------------------------------------------------------------------------------------------
Total short-term securities
(Cost: $110,065,235) $ 110,065,235
- --------------------------------------------------------------------------------------------------------------
Total investment in securities
(Cost: $995,278,440)(f) $1,103,963,967
- --------------------------------------------------------------------------------------------------------------
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars.
(d) Security is partially pledged as initial margin deposit on the following
open stock index futures purchase contracts (see Note 4 to the financial
statements):
Type of security Contracts
- -------------------------------------------------------------------------
Standard & Poor's 500 Stock Index, March 1997 169
(e) Commercial paper sold within terms of a private placement memorandum, exempt
under Section 4(2) of the Securities Act of 1933, as amended, and may be sold
only to dealers in that program or other "accredited investors." This security
has been determined to be liquid under guidelines established by the board.
(f) At Jan. 31, 1997, the cost of securities for federal income tax purposes was
$995,357,312 and the aggregate gross unrealized appreciation and depreciation
Unrealized appreciation $115,545,137
Unrealized depreciation (6,938,482)
- ------------------------------------------------------------------
Net unrealized appreciation $108,606,655
- ------------------------------------------------------------------
</TABLE>
<PAGE>
Independent auditors' report
The board and shareholders
IDS Market Advantage Series, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of IDS Small Company Index Fund (a
series of IDS Market Advantage Series, Inc.) as of January 31, 1997, and the
related statement of operations, statement of changes in net assets and the
financial highlights for the period from August 19, 1996, (commencement of
operations), to January 31, 1997. These financial statements and the financial
highlights are the responsibility of fund management. Our responsibility is to
express an opinion on these financial statements and the financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and the financial highlights
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Investment securities held in custody are confirmed to us by the custodian. As
to securities purchased and sold but not received or delivered, and securities
on loan, we request confirmations from brokers, and where replies are not
received, we carry out other appropriate auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IDS Small Company Index Fund at
January 31, 1997, and the results of its operations, changes in its net assets,
and financial highlights for the period stated in the first paragraph above, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 7, 1997
<PAGE>
Financial statements
Statement of assets and liabilities
IDS Small Company Index Fund
Jan. 31, 1997
Assets
Investments in securities, at value (Note 1)
(identified cost $134,736,802) $140,388,703
Cash in bank on demand deposit 1,506,707
Dividends and accrued interest receivable 62,750
Receivable for investment securities sold 300,165
Expense receivable from AEFC 3,258
Organizational cost 116
-----------
Total assets $142,261,699
Liabilities
Payable for investment securities purchased 3,472,546
Payable upon return of securities loaned (Note 4) 1,850,100
Accrued investment management services fee 1,385
Accrued distribution fee 827
Accrued service fee 638
Accrued transfer agency fee 954
Accrued administrative services fee 364
Other accrued expenses 81,241
-----------
Total liabilities 5,408,055
-----------
Net assets applicable to outstanding capital stock $136,853,644
------------
Represented by
Capital stock -- of $.01 par value (Note 1) $ 248,461
Additional paid-in capital 130,719,480
Accumulated net realized gain (Note 1) 233,802
Unrealized appreciation of investments 5,651,901
-----------
Total -- representing net assets applicable to
outstanding capital stock $136,853,644
Net assets applicable to outstanding shares: Class A $ 95,195,615
Class B $ 41,656,922
Class Y $ 1,107
Net asset value per share of
outstanding capital stock: Class A shares 17,272,199 $ 5.51
Class B shares 7,573,676 $ 5.50
Class Y shares 201 $ 5.51
See accompanying notes to financial statements.
<PAGE>
Statement of operations
IDS Small Company Index Fund
For the period from Aug. 19, 1996
(commencement of operations) to Jan. 31, 1997
Investment income
Income:
Dividends $ 660,882
Interest 105,274
-------------
Total income 766,156
-------------
Expenses (Note 2):
Investment management services fee 116,534
Distribution fee -- Class B 62,572
Transfer agency fee 78,395
Incremental transfer agency fee -- Class B 1,761
Service fee
Class A 39,027
Class B 14,600
Administrative services fees and expenses 30,667
Compensation of board members 4,085
Compensation of officers 99
Custodian fees 59,544
Postage 14,086
Registration fees 114,893
Reports to shareholders 4,268
Audit fees 7,504
Administrative 451
Other 129
------------
Total expenses 548,615
Expenses voluntarily reimbursed by AEFC (Note 2) (177,854)
------------
370,761
Earnings credits on cash balances (Note 2) (3,343)
------------
Total net expenses 367,418
------------
Investment income -- net 398,738
------------
Realized and unrealized gain -- net
Net realized gain on security transactions (Note 3) 204,831
Net realized gain on option contracts written (Note 6) 112,742
-----------
Net realized gain on investments 317,573
Net change in unrealized appreciation or depreciation 5,651,901
-----------
Net gain on investments 5,969,474
-----------
Net increase in net assets resulting from operations $ 6,368,212
-----------
See accompanying notes to financial statements.
<PAGE>
Financial statements
Statements of changes in net assets
IDS Small Company Index Fund
For the period from Aug. 19, 1996
(commencement of operations) to Jan. 31, 1997
Operations and distributions
Investment income -- net $ 398,738
Net realized gain on investments 317,573
Net change in unrealized appreciation or depreciation 5,651,901
-----------
Net increase in net assets resulting from operations 6,368,212
-----------
Distributions to shareholders from:
Net investment income
Class A (320,723)
Class B (95,990)
Class Y (5)
Net realized gain
Class A (58,220)
Class B (24,313)
-----------
Total distributions (499,251)
-----------
Capital share transactions (Note 5)
Proceeds from sales
Class A shares (Note 2) 93,847,466
Class B shares 40,421,294
Class Y shares 816
Reinvestment of distributions at net asset value
Class A shares 356,913
Class B shares 119,807
Class Y shares 5
Payments for redemptions
Class A shares (3,320,576)
Class B shares (Note 2) (444,042)
-----------
Increase in net assets from capital share transactions 130,981,683
-----------
Total increase in net assets 136,850,644
Net assets at beginning of period (Note 1) 3,000
-----------
Net assets at end of period $136,853,644
-----------
See accompanying notes to financial statements.
<PAGE>
Notes to financial statements
IDS Small Company Index Fund
- --------------------------------------------------------------------------------
1. Summary of significant accounting policies
IDS Small Company Index Fund (a series of IDS Market Advantage Series, Inc.) is
registered under the Investment Company Act of 1940 (as amended) as a
diversified, open-end management investment company. IDS Market Advantage Series
has 10 billion authorized shares of capital stock that can be allocated among
the separate series as designated by the board. On Aug. 16, 1996, American
Express Financial Corporation (AEFC) invested $3,000 in the Fund which
represented 200 shares for Class A, Class B and Class Y, respectively.
Operations commenced on Aug. 19, 1996.
The Fund invests primarily in common stocks of small capitalization companies
that are expected to provide investment results that correspond to the
performance of the S & P SmallCap Index. The Fund offers Class A, Class B and
Class Y shares. Class A shares are sold with a front-end sales charge. Class B
shares may be subject to a contingent deferred sales charge and such shares
automatically convert to Class A after eight years. Class Y shares have no sales
charge and are offered only to qualifying institutional investors.
All classes of shares have identical voting, dividend, liquidation and other
rights, and the same terms and conditions, except that the level of distribution
fee, transfer agency fee and service fee (class specific expenses) differs among
classes. Income, expenses (other than class specific expenses) and realized and
unrealized gains or losses on investments are allocated to each class of shares
based upon its relative net assets.
Significant accounting policies followed by the Fund are summarized below:
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increase and decrease in net assets from operations
during the period. Actual results could differ from those estimates.
Valuation of securities
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price; securities for which market quotations
are not readily available are valued at fair value according to methods selected
in good faith by the board. Determination of fair value involves, among other
things, reference to market indexes, matrixes and data from independent brokers.
Short-term securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current interest
rates; those maturing in 60 days or less are valued at amortized cost.
Option transactions
In order to produce incremental earnings, protect gains and facilitate buying
and selling of securities for investment purposes, the Fund may buy and write
options traded on any U.S. or foreign exchange. Where the completion of the
obligation is dependent upon the credit standing of the other party. The Fund
also may buy and sell put and call options and write covered call options on
portfolio securities and may write cash-secured put options. The risk in writing
a call option is that the Fund gives up the opportunity of profit if the market
price of the security increases. The risk in writing a put option is that the
Fund may incur a loss if the market price of the security decreases and the
option is exercised. The risk in buying an option is that the Fund pays a
premium whether or not the option is exercised. The Fund also has the additional
risk of not being able to enter into a closing transaction if a liquid secondary
market does not exist.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Fund will
realize a gain or loss upon expiration or closing of the option transaction.
When an option is exercised, the proceeds on sales for a written call option,
the purchase cost for a written put option or the cost of a security for a
purchased put or call option is adjusted by the amount of premium received or
paid.
Futures transactions
In order to gain exposure to or protect itself from changes in the market, the
Fund may buy and sell financial futures contracts traded on any U.S. or foreign
exchange. The Fund also may buy or write put and call options on these futures
contracts. Risks of entering into futures contracts and related options include
the possibility that there may be an illiquid market and that a change in the
value of the contract may not correlate with changes in the value of the
underlying securities.
Upon entering into a futures contract, the Fund is required to deposit either
cash or securities in an amount (initial margin) equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Fund each day. The variation margin payments are equal to the
daily changes in the contract value and are recorded as unrealized gains and
losses. The Fund recognizes a realized gain or loss when the contract is closed
or expires.
Federal taxes
Since the Fund's policy is to comply with all sections of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to shareholders, no provision for income or excise taxes is
required.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of the deferral of losses
on certain futures contracts, the recognition of certain foreign currency gains
(losses) as ordinary income (loss) for tax purposes and losses deferred due to
"wash sale" transactions. The character of distributions made during the year
from net investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the year that the income or realized gains (losses) were recorded by
the Fund.
On the statement of assets and liabilities, as a result of permanent book-to-tax
differences, undistributed net income has been increased by $17,980 and
accumulated net realized gain has been decreased by $1,238 resulting in a net
reclassification adjustment to decrease additional paid-in capital by $16,742.
Dividends to shareholders
Dividends from net investment income, declared and paid each calendar quarter,
are reinvested in additional shares of the Fund at net asset value or payable in
cash. Capital gains, when available, are distributed along with the last income
dividend of the calendar year.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date and interest income,
including level-yield amortization of premium and discount, is accrued daily.
At Jan. 31, 1997, AEFC owned 201 shares of Class Y.
- --------------------------------------------------------------------------------
2. Expenses and sales charges
The Fund entered into agreements with AEFC for managing its portfolio, providing
administrative services and serving as transfer agent. Under its Investment
Management Services Agreement, AEFC determines which securities will be
purchased, held or sold. The management fee is a percentage of the Fund's
average daily net assets in reducing percentages from 0.38% to 0.34% annually.
Under an Administrative Services Agreement, the Fund pays AEFC for
administration and accounting services at a percentage of the Fund's average
daily net assets in reducing percentages from 0.10% to 0.02% annually.
Additional administrative services paid by the Fund are office expenses,
consultant's fees and compensation of officers and employees. Under this
agreement, the Fund also pays taxes, audit and certain legal fees, registration
fees for shares, compensation of board members, corporate filing fees,
organizational expenses and any other expenses properly payable by the Fund
approved by the board.
Under a separate Transfer Agency Agreement, AEFC maintains shareholder accounts
and records. The Fund pays AEFC an annual fee per shareholder account for this
service as follows:
o Class A $15
o Class B $16
o Class Y $15
The Fund entered into agreements with American Express Financial Advisors Inc.
for distribution and shareholder servicing-related services. Under a Plan and
Agreement of Distribution, the Fund pays a distribution fee at an annual rate of
0.75% of the Fund's average daily net assets attributable to Class B shares for
distribution-related services.
Under a Shareholder Service Agreement, the Fund pays a fee for service provided
to shareholders by financial advisors and other 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.
Sales charges received by American Express Financial Advisors Inc. for
distributing Fund shares were $1,112,501 for Class A and $1,586 for Class B for
the period ended Jan. 31, 1997. The Fund also pays custodian fees to American
Express Trust Company, an affiliate of AEFC.
AEFC has agreed to waive certain fees and to absorb certain other of the Funds'
expenses until July 31, 1997. Under this agreement, the Fund's total expenses
will not exceed 1.00% for Class A, 1.76% for Class B and 0.82% for Class Y of
the Fund's average daily net assets.
During the period ended Jan. 31, 1997, the Fund's custodian and transfer
agency fees were reduced by $3,343 as a result of earnings credits from
overnight cash balances.
- --------------------------------------------------------------------------------
3. Securities transactions
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $163,417,712 and $34,592,476, respectively, for the
period ended Jan. 31, 1997. Realized gains and losses are determined on an
identified cost basis.
- --------------------------------------------------------------------------------
4. Lending of portfolio securities
At Jan. 31, 1997, securities valued at $1,904,738 were on loan to brokers.
For collateral, the Fund received $1,850,100 in cash. Income from securities
lending amounted to $8,395 for the period ended Jan. 31, 1997. The risks to
the Fund of securities lending are that the borrower may not provide
additional collateral when required or return securities when due.
- --------------------------------------------------------------------------------
5. Capital share transactions
Transactions in shares of capital stock for the period indicated is as follows:
Period ended Jan. 31, 1997*
Class A Class B Class Y
- -----------------------------------------------------------------------
Sold 17,818,761 7,633,710 --
Issued for reinvested 66,231 22,199 1
distributions
Redeemed (612,993) (82,433) --
- ------------------------------------------------------------------------
Net increase 17,271,999 7,573,476 1
- ------------------------------------------------------------------------
* Inception date was Aug. 19, 1996
- --------------------------------------------------------------------------------
6. Option contracts written
The number of contracts and premium amounts associated with option contracts
written (see Summary of significant accounting policies) is as follows:
Period ended Jan. 31, 1997*
------------------------- -----------
Puts
- --------------------------- ---------------- --------------------
Contracts Premium
- --------------------------- ---------------- --------------------
Balance Aug. 19, 1996 -- --
Opened 689 $136,928
Closed (87) (36,713)
Expired (602) (100,215)
- --------------------------- ---------------- --------------------
Balance Jan. 31, 1997 -- $ --
- --------------------------- ---------------- --------------------
*Inception date was Aug. 19, 1996.
- --------------------------------------------------------------------------------
7. Financial highlights
"Financial highlights" showing per share data and selected information is
presented on page 7 of the prospectus.
<PAGE>
<TABLE>
<CAPTION>
Investments in securities
IDS Small Company Index Fund (Percentages represent value of
Jan. 31, 1997 investments compared to net assets)
- --------------------------------------------------------------------------------------------------
Common stocks (98.4%)
- --------------------------------------------------------------------------------------------------
Issuer Shares Value (a)
- --------------------------------------------------------------------------------------------------
Aerospace & defense (0.8%)
<S> <C> <C>
AAR 7,200 $ 187,200
Alliant Techsystems 5,900 (b) 285,412
BE Aerospace 9,500 (b) 252,344
Kaman Cl A 8,500 110,500
Logicon 6,600 228,525
----------------------
Total 1,063,981
- --------------------------------------------------------------------------------------------------
Airlines (0.7%)
Air Express Intl 10,700 339,056
Comair Holdings 21,200 431,950
Mesa Airlines 13,100 (b) 86,788
SkyWest 4,700 61,100
----------------------
Total 918,894
- --------------------------------------------------------------------------------------------------
Automotive & related (2.1%)
A.O. Smith 8,900 297,037
Breed Technologies 14,900 322,212
Custom Chrome 2,300 (b) 44,275
Discount Auto Parts 7,800 (b) 146,250
Gentex 15,800 (b) 316,000
Intermet 10,200 156,825
Myers Inds 7,900 126,400
O'Reilly Automotive 5,000 (b) 165,000
Simpson Inds 8,100 85,050
Spartan Motors 5,900 44,988
SPS Technologies 2,800 (b) 179,200
SPX 6,500 264,062
Standard Motor Products 6,100 85,400
Standard Products 7,900 176,763
TBC 11,000 (b) 82,500
Titan Wheel Intl 12,400 153,450
Walbro 3,800 68,875
Winnebago Inds 11,400 82,650
Wynn's Intl 6,450 130,613
----------------------
Total 2,927,550
- --------------------------------------------------------------------------------------------------
Banks and savings & loans (10.0%)
Astoria Financial 10,200 397,800
CCB Financial 6,900 448,500
Centura Banks 11,300 463,300
Charter One Financial 20,195 911,299
Coast Savings Financial 8,800 (b) 364,100
Collective Bancorp 9,700 333,438
Commercial Federal 9,950 324,619
Cullen/Frost Bankers 10,700 373,831
Deposit Guaranty 17,500 549,063
Downey Financial 11,600 245,050
First Commercial 13,425 501,759
First Financial 16,675 421,044
First Michigan Bank 12,400 361,150
FirstBank Puerto Rico 6,900 182,850
FirstMerit 14,800 551,300
JSB Financial 4,100 150,675
Keystone Financial 16,650 466,200
Liberty Bancorp 4,100 210,125
Magna Group 13,200 391,050
Mark Twain Bancshares 7,700 387,887
ONBANCorp 5,900 219,775
Provident Bancorp 18,350 688,125
RCSB Financial 6,400 187,200
Riggs Natl 14,400 266,400
Roosevelt Financial 18,800 404,200
Sovereign Bancorp 20,600 288,400
St. Paul Bancorp 10,250 246,000
TCF Financial 16,400 694,950
U.S. Trust 4,500 380,250
Union Planters 29,400 1,209,075
Whitney Holding 7,700 271,425
Zions Bancorp 6,600 762,300
----------------------
Total 13,653,140
- --------------------------------------------------------------------------------------------------
Beverages & tobacco (0.4%)
Coca-Cola 4,200 190,050
DIMON 18,300 434,625
----------------------
Total 624,675
- --------------------------------------------------------------------------------------------------
Building materials & construction (3.4%)
Apogee Enterprises 6,100 230,275
BMC West 5,300 (b) 66,913
Butler Manufacturing 3,600 134,550
Champion Enterprises 22,100 (b) 430,950
Continental Homes Holding 3,200 68,800
Fibreboard 4,000 (b) 138,500
Hughes Supply 5,100 176,588
Insituform Technologies Cl A 12,400 (b) 77,500
Insteel Inds 3,900 35,100
Juno Lighting 6,800 104,550
Lone Star Inds 5,000 181,250
MDC Holdings 7,800 64,350
Medusa 7,600 281,200
Morrison Knudsen 24,000 (b) 234,000
Oakwood Homes 20,000 410,000
PLY GEM Inds 6,500 96,687
Republic Group 4,900 84,525
Ryland Group 6,900 89,700
Skyline 4,400 102,850
Southern Energy Homes 7,400 (b) 96,200
Standard-Pacific 13,800 106,950
Stone & Webster 6,000 204,000
Texas Inds 5,600 309,400
TJ Intl 8,200 151,700
Toll Brothers 15,800 (b) 286,375
Tredegar Inds 5,800 228,375
U.S. Home 5,400 (b) 138,375
Universal Forest Products 7,900 115,537
----------------------
Total 4,645,200
- --------------------------------------------------------------------------------------------------
Chemicals (1.8%)
Air & Water Technologies Cl A 14,800 (b) 94,350
Cambrex 5,200 187,850
Chemed 4,600 163,875
ChemFirst 9,700 (b) 223,100
Dames & Moore 10,400 143,000
Geon 11,300 211,875
Hauser 5,000 (b) 35,000
Ionics 7,200 (b) 360,900
Lilly Inds Cl A 10,500 208,688
OHM 12,500 (b) 112,500
OM Group 8,700 256,650
Omega Environmental 20,300 (b) 26,644
Penwest Ltd. 3,100 59,675
Quaker Chemical 3,700 60,587
Tetra Technologies 6,000 (b) 169,500
WD-40 3,400 175,525
----------------------
Total 2,489,719
- --------------------------------------------------------------------------------------------------
Communications equipment & services (2.1%)
Allen Group 12,400 (b) 303,800
Aspect Telecommunications 21,400 (b) 663,400
BBN 9,400 (b) 224,425
BroadBand Technologies 6,300 (b) 88,200
C-COR Electronics 4,300 (b) 61,275
California Microwave 7,500 (b) 124,688
Centigram Communications 2,900 (b) 38,788
Compression Labs 7,800 (b) 27,787
Digi Intl 6,300 (b) 52,762
Digital Microwave 7,400 (b) 260,850
InterVoice 7,700 (b) 96,250
Network Equipment Technologies 9,600 (b) 199,200
Oak Inds 8,800 (b) 192,500
PictureTel 16,000 (b) 296,000
Symmetricom 7,300 (b) 131,400
TCSI 10,000 (b) 70,000
----------------------
Total 2,831,325
- --------------------------------------------------------------------------------------------------
Computers & office equipment (9.6%)
Acxiom 24,300 (b) 428,287
ADAC Laboratories 8,300 206,463
American Management Systems 18,400 (b) 402,500
Amtech 7,200 (b) 48,600
Auspex Systems 10,800 (b) 128,250
Banyan Systems 7,700 (b) 34,169
BISYS Group 11,400 (b) 394,725
BMC Inds 12,700 415,925
Boole & Babbage 7,900 (b) 201,450
Broderbund Software 9,800 (b) 302,575
Cognex 18,600 (b) 355,725
Comverse Technology 10,300 (b) 463,500
Control Data Systems 6,500 (b) 110,500
Envoy 6,900 (b) 234,600
Fair Isaac 5,500 222,062
FileNet 6,900 (b) 131,963
Henry (Jack) & Associates 5,400 194,063
Hyperion Software 8,000 (b) 190,000
Intermagnetics General 5,900 (b) 70,800
Keane 14,900 (b) 463,763
Komag 22,600 (b) 663,875
Kronos 3,700 (b) 122,100
MicroAge 6,700 (b) 98,825
Microcom 7,100 (b) 94,075
Natl Computer Systems 7,200 175,950
Natl Data 12,300 504,300
Network General 20,100 (b) 567,825
New England Business Services 6,000 124,500
Norand 3,600 (b) 119,137
Platinum Software 8,600 (b) 102,125
PLATINUM Technology 25,100 (b) 420,425
Primark 12,700 (b) 355,600
Progress Software 5,900 (b) 101,775
Read-Rite 21,700 (b) 716,100
Sanmina 7,900 (b) 470,050
SCI Systems 13,600 (b) 792,200
Sterling Software 17,200 (b) 496,650
SunGard Data Systems 18,000 (b) 711,000
System Software 20,200 202,000
Tech Data 19,500 (b) 497,250
Telxon 7,600 119,700
Viewlogic Systems 7,700 (b) 104,912
Wall Data 4,400 (b) 83,600
Xircom 8,800 (b) 237,600
Zebra Technologies Cl A 10,800 (b) 286,200
----------------------
Total 13,167,694
- --------------------------------------------------------------------------------------------------
Electronics (7.3%)
Anixter Intl 22,300 (b) 348,438
Bell Inds 3,500 (b) 79,188
Benchmark Electronics 2,700 (b) 84,375
Chips & Technologies 9,600 (b) 130,800
Core Inds 4,900 82,075
Cyrix 8,600 (b) 221,450
Dallas Semiconductor 12,300 324,413
Dionex 5,700 (b) 230,850
Dynatech 8,000 (b) 288,000
Figgie Intl Cl A 8,700 (b) 107,663
Fluke (John) Mfg 4,000 191,500
Gerber Scientific 10,800 153,900
Harmon Inds 2,600 46,800
Integrated Circuit Systems 5,200 (b) 79,300
International Rectifier 23,800 (b) 377,825
Itron 6,200 (b) 144,150
Kent Electronics 11,900 (b) 388,238
Kuhlman 6,500 115,375
Lattice Semiconductor 10,600 (b) 549,875
Marshall Inds 8,100 (b) 249,075
Methode Electronics Cl A 15,800 351,550
Microchip Technology 24,250 (b) 924,531
Novellus Systems 7,300 (b) 578,525
Pacific Scientific 5,500 74,937
Park Electrochemical 5,300 136,475
Photronics 5,700 (b) 216,600
Pioneer Standard Electronics 10,200 155,550
Plexus 2,500 (b) 79,375
S3 22,400 (b) 375,200
Standard Microsystems 6,900 (b) 62,962
Tencor Instruments 13,800 (b) 562,350
Three-Five Systems 4,000 (b) 60,500
Trimble Navigation 10,400 (b) 139,100
Tseng Laboratories 8,700 (b) 38,062
Vicor 19,300 330,512
Vitesse Semiconductor 10,600 (b) 581,675
VLSI Technology 21,600 (b) 356,400
Watkins-Johnson 3,800 101,650
Wyle Electronics 5,500 226,875
X-Rite 9,600 161,400
Zilog 9,400 (b) 238,525
----------------------
Total 9,946,044
- --------------------------------------------------------------------------------------------------
Energy (3.5%)
Atmos Energy 7,400 168,350
Barrett Resources 14,300 (b) 552,337
Benton Oil & Gas 12,300 (b) 239,850
Cabot Oil & Gas Cl A 10,300 187,975
Cross Timbers Oil 7,400 223,850
Devon Energy 14,900 527,087
HS Resources 7,900 (b) 136,275
KCS Energy 6,800 264,350
Newfield Exploration 15,600 (b) 413,400
Pogo Producing 15,400 648,725
Snyder Oil 14,400 252,000
St. Mary Land & Exploration 4,000 117,000
UNC 8,100 (b) 90,113
United Meridian 16,200 (b) 599,400
Vintage Petroleum 11,100 370,463
Wiser Oil 3,700 77,237
----------------------
Total 4,868,412
- --------------------------------------------------------------------------------------------------
Energy equipment & services (2.9%)
Box Energy Cl B 8,800 (b) 74,800
Camco Intl 11,000 526,625
Daniel Inds 8,000 115,000
Input/Output 20,300 (b) 482,125
Mesa 30,500 (b) 160,125
Noble Drilling 55,200 (b) 1,207,500
Oceaneering Intl 10,800 (b) 184,950
Plains Resources 7,700 (b) 127,050
Pool Energy Services 8,900 (b) 153,525
Pride Petroleum Services 13,000 (b) 294,125
Production Operators 4,700 227,950
Seitel 4,700 (b) 161,562
Tuboscope Vetco Intl 18,500 (b) 271,719
----------------------
Total 3,987,056
- --------------------------------------------------------------------------------------------------
Financial services (2.9%)
Alex Brown 10,650 564,450
AMRESCO 12,900 320,887
Bertucci's 4,100 (b) 21,269
Bowne & Co 8,100 216,675
CMAC Investment 10,300 357,925
Eaton Vance 4,700 211,500
Insurance Auto Auctions 5,100 (b) 49,725
Inter-Regional Financial Group 5,600 238,000
Legg Mason 8,500 384,625
Natl Auto Credit 13,500 (b) 146,812
North American Mtge 6,200 121,675
Pioneer Group 11,200 261,100
Piper Jaffray 8,300 146,288
Quick & Reilly Group 11,300 413,863
Raymond James Financial 9,700 312,825
SEI Investments 8,400 168,131
----------------------
Total 3,935,750
- --------------------------------------------------------------------------------------------------
Food (2.1%)
Chiquita Brands Intl 24,700 361,238
DEKALB Genetics Cl B 7,600 483,550
Earthgrains 4,700 219,138
GoodMark Foods 3,600 66,600
Interstate Bakeries 17,300 767,687
J&J Snack Foods 3,900 (b) 50,700
Mycogen 13,600 (b) 346,800
Nash-Finch 3,800 79,800
Rykoff-Sexton 12,100 195,112
Smithfield Foods 8,500 (b) 295,375
----------------------
Total 2,866,000
- --------------------------------------------------------------------------------------------------
Furniture & appliances (1.3%)
Bassett Furniture Inds 6,200 140,275
Ethan Allen Interiors 6,900 302,738
Fedders 18,800 117,500
Interface 10,000 195,625
La-Z-Boy 8,600 268,750
Levitz Furniture 14,600 (b) 43,800
Mohawk Inds 16,200 (b) 417,150
Rival (The) 4,500 103,500
Royal Appliance Manufacturing 11,300 (b) 79,100
Thomas Inds 4,900 107,187
----------------------
Total 1,775,625
- --------------------------------------------------------------------------------------------------
Health care (6.8%)
Advanced Tissue Sciences 17,800 (b) 242,525
Alliance Pharmaceutical 13,800 (b) 174,225
ALPHARMA Cl A 10,200 133,875
Ballard Medical Products 13,100 255,450
Calgene 31,600 (b) 232,063
Cellpro 6,700 (b) 72,025
Cephalon 11,100 (b) 287,906
Circon 6,300 (b) 96,863
Coherent 4,400 212,300
Collagen 4,100 87,125
COR Therapeutics 9,300 (b) 126,713
Cygnus 8,500 (b) 127,500
Enzo Biochem 10,945 (b) 187,433
Fisher Scientific Intl 8,700 381,713
IDEXX Laboratories 17,700 (b) 592,950
ImmuLogic Pharmaceutical 9,100 (b) 49,481
Immune Response 8,900 (b) 73,981
Invacare 13,700 369,900
Liposome 17,400 (b) 398,025
MedImmune 10,400 (b) 165,100
Mentor 11,200 316,400
Molecular Biosystems 7,900 (b) 98,750
North American Vaccine 14,900 (b,d) 365,050
Noven Pharmaceuticals 8,900 (b) 121,263
PerSeptive Biosystems 9,900 (b) 64,350
Pharmaceutical Marketing Services 5,300 (b) 52,338
Pharmaceutical Resources 8,900 (b) 36,713
Protein Design Labs 7,300 (b) 255,500
Regeneron Pharmaceuticals 12,000 (b) 117,000
ReSound 9,200 (b) 59,800
Respironics 8,500 (b) 161,500
Roberts Pharmaceutical 9,100 (d) 129,675
Safeskin 11,800 (b) 283,200
SciClone Pharmaceuticals 8,500 (b) 71,187
SEQUUS Pharmaceuticals 13,300 (b) 177,887
SpaceLabs Medical 4,500 (b) 95,625
STERIS 15,500 (b) 463,062
Summit Technology 14,300 (b) 101,887
Sunrise Medical 8,300 (b) 128,650
Sybron Intl 21,200 (b) 654,550
Syncor Intl 4,300 (b) 54,825
Tecnol Medical Products 8,900 (b) 145,737
TheraTech 9,000 (b) 121,500
US Bioscience 10,600 (b) 153,700
Vertex Pharmaceuticals 9,900 (b) 485,100
VISX 7,200 (b) 154,800
Vital Signs 6,100 144,112
Zoll Medical 3,000 (b) 30,000
----------------------
Total 9,311,314
- --------------------------------------------------------------------------------------------------
Health care services (4.6%)
Cerner 15,000 (b) 228,750
Coventry 15,700 (b) 125,600
Express Scripts Cl A 7,500 (b) 255,000
Genesis Health Ventures 14,200 443,750
GranCare 11,100 (b) 219,225
Integrated Health Services 10,800 (d) 287,550
Lincare Holdings 13,400 (b) 506,687
Living Centers of America 9,300 (b) 269,700
Magellan Health Services 12,700 (b) 317,500
Mariner Health Group 13,200 (b) 128,700
Omnicare 35,600 983,450
Owens & Minor 14,800 151,700
Patterson Dental 9,000 (b) 262,125
PhyCor 24,800 (b) 871,100
Sierra Health Services 7,800 (b) 213,525
Universal Health Services Cl B 14,900 (b) 432,100
Vivra 18,900 (b) 576,450
----------------------
Total 6,272,912
- --------------------------------------------------------------------------------------------------
Household products (1.4%)
Nature's Sunshine Products 9,000 159,750
Paragon 5,500 (b) 129,250
Premark Intl 29,600 680,800
Scotts Cl A 8,600 (b) 179,525
Sola Intl 11,400 (b) 420,375
USA Detergents 6,500 (b,d) 237,250
Valence Technology 10,200 (b) 63,112
----------------------
Total 1,870,062
- --------------------------------------------------------------------------------------------------
Industrial equipment & services (4.1%)
AGCO 26,600 784,700
Allwaste 17,300 (b) 92,987
Arctic Cat 14,000 146,125
Astec Inds 4,400 (b) 39,600
BW/IP Holding 10,800 182,250
Clarcor 7,000 174,125
Dravo 7,100 (b) 91,412
Flow Intl 6,900 (b) 63,825
G & K Services Cl A 9,600 307,200
Global Industrial Technologies 10,400 (b) 189,800
Greenfield Inds 7,300 197,100
IMO Inds 8,200 (b) 29,725
KEMET 18,000 (b) 427,500
Kysor Industrial 2,700 99,900
Lindsay Manufacturing 3,000 154,125
LSB Inds 6,100 32,025
Lydall 7,700 (b) 179,988
Manitowoc 5,500 196,625
O'Sullivan 7,600 76,000
Regal Beloit 9,600 182,400
Rollins Environmental Services 26,500 (b) 76,188
Roper Inds 7,000 285,250
Toro 5,300 186,162
U. S. Filter 30,200 (b,d) 1,158,925
Wolverines Tube 6,300 (b) 240,188
----------------------
Total 5,594,125
- --------------------------------------------------------------------------------------------------
Industrial transportation (2.0%)
American Freightways 14,200 (b) 189,925
Arkansas Best 9,200 (b) 43,700
Expeditors Intl of Washington 10,800 233,550
Fritz 15,600 (b) 202,800
Frozen Food Express Inds 6,800 62,900
Heartland Express 13,400 (b) 334,163
Landstar System 5,800 (b) 137,750
M.S. Carriers 5,400 (b) 86,400
Offshore Logistics 9,300 (b) 199,950
RailTex 4,300 (b) 95,675
Rollins Truck Leasing 20,500 253,687
USFreightways 10,700 271,513
Wabash Natl 8,500 153,000
Werner Enterprises 16,700 300,600
Yellow 12,500 (b) 214,062
----------------------
Total 2,779,675
- --------------------------------------------------------------------------------------------------
Insurance (3.6%)
ALLIED Group 9,000 285,750
American Bankers Insurance Group 9,300 516,150
Capital Re 7,500 330,000
Compdent 4,800 (b) 146,400
Enhance Financial Services Group 7,900 290,325
Fidelity Natl Financial 6,470 85,728
First American Financial 5,100 212,925
Fremont General 12,200 366,000
Frontier Insurance Group 6,400 252,800
Gallagher (Arthur J) 7,100 213,887
Hilb, Rogal & Hamilton 6,100 82,350
Integon 7,400 102,675
Life Re 6,200 269,700
Orion Capital 6,400 403,200
Protective Life 13,700 542,863
Selective Insurance Group 6,400 262,400
Trenwick Group 3,000 150,000
Washington Natl 5,500 156,750
Zenith Natl 8,150 218,012
----------------------
Total 4,887,915
- --------------------------------------------------------------------------------------------------
Leisure time & entertainment (1.5%)
Aztar 21,300 (b) 170,400
Bell Sports 6,300 (b) 36,225
Carmike Cinemas Cl A 4,900 (b) 116,375
Casino Magic 16,300 (b) 37,694
Galoob Toys 7,700 (b) 134,750
Grand Casinos 19,800 (b) 227,700
Hollywood Park 8,200 (b) 104,550
Huffy 6,300 89,775
K2 7,600 214,700
Mail Boxes Etc. 5,200 (b) 98,150
Outboard Marine 9,200 152,950
Players Intl 13,700 (b) 77,919
RDM Sports Group 23,400 (b) 32,175
Showboat 7,700 168,437
Thor Inds 3,900 97,012
WMS Inds 10,800 (b) 256,500
----------------------
Total 2,015,312
- --------------------------------------------------------------------------------------------------
Media (1.8%)
ADVO 10,800 (b) 140,400
Catalina Marketing 8,800 (b) 490,600
GC Companies 3,700 (b) 135,513
Intl Family Entertainment Cl B 21,300 (b) 378,075
Merrill 3,800 92,625
NTN Communications 10,500 (b) 45,937
Plenum Publishing 1,800 61,650
Regal Cinemas 14,350 (b) 383,863
Thomas Nelson 7,200 99,900
True North Communications 10,600 231,875
Valassis Communications 19,200 (b) 352,800
----------------------
Total 2,413,238
- --------------------------------------------------------------------------------------------------
Metals (2.3%)
Acme Metals 5,300 (b) 95,400
Amcast Industrial 3,800 89,300
AMCOL Intl 8,600 153,725
Birmingham Steel 13,300 264,337
Castle (A.M.) 6,700 138,187
Coeur d'Alene Mines 10,300 (b) 157,075
Commercial Metals 6,700 195,138
Commonwealth Aluminum 4,500 85,500
Getchell Gold 12,100 (b) 438,625
Handy & Harman 5,700 91,912
Hecla Mining 24,200 (b) 139,150
IMCO Recycling 5,300 78,838
Material Sciences 7,200 (b) 137,700
Mueller Inds 8,100 (b) 339,187
Northwestern Steel and Wire 11,100 (b) 43,013
Pittston Burlington Group 9,900 199,238
Quanex 6,500 172,250
Steel Technologies 5,500 60,500
Stillwater Mining 9,400 (b) 166,850
WHX 12,200 (b) 105,225
----------------------
Total 3,151,150
- --------------------------------------------------------------------------------------------------
Miscellaneous (0.9%)
ABM Inds 8,600 162,325
Aquarion 3,100 86,800
BancTec 9,500 (b) 184,063
Consumers Water 3,700 67,062
Kinder Care Learning Centers 8,800 (b) 163,900
Mississippi Chemical 13,305 334,288
Philadelphia Suburban 8,700 178,350
Southern California Water 3,500 78,750
----------------------
Total 1,255,538
- --------------------------------------------------------------------------------------------------
Multi-industry conglomerates (3.3%)
Baldor Electric 12,300 315,188
CDI 8,900 (b) 273,675
Corrections Corporation of America 33,600 (b) 1,050,000
Cross (A.T.) Cl A 7,800 93,600
Cyrk Intl 4,900 (b) 57,575
DeVRY 14,200 (b) 372,750
Franklin Quest 9,700 (b) 198,850
Griffon 13,700 (b) 191,800
Interim Services 9,300 (b) 337,125
NFO Research 4,600 (b) 106,950
Norrell 11,200 312,200
Paxar 12,550 (b) 225,900
Rexel 11,900 (b) 194,862
Standex Intl 6,100 170,800
Triarc Cl A 14,000 (b) 183,750
Valmont Inds 6,100 240,950
Whittaker 5,300 (b) 62,275
Zero 5,500 121,688
----------------------
Total 4,509,938
- --------------------------------------------------------------------------------------------------
Paper & packaging (0.8%)
AptarGroup 8,500 284,750
Caraustar Inds 11,800 371,700
Mosinee Paper 4,800 177,600
Pope & Talbot 6,200 96,875
Shorewood Packaging 8,400 (b) 152,250
----------------------
Total 1,083,175
- --------------------------------------------------------------------------------------------------
Restaurants & lodging (2.0%)
Applebee's Intl 14,700 396,900
Au Bon Pain Cl A 5,500 (b) 42,625
Cheesecake Factory 5,300 (b) 114,613
CKE Restaurants 15,400 321,475
Foodmaker 18,200 (b) 175,175
IHOP 4,100 (b) 100,962
Luby's Cafeterias 11,300 230,238
Marcus 9,300 195,300
Prime Hospitality 18,200 (b) 311,675
Ruby Tuesday 8,000 143,000
Ryan's Family Steak Houses 24,200 (b) 187,550
Shoney's 23,100 (b) 173,250
Showbiz Pizza Time 7,600 (b) 145,350
Sonic 6,200 (b) 126,325
Taco Cabana Cl A 7,400 (b) 40,700
TCBY Enterprises 12,100 51,425
----------------------
Total 2,756,563
- --------------------------------------------------------------------------------------------------
Retail (5.3%)
Arbor Drugs 18,200 348,075
Baker (J) 6,600 45,375
Bombay 17,300 (b) 80,012
Books-A-Million 8,300 (b) 48,762
Carson Pirie Scott 7,200 (b) 192,600
Casey's General Stores 12,300 216,788
Cash America Intl 10,900 95,375
Cato Cl A 13,500 54,000
CompUSA 40,300 (b) 826,150
Damark Intl Cl A 3,800 (b) 38,000
Designs 7,400 (b) 44,400
Dress Barn 10,200 (b) 163,200
Eagle Hardware & Garden 13,200 252,450
Fabri-Centers of America Cl A 7,800 (b) 124,800
Filene's Basement 9,500 (b) 52,844
Gottschalks 5,000 (b) 25,625
Hechinger Cl A 18,900 (b) 38,391
Jan Bell Marketing 12,200 (b) 26,688
Justin Inds 8,400 91,350
Lechters 8,200 (b) 32,287
Lillian Vernon 4,100 53,300
Michaels Stores 10,800 (b) 141,750
Nashua 3,100 (b) 38,750
NBTY 8,600 (b) 184,900
Payless Cashways 18,300 (b) 38,888
Phillips-Van Heusen 12,800 172,800
Pier 1 Imports 20,000 370,000
Proffitts 10,300 (b) 373,375
Regis 10,800 186,300
Richfood Holdings 22,300 473,875
Ross Stores 11,300 463,300
Russ Berrie 10,200 205,275
Shopko Stores 15,100 239,712
Smith's Food & Drug Cl B 7,400 203,500
Sports & Recreation 9,100 (b) 58,013
Stein Mart 10,500 (b) 211,312
Sturm Ruger 12,700 241,300
Swiss Army Brands 3,400 (b) 43,350
The Sports Authority 14,800 (b) 259,000
Venture Stores 8,700 (b) 21,750
Whole Foods Market 9,000 (b) 163,125
Williams-Sonoma 12,000 (b) 379,500
----------------------
Total 7,320,247
- --------------------------------------------------------------------------------------------------
Textiles & apparel (2.3%)
Angelica 4,400 84,150
Ashworth 5,800 (b) 36,975
Authentic Fitness 10,600 127,200
Brown Group 7,900 130,350
Cone Mills 12,600 (b) 100,800
Delta Woodside Inds 11,600 (b) 84,100
Dixie Yarns 5,100 (b) 35,700
Fieldcrest Cannon 4,200 (b) 68,775
Galey & Lord 4,600 (b) 83,950
Guilford Mills 6,800 196,350
Haggar 3,700 56,425
Hartmarx 15,600 (b) 91,650
Johnston Inds 4,800 38,400
K-Swiss Cl A 2,800 29,050
Kellwood 9,400 209,150
Nautica Enterprises 18,100 (b) 425,350
Oshkosh B'Gosh Cl A 5,600 77,000
Oxford Inds 3,700 95,738
Pillowtex 5,000 90,000
St. John Knits 7,700 350,350
Timberland Cl A 5,100 (b) 226,312
Tultex 13,700 (b) 95,900
Wolverine World Wide 12,900 398,288
----------------------
Total 3,131,963
- --------------------------------------------------------------------------------------------------
Utilities -- electric (1.6%)
Bangor Hydro-Electric 2,900 26,825
Central Hudson Gas & Electric 7,800 244,725
Central Vermont Public Service 5,400 66,150
CILCORP 5,900 227,150
Commonwealth Energy System 9,700 236,437
Eastern Utilities Assn 9,600 181,200
Green Mountain Power 2,300 56,063
Interstate Power 4,500 132,750
Orange & Rockland Utilities 5,800 211,700
Sierra Pacific Resources 14,400 408,600
TNP Enterprises 6,300 173,250
United Illuminating 6,600 194,700
----------------------
Total 2,159,550
- --------------------------------------------------------------------------------------------------
Utilities -- gas (2.4%)
Cascade Natural Gas 4,800 76,800
Connecticut Energy 3,900 89,213
Energen 5,200 159,900
Kirby 11,100 (b) 213,675
KN Energy 14,300 555,912
New Jersey Resources 8,300 247,963
Northwest Natural Gas 9,950 248,750
Pennsylvania Enterprises 2,000 90,000
Piedmont Natural Gas 13,900 335,337
Public Service Company of North Carolina 8,700 160,950
Southwest Gas 12,200 240,950
Southwestern Energy 11,400 173,850
United Cities Gas 5,900 129,800
Washington Energy 11,000 237,875
Wicor 8,600 301,000
----------------------
Total 3,261,975
- --------------------------------------------------------------------------------------------------
Utilities -- telephone (0.4%)
CommNet Cellular 6,300 (b) 178,762
Geotek Communications 28,500 (b) 178,125
Orbital Sciences 13,800 (b) 238,050
----------------------
Total 594,937
- --------------------------------------------------------------------------------------------------
Foreign (0.4%)(c)
Cineplex Odeon 83,400 (b) 114,675
Glamis Gold, Ltd. 14,400 (b) 102,600
Mutual Risk Management 8,600 309,600
----------------------
Total 526,875
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Total common stocks
(Cost: $128,945,628) $134,597,529
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Short-term securities (4.2%)
- --------------------------------------------------------------------------------------------------
Issuer Annualized Amount Value (a)
yield on payable at
date of maturity
purchase
- --------------------------------------------------------------------------------------------------
U.S. government agency (2.3%)
Federal Home Loan Mtge Corp Disc Nts
02-03-97 5.48% $ 1,800,000 $ 1,799,452
02-19-97 5.25 1,300,000 1,296,601
----------------------
Total 3,096,053
- --------------------------------------------------------------------------------------------------
Commercial paper (1.9%)
Becton & Co
02-06-97 5.33 1,300,000 1,299,037
Consolidated Natural Gas
02-20-97 5.31 1,400,000 1,396,084
----------------------
Total 2,695,121
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Total short-term securities
(Cost: $5,791,174) $ 5,791,174
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Total investment in securities
(Cost: $134,736,802) (e) $140,388,703
- --------------------------------------------------------------------------------------------------
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars.
(d) Security is partially or fully on loan. See Note 4 to the financial statements.
(e) At Jan. 31, 1997, the cost of securities for federal income tax purposes was $134,749,938
and the aggregate gross unrealized appreciation and depreciation based on that cost was:
Unrealized appreciation.............................................................$10,097,411
Unrealized depreciation.............................................................($4,458,646)
Net unrealized appreciation.........................................................$ 5,638,765
</TABLE>
<PAGE>
Financial statements
Statement of assets and liabilities
IDS Small Company Index Fund
Feb. 28, 1997
Assets
Investments in securities, at value
(identified cost $153,257,131) $155,287,104
Cash in bank on demand deposit 2,036,088
Dividends and accrued interest receivable 77,420
Receivable for investment securities sold 1,918,752
Expense receivable from AEFC 3,374
Organizational cost 110
------------
Total assets $159,322,848
Liabilities
Payable for investment securities purchased 3,293,439
Payable upon return of securities loaned 2,820,100
Accrued investment management services fee 1,579
Accrued distribution fee 1,002
Accrued service fee 727
Accrued transfer agency fee 1,124
Accrued administrative services fee 416
Other accrued expenses 93,728
------------
Total liabilities 6,212,115
------------
Net assets applicable to outstanding capital stock $153,110,733
-------------
Represented by
Capital stock -- of $.01 par value $ 284,397
Additional paid-in capital 150,308,530
Net investment loss (3,579)
Accumulated net realized gain 491,412
Unrealized appreciation of investments 2,029,973
------------
Total -- representing net assets applicable to
outstanding capital stock $153,110,733
------------
Net assets applicable to outstanding shares: Class A $103,705,657
Class B $ 49,379,510
Class Y $ 25,566
Net asset value per share of outstanding capital stock:
Class A shares 19,246,190 $ 5.39
Class B shares 9,188,766 $ 5.37
Class Y shares 4,707 $ 5.43
<PAGE>
Statement of operations
IDS Small Company Index Fund
One month ended Feb. 28, 1997
Investment income
Income:
Dividends $ 113,996
Interest 18,113
-------------
Total income 132,109
-------------
Expenses:
Investment management services fee 41,583
Distribution fee -- Class B 25,714
Transfer agency fee 28,440
Incremental transfer agency fee -- Class B 686
Service fee
Class A 13,149
Class B 6,000
Administrative services fees and expenses 10,943
Custodian fees 9,324
Postage 5,600
Registration fees 5,528
Reports to shareholders 506
Audit fees 182
Administrative 312
------------
Total expenses 147,967
Expenses voluntarily reimbursed by AEFC (11,533)
------------
136,434
Earnings credits on cash balances (746)
------------
Total net expenses 135,688
------------
Investment loss -- net (3,579)
------------
Realized and unrealized gain (loss) -- net
Net realized gain on security transactions 257,610
Net change in unrealized appreciation or depreciation (3,621,928)
-----------
Net gain on investments (3,3645,318)
-----------
Net increase in net assets resulting from operations $ (3,367,897)
-----------
<PAGE>
Financial statements
Statements of changes in net assets
IDS Small Company Index Fund
One month ended Feb. 28, 1997
Operations
Investment loss -- net $ (3,579)
Net realized gain on investments 257,610
Net change in unrealized appreciation or depreciation (3,621,928)
-----------
Net increase in net assets resulting from operations (3,367,897)
-----------
Capital share transactions
Proceeds from sales
Class A shares 16,489,845
Class B shares 9,081,569
Class Y shares 25,643
Payments for redemptions
Class A shares (5,699,264)
Class B shares (271,698)
Class Y shares (1,109)
-----------
Increase in net assets from capital share transactions 19,624,986
-----------
Total increase in net assets 16,257,089
Net assets at beginning of period 136,853,644
-----------
Net assets at end of period $153,110,733
-----------
<PAGE>
PAGE 129
Part C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS:
Financial statements filed as part of this post-effective
amendment:
For IDS Blue Chip Advantage Fund
o Independent Auditors' Report dated March 7, 1997
o Statement of Assets and Liabilities, January 31, 1997
o Statement of Operations, Year ended January 31, 1997
o Statements of Changes in Net Assets, for the year ended
January 31, 1996 and January 31, 1997
o Notes to Financial Statements
o Investments in Securities, January 31, 1997
o Notes to investment in securities
For IDS Small Company Index Fund
o Independent Auditors' Report dated March 7, 1997
o Statement of Assets and Liabilities, Jan. 31, 1997
o Statement of Operations for the period from Aug. 19, 1996
to Jan. 31, 1997
o Statements of Changes in Net Assets, for the period from
Aug. 19, 1996 to Jan. 31, 1997
o Notes to Financial Statements
o Investments in Securities, Jan. 31, 1997
o Notes to investment in securities
o Statement of assets and liabilities, Feb. 28, 1997
o Statement of operations, one month ended Feb. 28, 1997
o Statements of changes in net assets, one month ended Feb.
28, 1997
(b) EXHIBITS:
1. Articles of Incorporation as amended on Jan. 16, 1990,
filed as exhibit 1 to Registration Statement No. 33-30770
are incorporated by reference.
2. By-laws, filed as Exhibit 2 to Pre-Effective Amendment
No. 3 to Registration Statement No. 33-30770 are
incorporated by reference.
3. Not Applicable.
4. Not Applicable.
5. Investment Management and Services Agreement between
Registrant on behalf of IDS Blue Chip Advantage Fund and
American Express Financial Corporation, dated March 20,
1995, filed electronically as Exhibit 5 to Registrant's
Post-Effective Amendment No. 13 to Registration Statement
No. 33-30770 is incorporated by reference.
<PAGE>
PAGE 130
Investment Management Services Agreement between
Registrant on behalf of the IDS Small Company Index Fund
and American Express Financial Corporation, dated August
19, 1996, filed electronically as Exhibit 5 to
Registrant's Post-Effective Amendment No. 17 to
Registration Statement No. 33-30770 is incorporated by
reference.
6. Distribution Agreement between Registrant on behalf of
IDS Blue Chip Advantage Fund and American Express
Financial Advisors Inc., dated March 20, 1995, filed
electronically as Exhibit 6 to Registrant's Post-
Effective Amendment No. 13 to Registration Statement No.
33-30770 is incorporated by reference.
Distribution Agreement between Registrant on behalf of
IDS Small Company Index Fund and American Express
Financial Advisors Inc., dated August 19, 1996, filed
electronically as Exhibit 6 to Post-Effective Amendment
No. 16 to Registration Statement No. 33-30770, is
incorporated 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, on behalf of IDS
Blue Chip Advantage Fund and American Express Trust
Company, dated March 20, 1995, filed electronically as
Exhibit 8 to Post-Effective Amendment No. 13 to
Registration Statement No. 33-30770 is incorporated by
reference.
Custodian Agreement between Registrant on behalf of IDS
Small Company Index Fund and American Express Trust
Company, dated August 19, 1996, filed electronically as
Exhibit 8(a) to Post-Effective Amendment No. 16 to
Registration Statement No. 33-30770 is incorporated by
reference.
8(b). Custody Agreement between Morgan Stanley Trust Company
and IDS Bank & Trust, dated May, 1993 filed
electronically as Exhibit 8(b) to Registrant's Post-
Effective Amendment No. 14 to Registration Statement No.
33-30770 is incorporated by reference.
9(a). Transfer Agency Agreement between Registrant on behalf of
IDS Blue Chip Advantage Fund and American Express
Financial Corporation, dated March 20, 1995, filed
electronically as Exhibit 9(a) to Registrant's Post-
Effective Amendment No. 13 to Registration Statement No.
33-30770 is incorporated by reference.
<PAGE>
PAGE 131
Transfer Agency Agreement between Registrant on behalf of
IDS Small Company Index Fund and American Express
Financial Corporation, dated August 19, 1996, filed
electronically as Exhibit 9(a) to Registrant's Post-
Effective Amendment No. 16 to Registration Statement No.
33-30770 is incorporated by reference.
9(b). Shareholder Service Agreement between Registrant on
behalf of IDS Blue Chip Advantage Fund and American
Express Financial Advisors Inc., dated March 20, 1995,
filed electronically as Exhibit 9(b) to Registrant's
Post-Effective Amendment No. 13 to Registration Statement
No. 33-30770 is incorporated by reference.
Shareholder Service Agreement between Registrant on
behalf of IDS Small Company Index Fund and American
Express Financial Advisors Inc., dated August 19, 1996,
filed electronically as Exhibit 9(b) to Registrant's
Post-Effective Amendment No. 16 to Registration Statement
No. 33-30770 is incorporated by reference.
9(c). Administrative Services Agreement between Registrant on
behalf of IDS Blue Chip Advantage Fund and American
Express Financial Corporation, dated March 20, 1995,
filed electronically as Exhibit 9(c) to Registrant's
Post-Effective Amendment No. 13 to Registration Statement
No. 33-30770 is incorporated by reference.
Administrative Services Agreement between Registrant on
behalf of IDS Small Company Index Fund and American
Express Financial Corporation, dated August 19, 1996,
filed electronically as Exhibit 9(d) to Registrant's
Post-Effective Amendment No. 17 to Registration Statement
No. 33-30770 is incorporated by reference.
9(d). License Agreement between Registrant on behalf of IDS
Small Company Index Fund, and American Express Financial
Corporation, dated August 19, 1996, filed electronically
as Exhibit 9(c) to Post-Effective Amendment No. 16 to
Registration Statement No. 33-30770, is incorporated by
reference.
10. Opinion and consent of counsel as to the legality of the
securities being registered is filed with Registrant's
most recent 24f-2 Notice.
11. Independent Auditor's Consent is filed electronically
herewith.
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 by reference.
<PAGE>
PAGE 132
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 by
reference.
15. Plan and Agreement of Distribution between Registrant on
behalf of IDS Blue Chip Advantage Fund and American
Express Financial Advisors Inc., dated March 20, 1995,
filed electronically as Exhibit 15 to Registrant's Post-
Effective Amendment No. 13 to Registration Statement No.
33-30770 is incorporated by reference.
Plan and Agreement of Distribution between Registrant on
behalf of IDS Small Company Index Fund and American
Express Financial Advisors Inc., dated August 19, 1996,
filed electronically as Exhibit 15 to Registrant's Post-
Effective Amendment No. 16 to Registration Statement No.
33-30770 is incorporated 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 by reference.
17. Financial Data Schedule is filed electronically herewith.
18. Copy of plan pursuant to Rule 18f-3 under the 1940 Act
for IDS Blue Chip Advantage Fund filed electronically as
Exhibit 18 to Registrant's Post-Effective Amendment No.
14 to Registration Statement No. 33-30770 is incorporated
herein by reference.
Copy of plan pursuant to Rule 18f-3 under the 1940 Act
for IDS Small Company Index Fund filed electronically as
Exhibit 18 to Registrant's Post-Effective Amendment No.
16 to Registration Statement No. 33-30770 is incorporated
by reference.
19(a). Directors' Power of Attorney to sign amendments to this
Registration Statement, dated January 8, 1997 is filed
electronically herewith.
19(b). Officers' Power of Attorney to sign amendments to this
Registration Statement, dated November 1, 1995, filed as
Exhibit 19(b) with Registrant's Post-Effective Amendment
No. 16 to Registration Statement No. 33-30770, is
incorporated by reference.
Item 25. Persons Controlled by or Under Common Control with
Registrant
None.
<PAGE>
PAGE 133
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Holders as of
Title of Class March 21, 1997
IDS Blue Chip Advantage Fund
Common Stock
Class A 65,992
Class B 38,123
Class Y 9,706
IDS Small Company Index Fund
Common Stock
Class A 18,826
Class B 10,904
Class Y 9
Item 27. Indemnification
The Articles of Incorporation of the registrant provide that the
Fund shall indemnify any person who was or is a party or is
threatened to be made a party, by reason of the fact that she or he
is or was a director, officer, employee or agent of the Fund, or is
or was serving at the request of the Fund as a director, officer,
employee or agent of another company, partnership, joint venture,
trust or other enterprise, to any threatened, pending or completed
action, suit or proceeding, wherever brought, and the Fund may
purchase liability insurance and advance legal expenses, all to the
fullest extent permitted by the laws of the State of Minnesota, as
now existing or hereafter amended. The By-laws of the registrant
provide that present or former directors or officers of the Fund
made or threatened to be made a party to or involved (including as
a witness) in an actual or threatened action, suit or proceeding
shall be indemnified by the Fund to the full extent authorized by
the Minnesota Business Corporation Act, all as more fully set forth
in the By-laws filed as an exhibit to this registration statement.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
<PAGE>
PAGE 134
Any indemnification hereunder shall not be exclusive of any other
rights of indemnification to which the directors, officers,
employees or agents might otherwise be entitled. No
indemnification shall be made in violation of the Investment
Company Act of 1940.
<PAGE>
<PAGE>
PAGE 1<PAGE>
Item 29(c). Not applicable.
Item 30. Location of Accounts and Records
American Express Financial Corporation
IDS Tower 10
Minneapolis, MN 55440
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) Not Applicable.
(b) Not Applicable.
(c) The Registrant undertakes to furnish each person
to whom a prospectus is delivered with a copy of
the Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE>
PAGE 135
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. certifies that it meets the requirements for
the effectiveness of this Amendment to its Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1993, and has
duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Minneapolis and State of Minnesota on the 27th day
of March, 1997.
IDS MARKET ADVANTAGE SERIES, INC.
by /s/ Melinda S. Urion
Melinda S. Urion, Treasurer
by /s/ William R. Pearce**
William R. Pearce, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following
persons in the capacities indicated on the 27th day of March, 1997.
Signatures Capacity
/s/ William R. Pearce** President, Principal
William R. Pearce Executive Officer and
Director
/s/ H. Brewster Atwater, Jr. Director
H. Brewster Atwater, Jr.
/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
<PAGE>
PAGE 136
Signatures Capacity
/s/ Anne P. Jones* Director
Anne P. Jones
/s/ Melvin R. Laird* Director
Melvin R. Laird
/s/ Alan K. Simpson Director
Alan K. Simpson
/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 January 8,
1997, filed electronically herewith as Exhibit 19(a), by:
Leslie L. Ogg
**Signed pursuant to Officers' Power of Attorney dated November 1,
1995, filed as Exhibit 19(b), to Registrant's Post-Effective
Amendment No. 16 to Registration Statement No. 33-30770, by:
Leslie L. Ogg
<PAGE>
PAGE 137
CONTENTS OF THIS
POST-EFFECTIVE AMENDMENT NO. 18
TO REGISTRATION STATEMENT NO. 33-30770
This post-effective amendment comprises the following papers and
documents:
The facing sheet.
Cross reference sheet.
Part A.
Prospectus for IDS Blue Chip Advantage Fund.
Prospectus for IDS Small Company Index Fund.
Part B.
Statement of Additional Information for IDS Blue Chip
Advantage Fund.
Statement of Additional Information for IDS Small Company
Index Fund.
Financial Statements.
Part C.
Other information.
The signatures.
<PAGE>
PAGE 1
IDS Market Advantage Series, Inc.
File No. 33-30770/811-5897
EXHIBIT INDEX
Exhibit 11: Independent Auditor's Consent
Exhibit 17: Financial Data Schedule
Exhibit 19(a): Directors' Power of Attorney dated January 8, 1997
<PAGE>
PAGE 1
INDEPENDENT AUDITORS' CONSENT
___________________________________________________________________
The board and shareholders
IDS Market Advantage Series, Inc.:
We consent to the use of our report incorporated herein by
reference and to the references to our Firm under the headings
"Financial Highlights" in Part A and "INDEPENDENT AUDITORS" in Part
B of the Registration Statement.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March , 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> IDS BLUE CHIP ADVANTAGE FUND CLASS A
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<INVESTMENTS-AT-COST> 995278440
<INVESTMENTS-AT-VALUE> 1103963967
<RECEIVABLES> 19784399
<ASSETS-OTHER> 801403
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1124549769
<PAYABLE-FOR-SECURITIES> 58163221
<SENIOR-LONG-TERM-DEBT> 0
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<TABLE> <S> <C>
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<NAME> IDS BLUE CHIP ADVANTAGE FUND CLASS B
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
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<NAME> IDS BLUE CHIP ADVANTAGE FUND CLASS Y
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
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<NUMBER> 1
<NAME> IDS SMALL COMPANY INDEX FUND CLASS A
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<ARTICLE> 6
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<NAME> IDS SMALL COMPANY INDEX FUND CLASS B
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<NAME> IDS SMALL COMPANY INDEX FUND CLASS Y
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<PAGE>
PAGE 1
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
<PAGE>
PAGE 2
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 8th day of January, 1997.
/s/ H. Brewster Atwater, Jr. /s/ Melvin R. Laird
H. Brewster Atwater, Jr. Melvin R. Laird
/s/ Lynne V. Cheney /s/ William R. Pearce
Lynne V. Cheney William R. Pearce
/s/ William H. Dudley /s/ Alan K. Simpson
William H. Dudley Alan K. Simpson
/s/ Robert F. Froehlke /s/ Edson W. Spencer
Robert F. Froehlke Edson W. Spencer
/s/ David R. Hubers /s/ John R. Thomas
David R. Hubers John R. Thomas
/s/ Heinz F. Hutter /s/ Wheelock Whitney
Heinz F. Hutter Wheelock Whitney
/s/ Anne P. Jones /s/ C. Angus Wurtele
Anne P. Jones C. Angus Wurtele
