1997 SEMIANNUAL REPORT
IDS
Blue Chip
Advantage
Fund
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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 includedin a broad market
index.
American Express Financial Advisors
Distributed by American Express Financial Advisors Inc.
<PAGE>
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Making the most of the market
If you were compiling a who's who of corporate America, a good place to start
would be the Standard & Poor's Index. Composed of 500 stocks representing a wide
range of prominent companies, "the S&P" is recognized as a good measure of
overall stock market performance. Of course, some of those stocks will fare
better than others. Blue Chip Advantage tries to identify and build its
portfolioaround these stocks. Objective: a fund that's like the S&P...only
better.
Contents
From the president 3
From the portfolio manager 3
The Fund's ten largest holdings 5
Financial statements 6
Notes to financial statements 9
Investments in securities 24
Board members and officers 27
IDS mutual funds 28
<PAGE>
To our shareholders
From the president
If you're an experienced investor, you know that the past two years have
been unusually strong ones in many financial markets. Perhaps just as
important, you also know that history shows that bull markets don't last
forever. Though they're often unpredictable, declines -- whether they're
brief or long-lasting, moderate or substantial -- are always a
possibility.
That fact reinforces the need for investors to periodically review their
long-term goals and examine whether their investment program remains on
track to achieving them. Your quarterly investment statements are one part
of that monitoring process. The other is a meeting with your American
Express financial advisor. That becomes even more important if there's a
major change in your financial situation or in the financial markets.
William R. Pearce
(picture of) William Pearce
William R. Pearce
President of the Fund
<PAGE>
From the portfolio manager
A mostly buoyant stock market, particularly for blue-chip issues, resulted
in an exceptional gain for IDS Blue Chip Advantage Fund during the first
half of the fiscal year. Despite a market sell-off early last spring, for
the February through July 1997 period the Fund's Class A shares generated
a total return of 21.0%.
For an investor, it doesn't get much better than the past six months in
the U.S. stock market. The inflation rate stayed low; corporate profits
remained healthy; the economy continued to chug along; and, for the most
part, long-term interest rates stayed within a comfortable range.
Start, slump, surge
Against that backdrop, stocks had good reason to head higher, and they did
at the outset of the period. The solid start soon turned into a stumble,
however, as a heightened fear of increasing inflation spawned a rise in
long-term interest rates. But it wasn't long before the inflation concern
subsided, at which point the market righted itself and went on to rack up
four straight months of impressive gains to end the period. In fact, the
second quarter (April through June) was the market's strongest since 1991.
The Fund's performance essentially followed suit with the broad market -
rising early in the period, slumping for several weeks, then staging a
powerful comeback over the final four months. The biggest contributor to
the Fund's overall gain was the so-called "consumer staple" area, which
includes stocks of health care, food, beverage, tobacco and
leisure/entertainment companies and constituted nearly one third of the
Fund's assets. Among the top performers were Coca-Cola, Merck, General
Electric and Johnson & Johnson. The technology sector, another substantial
area of investment for the Fund, suffered a sharp sell-off in the early
spring, but came back strongly. Stocks such as Dell Computer, Cisco
Systems, Microsoft, Compaq, Airtouch and Worldcom were especially
productive. The third-largest area of investment was financial services,
with NationsBank and BankBoston leading the gainers for the Fund. Although
modest in terms of investment exposure, holdings in the industrial sector
also paid off nicely, highlighted by Boeing and Northrop Grumann.
Emphasis on growth
The underlying theme in the stock selections was earnings growth --
emphasizing those companies that appeared most likely to generate
well-above-average growth. As it has for some time, the market again
rewarded stocks of companies able to fulfill that promise.
As we enter the second half of the fiscal year, the investment environment
continues to benefit from low inflation, moderate economic growth, low
long-term interest rates and generally good corporate profits. That's
encouraging. But, like all good things, this perfect world also will come
to an end at some point, and the stock market will stall out and, perhaps,
retreat. While I can't predict when that will happen, I can tell you that
it's a normal part of investing and that I expect it will prove to be only
a temporary interruption in what I believe is still a long-term positive
trend for the stock market.
Guru Baliga
(picture of) Guru Baliga
Guru Baliga
Portfolio manager
<PAGE>
To our shareholders
Class A
6-month performance
(All figures per share)
Net asset value (NAV)
July 31, 1997 $ 10.80
Jan. 31, 1997 $ 8.97
Increase $ 1.83
Distributions
Feb. 1, 1997- July 31, 1997
From income $ 0.05
From capital gains $ --
Total distributions $ 0.05
Total return* +21.0%**
Class B
6-month performance
(All figures per share)
Net asset value (NAV)
July 31, 1997 $ 10.74
Jan. 31, 1997 $ 8.92
Increase $ 1.82
Distributions
Feb. 1, 1997- July 31, 1997
From income $ 0.02
From capital gains $ --
Total distributions $ 0.02
Total return* +20.5%**
Class Y
6-month performance
(All figures per share)
Net asset value (NAV)
July 31, 1997 $ 10.80
Jan. 31, 1997 $ 8.97
Increase $ 1.83
Distributions
Feb. 1, 1997- July 31, 1997
From income $ 0.06
From capital gains $ --
Total distributions $ 0.06
Total return* +21.1%**
*The prospectus discusses the effect of sales charges, if any, on the
various classes.
**The total return is a hypothetical investment in the Fund with all
distributions reinvested.
<PAGE>
The Fund's ten largest holdings
Percent Value
(of Fund's net assets) (as of July 31, 1997)
General Electric 2.80% $47,095,812
Coca-Cola 2.54 42,727,250
NationsBank 2.00 33,757,113
Merck 1.94 32,625,981
Microsoft 1.85 31,101,700
Philip Morris 1.67 28,203,125
KeyCorp 1.65 27,866,219
Intel 1.64 27,543,750
Gillette 1.63 27,413,100
Johnson & Johnson 1.62 27,211,869
(icon of) pie chart
The ten holdings listed here make up 19.34% of the Fund's net assets
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
IDS Blue Chip Advantage Fund
July 31, 1997
Assets
(Unaudited)
Investments in securities, at value (Note 1)
<S> <C>
(identified cost $1,392,135,623) $1,685,801,196
Dividends receivable 1,688,920
Receivable for investment securities sold 5,953,659
---------
Total assets $1,693,443,775
--------------
Liabilities
Disbursements in excess of cash on demand deposit 121,513
Payable for investment securities purchased 10,326,514
Accrued investment management services fee 17,206
Accrued distribution fee 10,274
Accrued service fee 7,688
Accrued transfer agency fee 1,149
Accrued administrative services fee 1,254
Other accrued expenses 84,480
------
Total liabilities 10,570,078
----------
Net assets applicable to outstanding capital stock $1,682,873,697
==============
Represented by
Capital stock-- $.01 par value $ 1,561,041
Additional paid-in capital 1,250,711,027
Undistributed (excess of distributions over) net investment income 1,178,184
Accumulated net realized gain (loss) (Note 1) 128,052,258
Unrealized appreciation (depreciation) on investments (Note 4) 301,371,187
- -----------
Total representing net assets applicable to outstanding capital stock $1,682,873,697
==============
Net assets applicable to outstanding shares: Class A $1,037,989,305
Class B $ 506,499,987
Class Y $ 138,384,405
Net asset value per share of outstanding capital stock: Class A shares 96,122,826 $ 10.80
Class B shares 47,172,132 $ 10.74
Class Y shares 12,809,119 $ 10.80
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
IDS Blue Chip Advantage Fund
Six months ended July 31, 1997
Investment income
(Unaudited)
Income:
<S> <C>
Dividends $ 10,472,910
Interest 2,825,028
Less: Foreign taxes withheld (99,356)
-------
Total income 13,198,582
----------
Expenses (Note 2):
Investment management services fee 2,510,706
Distribution fee -- Class B 1,423,262
Transfer agency fee 917,083
Incremental transfer agency fee-- Class B 20,608
Service fee
Class A 706,603
Class B 331,093
Class Y 27,979
Administrative services fees and expenses 196,557
Compensation of board members 8,780
Custodian fees 54,961
Postage 94,729
Registration fees 218,384
Reports to shareholders 39,446
Audit fees 10,750
------
Total expenses 6,560,941
Earnings credits on cash balances (Note 2) (22,578)
-------
Total net expenses 6,538,363
---------
Investment income (loss)-- net 6,660,219
---------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 64,980,078
Financial futures contracts (Note 4) 8,482,454
---------
Net realized gain (loss) on investments 73,462,532
Net change in unrealized appreciation (depreciation) on investments 192,264,760
-----------
Net gain (loss) on investments 265,727,292
-----------
Net increase (decrease) in net assets resulting from operations $272,387,511
============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statements of changes in net assets
IDS Blue Chip Advantage Fund
Operations and distributions July 31, 1997 Jan. 31, 1997
Six months ended Year ended
(Unaudited)
<S> <C> <C>
Investment income (loss)-- net $ 6,660,219 $ 6,185,148
Net realized gain (loss) on investments 73,462,532 77,840,591
Net change in unrealized appreciation (depreciation) on investments 192,264,760 67,091,179
----------- ----------
Net increase (decrease) in net assets resulting from operations 272,387,511 151,116,918
----------- -----------
Distributions to shareholders from:
Net investment income
Class A (4,354,417) (4,932,940)
Class B (772,478) (792,370)
Class Y (599,595) (499,317)
Net realized gain
Class A -- (23,865,453)
Class B -- (10,006,369)
Class Y -- (1,978,241)
----------
Total distributions (5,726,490) (42,074,690)
---------- -----------
Capital share transactions (Note 5)
Proceeds from sales
Class A shares (Note 2) 405,164,737 512,364,398
Class B shares 146,436,616 235,221,663
Class Y shares 57,562,534 52,505,648
Reinvestment of distributions at net asset value
Class A shares 4,165,406 27,946,936
Class B shares 766,697 10,736,585
Class Y shares 599,595 2,477,558
Payments for redemptions
Class A shares (223,511,703) (175,913,305)
Class B shares (Note 2) (21,737,863) (11,636,869)
Class Y shares (19,294,241) (13,337,249)
----------- -----------
Increase (decrease) in net assets from capital share transactions 350,151,778 640,365,365
----------- -----------
Total increase (decrease) in net assets 616,812,799 749,407,593
Net assets at beginning of period 1,066,060,898 316,653,305
------------- -----------
Net assets at end of period $1,682,873,697 $1,066,060,898
============== ==============
Undistributed (excess of distributions over) net investment income $ 1,178,184 $ 244,455
-------------- --------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
IDS Blue Chip Advantage Fund
(Unaudited as to July 31, 1997)
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 and such shares automatically convert to
Class A during the ninth calendar year of ownership. 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 financial 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 Corporation (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 its Administrative Services Agreement, the Fund pays AEFC a fee 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 service expenses paid by the Fund are
office expenses, consultants' 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 and 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 and commencing on May 9,
1997, the fee is calculated at a rate of 0.10% of the Fund's average daily
net assets attributable to Class Y shares.
Sales charges received by American Express Financial Advisors Inc. for
distributing Fund shares were $3,620,843 for Class A and $116,552 for
Class B for the six months ended July 31, 1997. The Fund also pays
custodian fees to American Express Trust Company, an affiliate of AEFC.
During the six months ended July 31, 1997, the Fund's custodian and
transfer agency fees were reduced by $22,578 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 $971,386,933 and $668,378,685,
respectively, for the six months ended July 31, 1997. Realized gains and
losses are determined on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $116,616
for the six months ended July 31, 1997.
4
Financial futures
contracts
Investments in securities at July 31, 1997, included securities valued at
$23,543,019 that were pledged as collateral to cover initial margin
deposits on 272 purchase contracts. The market value of the open contracts
at July 31, 1997 was $130,281,200 with a net unrealized gain of
$7,705,614.
5
Capital share
transactions
Transactions in shares of capital stock for the periods indicated are as
follows:
Six months ended July 31, 1997
Class A Class B Class Y
Sold 42,731,277 15,496,909 6,206,327
Issued for reinvested 437,192 79,802 62,620
distributions
Redeemed (23,639,495) (2,266,257) (2,010,699)
----------- ---------- ----------
Net increase (decrease) 19,528,974 13,310,454 4,258,248
---------- ---------- ---------
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 (decrease) 44,098,237 28,386,554 4,926,344
---------- ---------- ---------
<PAGE>
<TABLE>
<CAPTION>
Notes to financial statements
IDS Blue Chip Advantage Fund
6
Financial
highlights
The tables below show certain important financial information for
evaluating the Fund's results.
Fiscal period ended Jan. 31,
Per share income and capital changesa
Class A
1997h 1997 1996 1995 1994 1993 1992 1991b
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $8.97 $7.62 $5.97 $6.58 $6.20 $5.96 $5.25 $5.00
beginning of period
Income from investment operations:
Net investment income (loss) .06 .09 .11 .11 .10 .10 .12 .10
Net gains (losses) 1.82 1.69 2.18 (.13) .79 .50 .96 .25
(both realized
and unrealized)
Total from investment 1.88 1.78 2.29 (.02) .89 .60 1.08 .35
operations
Less distributions:
Dividends from net (.05) (.09) (.11) (.11) (.10) (.09) (.12) (.10)
investment income
Distributions from -- (.34) (.53) (.48) (.41) (.27) (.25) --
realized gains
Total distributions (.05) (.43) (.64) (.59) (.51) (.36) (.37) (.10)
Net asset value, $10.80 $8.97 $7.62 $5.97 $6.58 $6.20 $5.96 $5.25
end of period
Ratios/supplemental data
Class A
1997h 1997 1996 1995 1994 1993 1992 1991b
Net assets, end of period $1,038 $687 $247 $151 $148 $124 $85 $36
(in millions)
Ratio of expenses to .80%e .89% .96% .89% 1.03% 1.10% 1.11%c .85%c
average daily net assetsd
Ratio of net income (loss) 1.24%e 1.18% 1.68% 1.77% 1.59% 1.63% 2.01%c 2.93%c,e
to average daily net assets
Portfolio turnover rate 55% 128% 126% 122% 156% 202% 154% 103%
(excluding short-term
securities)
Total returnf 21.0% 23.8% 39.0% (0.2%) 14.7% 10.2% 21.2% 7.0%
Average brokerage
commission rateg $.0521 $.0388 $-- $-- $ -- $-- $-- $--
aFor a share outstanding throughout the period. Rounded to the nearest
cent.
bInception date. Period from March 5, 1990 to Jan. 31, 1991.
cDuring 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.
dEffective fiscal year 1996, expense ratio is based on total expenses of
the Fund before reduction of earnings credits on cash balances.
e Adjusted to an annual basis.
fTotal return does not reflect payment of a sales charge.
g Effective fiscal year 1997, the Fund is required to disclose an average
brokerage commission rate per share for security trades on which
commissions are charged. The comparability of this information may be
affected by the fact that commission rates per share vary significantly
among foreign countries.
hSix months ended July 31, 1997 (Unaudited).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Blue Chip Advantage Fund
Fiscal period ended Jan. 31,
Per share income and capital changesa
Class B Class Y
1997g 1997 1996b 1997g 1997 1996b
Net asset value,
<S> <C> <C> <C> <C> <C> <C>
beginning of period $8.92 $7.59 $6.30 $8.97 $7.62 $6.30
Income from investment operations:
Net investment income (loss) .02 .04 .07 .06 .10 .11
Net gains (losses) (both
realized and unrealized) 1.82 1.67 1.83 1.83 1.69 1.86
Total from investment operations 1.84 1.71 1.90 1.89 1.79 1.97
Less distributions:
Dividends from net investment income (.02) (.04) (.08) (.06) (.10) (.12)
Distributions from realized gains -- (.34) (.53) -- (.34) (.53)
Total distributions (.02) (.38) (.61) (.06) (.44) (.65)
Net asset value,
end of period $10.74 $8.92 $7.59 $10.80 $8.97 $7.62
Ratios/supplemental data
Class B Class Y
1997g 1997 1996b 1997g 1997 1996b
Net assets, end of
period (in millions) $506 $302 $42 $138 $77 $28
Ratio of expenses to
average daily net assetsc 1.56%d 1.65% 1.74%d .68%d .72% .80%d
Ratio of net income (loss) to
average daily net assets .48%d .39% .81%d 1.37%d 1.33% 1.75%d
Portfolio turnover rate
(excluding short-term securities) 55% 128% 126% 55% 128% 126%
Total returne 20.5% 22.9% 30.3% 21.1% 24.0% 31.3%
Average brokerage commission rate $.0521 $.0388 $-- $.0521 $.0388 $--
aFor a share outstanding throughout the period. Rounded to the nearest
cent.
bInception date was March 20, 1995.
cEffective fiscal year 1996, expense ratio is based on total expense of
the Fund before reduction of earnings credits on cash balances.
dAdjusted to an annual basis.
eTotal return does not reflect payment of a sales charge.
fEffective fiscal year 1997, the Fund is required to disclose an average
brokerage commission rate per share for security trades on which
commissions are charged. The comparability of this information may be
affected by the fact that commission rates per share vary significantly
among foreign countries.
gSix months ended July 31, 1997 (Unaudited).
</TABLE>
<PAGE>
Investments in securities
IDS Blue Chip Advantage Fund (Percentages represent
July 31, 1997 (Unaudited) value of investments
compared to net assets)
Common stocks (91.9%)
Issuer Shares Value(a)
Aerospace & defense (4.0%)
Boeing 251,344(d)$ 14,782,169
Lockheed Martin 125,000 13,312,500
Northrop Grumman 100,000 11,512,500
Raytheon 92,600 5,174,025
Rockwell Intl 256,500 16,832,813
United Technologies 57,500 4,862,344
Total 66,476,351
Airlines (0.6%)
AMR 101,600(b) 10,928,350
Automotive & related (2.0%)
Chrysler 385,600(d) 14,315,400
Dana 80,000 3,635,000
Ford Motor 247,600 10,120,650
General Motors 97,200 6,014,250
Total 34,085,300
Banks and savings & loans (8.8%)
BankBoston 284,800 24,190,200
BankAmerica 175,000 13,212,500
Citicorp 107,700 14,620,275
First Union 91,700 9,301,819
KeyCorp 448,100 27,866,219
Mellon Bank 99,600 5,023,575
NationsBank 474,200 33,757,113
Norwest 124,000 7,819,750
Washington Mutual 188,000 12,995,500
Total 148,786,951
Beverages & tobacco (4.2%)
Coca-Cola 617,000 42,727,250
Philip Morris 625,000 28,203,125
Total 70,930,375
Building materials & construction (1.2%)
Masco 70,000 3,281,250
Sherwin-Williams 100,000 3,206,250
Tyco Intl 171,900 13,923,900
Total 20,411,400
Chemicals (1.6%)
duPont (EI) deNemours 275,000 18,407,812
Engelhard 167,700 3,605,550
Monsanto 50,000 2,490,625
Praxair 50,000 2,756,250
Total 27,260,237
Communications equipment & services (1.3%)
Motorola 214,000 17,186,875
Tellabs 65,800(b) 3,939,775
Total 21,126,650
Computers & office equipment (8.8%)
Automatic Data Processing 25,000 $ 1,237,500
Cisco Systems 115,000(b) 9,149,687
Compaq Computer 107,000(b) 6,112,375
Computer Associates Intl 170,675 11,616,567
Computer Sciences 25,000(b) 2,035,937
Dell Computer 80,800(b) 6,908,400
First Data 377,500 16,468,438
Hewlett-Packard 229,100 16,051,319
Intl Business Machines 198,000 20,938,500
Microsoft 219,800(b) 31,101,700
Oracle 272,850(b) 14,853,272
Parametric Technology 80,000(b) 3,920,000
Seagate Technology 178,300(b) 7,321,444
Total 147,715,139
Electronics (2.8%)
AMP 75,000 3,918,750
Intel 300,000 27,543,750
LSI Logic 106,500(b) 3,361,406
Thomas & Betts 225,000 12,853,125
Total 47,677,031
Energy (2.9%)
Amoco 259,000 24,346,000
Unocal 600,000 24,000,000
Total 48,346,000
Energy equipment & services (0.5%)
Schlumberger 117,200 8,951,150
Financial services (1.8%)
Providian Financial 503,200(b) 19,719,150
Travelers Group 155,933 11,217,430
Total 30,936,580
Food (2.7%)
ConAgra 58,400 4,106,250
CPC Intl 261,300 25,068,469
Quaker Oats 333,900 17,091,506
Total 46,266,225
Health care (13.0%)
Abbott Laboratories 80,000 5,235,000
ALZA 137,900(b) 4,455,894
Amgen 138,500(b) 8,145,531
Baxter Intl 249,600 14,430,000
Boston Scientific 180,000(b) 12,915,000
Bristol-Myers Squibb 331,000 25,962,812
Guidant 71,700 6,542,625
Johnson & Johnson 436,700(d) 27,211,869
Lilly (Eli) 192,900 21,797,700
Medtronic 128,100 11,176,725
Merck & Co 313,900 32,625,981
Perkin-Elmer 50,000 4,081,250
Pfizer 381,000 22,717,125
Schering-Plough 319,600 17,438,175
Warner-Lambert 30,000 4,190,625
Total 218,926,312
Health care services (2.0%)
Aetna 60,000 6,836,250
Service Corp Intl 433,800 14,749,200
Tenet Healthcare 285,000(b) 8,532,187
United Healthcare 75,000 4,275,000
Total 34,392,637
Household products (3.1%)
Colgate-Palmolive 72,600 5,499,450
Gillette 276,900 27,413,100
Procter & Gamble 131,900 20,065,287
Total 52,977,837
Industrial equipment & services (1.7%)
Deere & Co 251,400 14,298,375
Illinois Tool Works 50,000 2,593,750
Parker-Hannifin 175,000 11,265,625
Total 28,157,750
Insurance (2.4%)
AON 132,950 7,445,200
SunAmerica 135,500 8,197,750
UNUM 544,800 24,243,600
Total 39,886,550
Leisure time & entertainment (0.6%)
ITT 149,000(b) 9,526,687
Media (0.7%)
Gannett 75,700(d) 7,517,956
New York Times Cl A 70,000 3,517,500
Total 11,035,456
Metals (1.3%)
Aluminum Co of America 248,400 21,983,400
Multi-industry conglomerates (6.6%)
Dover 60,000 4,282,500
Emerson Electric 395,800 23,352,200
General Electric 671,000(d) 47,095,812
General Signal 236,900 11,652,519
Honeywell 57,700 4,309,469
Minnesota Mining & Mfg 92,100 8,726,475
Textron 50,000 3,503,125
Westinghouse Electric 330,600 7,955,063
Total 110,877,163
Paper & packaging (2.3%)
Bemis 250,000 11,484,375
Crown Cork & Seal 227,400 11,497,913
Tenneco 321,400 14,985,275
Total 37,967,563
Restaurants & lodging (0.7%)
Hilton Hotels 357,000 $11,223,188
Retail (5.0%)
American Stores 501,600 12,665,400
AutoZone 139,000(b,d) 3,978,875
Circuit City Stores 285,000 16,209,375
CVS 125,000 4,531,250
Jostens 135,000 3,484,688
Kroger 310,000(b) 9,164,375
Rite Aid 212,700 11,047,106
Wal-Mart Stores 605,400 22,740,337
Total 83,821,406
Transportation (0.6%)
Burlington Northern Santa Fe75,000 7,242,188
Caliber System 61,500 2,394,656
Total 9,636,844
Utilities -- electric (0.9%)
Southern 700,000 15,356,250
Utilities -- gas (1.3%)
Sonat 447,850 22,336,519
Utilities -- telephone (4.5%)
Ameritech 164,000 11,059,750
BellSouth 256,600 12,156,425
GTE 291,500 13,554,750
MCI Communications 590,400 20,848,500
U S WEST Communications
Group 200,000 7,312,500
WorldCom 314,800(b) 10,998,325
Total 75,930,250
Foreign (2.0%)(c)
Northern Telecom 156,500 16,364,031
Royal Dutch Petroleum 296,400 16,579,875
Total 32,943,906
Total common stocks
(Cost: $1,253,202,321) $1,546,877,457
Short-term securities (8.3%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agency (0.6%)
Federal Home Loan Mtge Corp Disc Nts
08-15-97 5.40% $ 500,000 $ 498,954
08-18-97 5.39 9,100,000 9,076,924
Total 9,575,878
Commercial paper (7.6%)
American General Capital
08-27-97 5.52% $11,000,000 $10,956,385
Avco Financial Services
08-26-97 5.60 4,300,000 4,283,427
BOC Group
08-04-97 5.59 4,700,000 4,697,826
CAFCO
08-21-97 5.52 3,400,000(e) 3,389,611
Cargill
08-25-97 5.59 14,900,000 14,841,494
Commerzbank U.S. Finance
08-11-97 5.52 5,100,000 5,092,208
Fleet Funding
08-14-97 5.53 6,000,000(e) 5,988,083
08-14-97 5.54 6,700,000(e) 6,686,669
Merrill Lynch
08-19-97 5.59 11,500,000 11,468,088
Metlife Funding
08-25-97 5.52 2,900,000 2,889,386
Morgan Stanley Group
08-27-97 5.51 1,300,000 1,294,846
Novartis Finance
08-12-97 5.52 6,500,000 6,489,076
Paccar Financial
08-04-97 5.57 700,000 699,676
08-05-97 5.57 900,000 899,445
08-07-97 5.53 1,400,000 1,398,714
Reed Elsevier
09-05-97 5.61 9,300,000(e) 9,244,660
SBC Communications Capital
08-08-97 5.52 6,500,000 6,493,049
08-25-97 5.58 1,600,000(e) 1,593,569
Siemens
08-18-97 5.51 2,700,000 2,693,000
UBS Finance (Delaware)
08-11-97 5.52 26,500,000 26,459,514
Total 127,558,726
Letter of credit (0.1%)
First Chicago-
Natl Bank of Detroit
09-08-97 5.56 1,800,000 1,789,135
Total short-term securities
(Cost: $138,933,302) $ 138,923,739
Total investments in securities
(Cost: $1,392,135,623)(f) $1,685,801,196
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 Notional amount
Standard & Poor's 500 Stock Index, Sept. 1997 $27,200,000
(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 July 31, 1997, the cost of securities for federal income tax purposes was
approximately $1,392,136,000 and the approximate aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation..........................................$297,222,000
Unrealized depreciation............................................(3,557,000)
Net unrealized appreciation......................................$293,665,000
<PAGE>
Board members and officers of the Fund
President and interested
board member
William R. Pearce
Chairman of the board, Board Services Corporation (provides
administrative services to boards including the boards of the IDS and
IDSLife 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.
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
Senior advisor to the chief executive officer, 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
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.
<PAGE>
IDS mutual funds
Global/International funds
Funds in this group seek capital growth and/or income by investing primarily in
foreign securities. Foreign investments may be subject to currency fluctuations
and political and economic risks of the countries in which the investments are
made. They are high risk mutual funds with a potential for high reward.
IDS Emerging Markets Fund
Invests in a Portfolio comprised primarily of stocks of companies in developing
countries throughout the world that are believed to offer growth potential.
Seeks to provide long-term growth of capital.
(icon of) world globe
IDS Global Growth Fund
Invests in a Portfolio comprised primarily of stocks of companies throughout the
world that are positioned to meet market needs in a changing world economy.
These companies offer above-average potential for long-term growth.
(icon of) world
IDS International Fund
Invests primarily in common stocks of foreign companies that offer potential for
superior growth. The Fund may invest up to 20% of its assets in the U.S. market.
(icon of) three flags
IDS Global Balanced Fund
Invests in stocks-and bonds in, for the most part, major markets throughout the
world, including the U.S. Seeks to provide a balance of growth of capital and
current income.
(icon of) scale of globes
IDS Global Bond Fund
Invests in a Portfolio comprised primarily of debt securities of U.S. and
foreign issuers to seek high total return through income and growth of capital.
(icon of) globe
Growth funds
Funds in this group seek capital growth, primarily from common stocks. They are
high risk mutual funds with a potential for high reward.
IDS Precious Metals Fund
Invests primarily in the securities of foreign or domestic companies that
explore for, mine and process or distribute gold and other precious metals. A
highly aggressive and speculative fund that seeks long-term growth of capital.
(icon of) cart of precious gems
IDS Discovery Fund
Invests in small- and medium-size, growth-oriented companies emphasizing
technological innovation and productivity enhancement. Buys and holds larger
growth-oriented stocks.
(icon of) ship
IDS Small Company Index Fund
Invests in all or a representative group of the equity securities comprising the
S&P SmallCap 600 Index, as it strives to provide long-term capital appreciation.
(icon of) building
IDS Strategy Aggressive Fund
Invests primarily in common stocks of companies that are selected for their
potential for above-average growth. Above-average means that their growth
potential is better, in the opinion of the portfolio's investment manager, than
the Standard & Poor's Corporation (S&P) 500 Stock Index.
(icon of) chess piece
IDS Research Opportunities Fund
Invests in a Portfolio comprised primarily of equity securities of companies
included in the S&P 500 Index that are believed to have strong growth potential.
The Portfolio is managed using a research methodology by the Research Department
of AEFC. Goal is long-term appreciation.
(icon of) magnifying glass
IDS Growth Fund
Invests in a Portfolio comprised primarily of companies that have above-average
potential for long-term growth as a result of new management, marketing
opportunities or technological superiority.
(icon of) flower
IDS New Dimensions Fund
Invests in a Portfolio comprised primarily of companies with
significant growth potential due to superiority in
technology, marketing or management. The Fund frequently
changes its industry mix.
(icon of) dimension
IDS Progressive Fund
Invests primarily in undervalued common stocks. The Fund holds stocks for the
long term with the goal of capital growth.
(icon of) shooting star
Growth and income funds
These funds focus on securities of medium to large,
well-established companies that offer long-term growth of capital and reasonable
income from dividends and interest.
IDS Equity Select Fund
Invests primarily in a combination of moderate growth stocks, higher-yielding
equities and bonds. Seeks growth of capital and income.
(icon of) three pine trees
IDS Blue Chip Advantage Fund
Invests in selected stocks from a major market index. Securities purchased are
those recommended by our research analysts as the best from each industry
represented on the index. Offers potential for long-term growth as well as
dividend income.
(icon of) ribbon
IDS Managed Allocation Fund
Invests in a Portfolio comprised primarily of U.S. equity securities, U.S. and
foreign debt securities, foreign equity securities and money market instruments.
The Fund provides diversification among these major investment categories and
has a target mix that represents the way the Fund's investments will be
allocated over the long term. Seeks maximum total return.
(icon of) spinning toy
IDS Stock Fund
Invests in a Portfolio comprised primarily of common stocks of companies
representing many sectors of the economy. Seeks current income and growth of
capital.
(icon of) building with columns
IDS Equity Value Fund
Invests primarily in undervalued common stocks that offer potential for growth
of capital and income.
(icon of) three growing flowers
IDS Utilities Income Fund
Invests primarily in the stocks of public utility companies to seek high current
income and growth of income and capital with reduced volatility.
(icon of) light bulb
IDS Diversified Equity Income Fund
Invests in a Portfolio comprised primarily in high-yielding common stocks to
seek high current income and, secondarily, to benefit from the growth potential
offered by stock investments.
(icon of) two puzzle pieces
IDS Mutual
Invests in a Portfolio which seeks to balance between common stocks and senior
securities (preferred stocks and bonds). Seeks a balance of growth of capital
and current income.
(icon of) scale of justice
Income funds
The funds in this group invest their assets primarily in corporate bonds or
government securities to seek interest income. Secondary objective is capital
growth.
Risk varies by bond quality.
IDS Extra Income Fund
Invests in a Portfolio comprised mainly in long-term, high-yielding corporate
fixed-income securities in the lower rated, higher risk bond categories to seek
high current income. Secondary objective is capital growth.
(icon of) two coins
IDS Bond Fund
Invests mainly in corporate bonds, at least 50% in the higher rated, lower risk
bond categories, or the equivalent, and in government bonds.
(icon of) Greek column
IDS Selective Fund
Invests in a Portfolio comprised primarily of high-quality corporate bonds and
other highly rated debt instruments including government securities and
short-term investments. Seeks current income and preservation of capital.
(icon of) skyline
IDS Federal Income Fund
Invests in a Portfolio comprised primarily of securities issued or guaranteed as
to the timely payment of principal and interest by the U.S. government, its
agencies and instrumentalities. Seeks a high level of current income and safety
of principal consistent with its type of investments.
(icon of) shield with eagle head
Tax-exempt income funds
These funds provide tax-free income by investing in municipal bonds. The income
is generally free from federal income tax, but a portion of the income may be
subject to state and local taxes. Risk varies by bond quality.
IDS Tax-Exempt Bond Fund
Invests mainly in bonds and notes of state or local government units, with at
least 75% in the four highest rated, lowest risk bond categories.
(icon of) shield with Greek column
IDS Insured Tax-Exempt Fund
Invests primarily in municipal securities that are insured as to the timely
payment of principal and interest. The insurance feature minimizes credit risk
of the Fund but does not guarantee the market value of the Fund's shares.
(icon of) shield with star
IDS State Tax-Exempt Funds
(CA, MA, MI, MN, NY, OH)
Invests primarily in high- and medium-grade municipal securities to provide
income to residents of each respective state that is exempt from federal, state
and local income taxes. (New York is the only state that is exempt at the local
level.)
(icon of) shield with U.S. enclosed
IDS High Yield Tax-Exempt Fund
Invests in a Portfolio comprised primarily of medium- and lower-quality
municipal bonds and notes. Lower-quality securities generally involve greater
risk of principal and income.
(icon of) shield with basket of apples enclosed
IDS Intermediate Tax-Exempt Fund
Invests in mainly investment-grade bonds and other debt securities with
intermediate-term maturities issued by state and local government units. Goal is
to seek a high level of current income exempt from federal taxes.
(icon of) shield with tree enclosed
Money market funds
These money market funds have three main goals: conservation of
capital, constant liquidity and the highest possible current
income consistent with these objectives. An investment in
these funds is neither insured nor guaranteed by the U.S. government,
and there can be no assurance that these funds
will be able to maintain a stable net asset value of $1.00
per share. Very limited risk.
IDS Cash Management Fund
Invests in such money market securities as high quality commercial paper,
bankers' acceptances, certificates of deposit (CDs) and other bank securities.
(icon of) piggy bank
IDS Tax-Free Money Fund
Invests primarily in short-term bonds and notes issued by state and local
governments to seek high current income exempt from federal income taxes.
(icon of) shield with piggy bank enclosed
For more complete information about any of these funds, including charges and
expenses, you can obtain a prospectus by contacting your financial advisor or
writing to American Express Shareholder Service, P.O. Box 534, Minneapolis, MN
55440-0534. Read it carefully before you invest or send money.
<PAGE>
Quick telephone reference
American Express Redemptions and exchanges, National/Minnesota
Financial Advisors dividend payments or 800-437-3133
Telephone Transaction reinvestments and automatic
Service payment arrangements Mpls./St. Paul area:
671-3800
TTY Service For the hearing impaired 800-846-4852
American Express Automated account information 800-862-7919
Financial Advisors (TouchTone(R) phones only),
Easy Access Line including current fund prices
and performance, account values
and recent account transactions
<PAGE>
AMERICAN EXPRESS FINANCIAL ADVISORS
IDS Blue Chip Advantage Fund
IDS Tower 10
Minneapolis, MN 55440-0010
