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1998 ANNUAL REPORT
IDS
Blue Chip
Advantage
Fund
(prospectus enclosed)
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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 included in a broad market
index.
(This annual report includes a prospectus that describes in detail the Fund's
objective, investment policies, risks, sales charges, fees and other matters of
interest. Please read the prospectus carefully before you invest or send money.)
AMERICAN EXPRESS
Financial Advisors
Distributed by American Express Financial Advisors Inc.
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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. They're the ones that Blue Chip Advantage Fund tries to
identify and build its portfolio around. Result: a fund that's like the S&P ...
only better.
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Contents
The purpose of this annual report is to tell investors how the Fund performed.
(icon of) one open book inside of another
The prospectus, which is bound into the middle of this annual report, describes
the Fund in detail.
1998 annual report
From the chairman 4
From the portfolio manager 4
The Fund's ten largest holdings 6
Making the most of the Fund 7
The Fund's long-term performance 8
Independent auditors' report 9
Financial statements 10
Notes to financial statements 13
Investments in securities 23
IDS mutual funds 26
Federal income tax information 30
1998 prospectus
The Fund in brief 3p
Goal 3p
Investment policies and risks 3p
Manager and distributor 3p
Portfolio manager 4p
Alternative purchase arrangements 4p
Sales charge and Fund expenses 5p
Performance 7p
Financial highlights 7p
Total returns 9p
Investment policies and risks 11p
Facts about investments and their risks 12p
Alternative investment option 14p
Valuing Fund shares 14p
How to purchase, exchange or redeem shares 15p
Alternative purchase arrangements 15p
How to purchase shares 18p
How to exchange shares 20p
How to redeem shares 20p
Reductions and waivers of the sales charge 25p
Special shareholder services 29p
Services 29p
Quick telephone reference 29p
Distributions and taxes 30p
Dividend and capital gain distributions 30p
Reinvestments 31p
Taxes 32p
How to determine the correct TIN 34p
How the Fund is organized 35p
Shares 35p
Voting rights 35p
Shareholder meetings 35p
Board members and officers 35p
Investment manager 37p
Administrator and transfer agent 37p
Distributor 38p
About American Express Financial Corporation 39p
General information 39p
(This annual report is not part of the prospectus.)
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To our shareholders
From the chairman
If you're an experienced investor, you know that the past few years have
been unusually strong ones in many financial markets. Perhaps just as
important, 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. We saw
evidence of that last October, when financial turmoil in Southeast Asia
sparked a sharp decline in worldwide stock markets, including the U.S.
That fact reinforces the need for investors to review periodically 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 R. Pearce
William R. Pearce
Chairman of the board
From the portfolio manager
An overall strong stock market, particularly for blue-chip issues,
resulted in a substantial gain for IDS Blue Chip Advantage Fund during the
past fiscal year. For the February 1997 through January 1998 period, the
Fund's Class A shares generated a total return of 20.2%.
For most of the 12 months, stocks experienced highly favorable conditions:
The economy continued to grow at a solid pace; the inflation rate remained
low; corporate profits were largely healthy; and long-term interest rates
followed a generally downward path.
Aside from a relatively brief setback in the spring of 1997, stocks
responded with a powerful rally that lasted until early August. In fact,
the second quarter (April through June) was the market's strongest since
1991. From that point, though, stocks began to struggle in the face of
periodic concerns about a potential rise in interest rates, corporate
profits and, late in 1997, financial upheaval in Southeast Asia. As a
result, over the second six months of the fiscal year, the market
fluctuated a fair amount but in the end could gain no ground. For the
year, the Fund's performance essentially followed the pattern of the broad
market.
(This annual report is not part of the prospectus.)
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`Consumer staples'
are top performers
The biggest contributor to the Fund's overall gain was the so-called
consumer staple stock sector, which includes stocks of health care, food,
beverage, tobacco and leisure/ entertainment companies and constituted
about a quarter of the Fund's assets. Among the top performers were Sara
Lee, Bristol Meyers Squibb, Procter & Gamble and Colgate Palmolive.
Technology stocks, another area of substantial investment for the Fund,
were highly volatile, but, despite sharp sell-offs last spring and fall,
generated overall positive results. Stocks such as Northern Telecom,
Computer Associates and Compaq Computer were among the most productive.
The third-largest area of investment was financial services, with Norwest
Bank, BankAmerica and Travelers leading the Fund's winners.
Although modest in terms of investment exposure, holdings in the
industrial sector also paid off nicely, highlighted by Tyco Labs, Parker
Harrington and General Electric.
I kept the level of cash reserves low during the period, a reflection of
my positive outlook for the market. The underlying theme in the stock
selections was predictable, above-average earnings growth. As it has for
some time, the market most rewarded stocks of companies able to fulfill
that promise.
As for the current fiscal year that began in February, I think the
investment environment still looks reasonably good, but I think stocks
will face more hurdles this year. In my view, the best opportunity for
making money will be found among predictable, high-quality companies,
which is where I continue to focus the Fund's investments.
Guru Baliga
(picture of) Guru Baliga
Guru Baliga
Portfolio manager
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Class A
12-month performance
(All figures per share)
Net asset value (NAV)
Jan. 31, 1998 $9.49
Jan. 31, 1997 $8.97
Increase $0.52
Distributions
Feb. 1, 1997- Jan. 31, 1998
From income $0.78
From capital gains $0.47
Total distributions $1.25
Total return* +20.2%**
Class B
12-month performance
(All figures per share)
Net asset value (NAV)
Jan. 31, 1998 $9.43
Jan. 31, 1997 $8.92
Increase $0.51
Distributions
Feb. 1, 1997- Jan. 31, 1998
From income $0.71
From capital gains $0.47
Total distributions $1.18
Total return* +19.3%**
Class Y
12-month performance
(All figures per share)
Net asset value (NAV)
Jan. 31, 1998 $9.50
Jan. 31, 1997 $8.97
Increase $0.53
Distributions
Feb. 1, 1997- Jan. 31, 1998
From income $0.79
From capital gains $0.47
Total distributions $1.26
Total return* +20.4%**
* 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.
(This annual report is not part of the prospectus.)
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The Fund's ten largest holdings
Percent Value
(of Fund's net assets) (as of Jan. 31, 1998)
Coca-Cola 2.91% $60,690,175
Royal Dutch Petroleum 2.91 60,592,874
General Electric 2.59 54,002,000
Intel 2.28 47,603,700
Merck & Co 2.24 46,618,599
BankAmerica 2.23 46,588,574
Microsoft 2.16 44,994,949
Amoco 2.14 44,634,187
Proctor & Gamble 2.11 44,046,750
First Union 1.98 41,252,043
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The ten holdings listed here make up 23.55% of the Fund's net assets
(This annual report is not part of the prospectus.)
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Making the most of the Fund
Build your assets systematically
One of the best ways to invest in the Fund is by dollar-cost averaging --
a time-tested strategy that can make market fluctuations work for you. To
dollar-cost average, simply invest a fixed amount of money regularly.
You'll automatically buy more shares when the Fund's share price is low,
fewer shares when it is high.
Using this strategy does not ensure a profit or avoid a loss if the market
declines, and requires that you be able to keep on investing on a regular
basis, even when the price of your shares falls or the market declines.
Investing in this manner can be an effective way to accumulate shares to
meet your long-term goals.
How dollar-cost averaging works
Month Amount Per-share Number of shares purchased
invested market price
Jan $100 $20 5.00 XXXXX
Feb 100 18 5.56 XXXXXx
March 100 17 5.88 XXXXXx
April 100 15 6.67 XXXXXXx
May 100 16 6.25 XXXXXXx
June 100 18 5.56 XXXXXx
July 100 17 5.88 XXXXXx
Aug 100 19 5.26 XXXXXx
Sept 100 21 4.76 XXXXx
Oct 100 20 5.00 XXXXX
(footnotes to table) By investing an equal number of dollars each
month...
(arrow in table pointing to April) you automatically buy more shares when the
per share market price is low...
(arrow in table pointing to September) and fewer shares when the per share
market price is high.
You have paid an average price of only $17.91 per share over the 10 months,
while the average market price actually was $18.10.
(This annual report is not part of the prospectus.)
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The Fund's long-term performance
Three ways to benefit from a mutual fund:
oyour shares increase in value when the Fund's
investments do well
oyou receive capital gains when the gains on
investments sold by the Fund exceed losses
oyou receive income when the Fund's stock dividends, interest and
short-term gains exceed its expenses.
All three make up your total return. And you potentially can increase your
investment if, like most investors, you reinvest your dividends and
capital gain distributions to buy additional shares of the Fund or another
fund.
Assumes: oHolding period from 4/1/90 to 1/31/98. oReturns do not reflect
taxes payable on distributions. oReinvestment of all income and capital
gain distributions for the Fund, with a value of $14,133. Also see
"Performance" in the Fund's current prospectus.
Standard & Poor's 500 Stock Index (S&P 500), an unmanaged list of common
stocks, is frequently used as a general measure of market performance.
How your $10,000 has grown in IDS Blue Chip Advantage Fund
$40,000
$31,450
$30,000 IDS Blue Chip
Advantage Fund
Class A
S&P 500
$20,000 Stock Index
$ 9,500
'4/1/90 '91 '92 '93 '94 '95 '96 '97 '98
Average annual total return
(as of Jan. 31, 1998)
1 year 5 years Since inception
Class A* +14.21% +17.62% +15.92%
Class B** +15.32% --% +24.58%
Class Y** +20.35% --% +26.62%
*Inception date was March 5, 1990.
**Inception date was March 20, 1995.
**For purpose of the graph above, the start date was April 1, 1990.
On the graph above you can see how the Fund's total return compared to a
widely cited performance index, the S&P 500 Stock Index. In comparing Blue
Chip Advantage Fund (Class A) to this index, you should take into account
the fact that the Fund's performance reflects the maximum sales charge of
5%, while such charges are not reflected in the performance of the index.
Your investment and return values fluctuate so that your shares, when
redeemed, may be worth more or less than the original cost. Average annual
total return figures reflect the impact of the applicable sales charge up
to a maximum of 5%. This was a period of widely fluctuating security
prices. Past performance is no guarantee of future results.
(This annual report is not part of the prospectus.)
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The financial statements contained in Post-Effective Amendment #19 to
Registration Statement No. 33-30770 filed on or about March 31, 1998, are
incorporated herein by reference.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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(This annual report is not part of the prospectus.)
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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.
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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.
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IDS Progressive Fund
Invests primarily in undervalued common stocks. The Fund holds stocks for the
long term with the goal of capital growth.
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Growth & 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. Foreign investments may be subject to currency fluctuations and
political and economic risks of the countries in which the investments are made.
IDS Equity Select Fund
Invests primarily in a combination of moderate growth stocks, higher-yielding
equities and bonds. Seeks growth of capital and income.
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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.
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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.
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IDS Stock Fund
Invests in a Portfolio comprised primarily of common stock of companies
representing many sectors of the economy. Seeks current income and growth of
capital.
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IDS Equity Value Fund
Invests primarily in undervalued common stocks that offer potential for growth
of capital and income.
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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.
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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.
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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.
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(This annual report is not part of the prospectus.)
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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 of 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.
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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.
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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.
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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.
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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.
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(This annual report is not part of the prospectus.)
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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.
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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.
(This annual report is not part of the prospectus.)
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Federal income tax information
IDS Blue Chip Advantage Fund
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its
fiscal year. The dividends listed below were reported to you on Form
1099-DIV, Dividends and Distributions, in January. Shareholders should
consult a tax advisor on how to report distributions for state and local
purposes.
IDS Blue Chip Advantage Fund
Fiscal year ended Jan. 31, 1998
Class A
Income distributions
taxable as dividend income, 18.75% qualifying for deduction by
corporations.
Payable date Per share
March 27, 1997 $0.02115
June 27, 1997 0.02830
Sept. 26, 1997 0.02708
Dec. 29, 1997 0.70036
Total $0.77689
Capital gain distribution
taxable as long-term capital gain.
Payable date Per share
Dec. 29, 1997 $0.47549
Total distributions $1.25238
The distribution of $1.17585 per share, payable Dec. 29, 1997, consisted
of $0.02206 derived from net investment income, $0.67830 from net
short-term capital gains (a total of $0.70036 taxable as dividend income)
and $0.47549 from net long-term capital gains.
The long-term capital gains distribution is divided into two rate
categories: 28%-$0.28572 and 20%-$0.18977.
(This annual report is not part of the prospectus.)
<PAGE>
Class B
Income distributions
taxable as dividend income, 18.75% qualifying for deduction by
corporations.
Payable date Per share
March 27, 1997 $0.00605
June 27, 1997 0.01201
Sept. 26, 1997 0.00892
Dec. 29, 1997 0.68113
Total $0.70811
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 29, 1997 $0.47549
Total distributions $1.18360
The distribution of $1.15662 per share, payable Dec. 29, 1997, consisted
of $0.00283 derived from net investment income, $0.67830 from net
short-term capital gains (a total of $0.68113 taxable as dividend income)
and $0.47549 from net long-term capital gains.
The long-term capital gains distribution is divided into two rate
categories: 28%-$0.28572 and 20%-$0.18977.
Class Y
Income distributions
taxable as dividend income, 18.75% qualifying for deduction by
corporations.
Payable date Per share
March 27, 1997 $0.02475
June 27, 1997 0.03088
Sept. 26, 1997 0.02892
Dec. 29, 1997 0.70229
Total $0.78684
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 29, 1997 $0.47549
Total distributions $1.26233
The distribution of $1.17778 per share, payable Dec. 29, 1997, consisted
of $0.02399 derived from net investment income, $0.67830 from net
short-term capital gains (a total of $0.70229 taxable as dividend income)
and $0.47549 from net long-term capital gains.
The long-term capital gains distribution is divided into two rate
categories: 28%-$0.28572 and 20%-$0.18977.
(This annual report is not part of the prospectus.)
<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
AMERICAN EXPRESS
Financial Advisors
IDS Blue Chip Advantage Fund
IDS Tower 10
Minneapolis, MN 55440-0010
