<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 19 (File No. 33-30770) X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY (ACT OF
1940)
Amendment No. 23 (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, 1998 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.
<PAGE>
Cross reference sheet showing the location in the prospectus and Statement of
Additional Information of the information called for by items enumerated in
Parts A and B of Form N-1A.
Negative answers omitted are so indicated.
PART A
Item No. Section in Prospectus
1 Cover page of prospectus
2(a) Sales charge and Fund expenses
(b) The Fund in brief
(c) The Fund in brief
3(a) Financial highlights
(b) NA
(c) Performance
(d) Financial highlights
4(a) The Fund in brief; Investment policies and risks; How the Fund is
organized
(b) Investment policies and risks
(c) Investment policies and risks
5(a) Board members and officers
(b)(i) Investment manager; About American Express Financial Corporation -
General information
(b)(ii) Investment manager
(b)(iii) Investment manager
(c) Portfolio manager
(d) Administrator and transfer agent
(e) Administrator and transfer agent
(f) Distributor
(g) Investment manager; About American Express Financial Corporation -
General information
5A(a) *
(b) *
6(a) Shares; Voting rights
(b) NA
(c) NA
(d) Voting rights
(e) Cover page; Special shareholder services
(f) Dividend and capital gain distributions; Reinvestments
(g) Taxes
(h) Alternative purchase arrangements
7(a) Distributor
(b) Valuing Fund shares
(c) How to purchase, exchange or redeem shares
(d) How to purchase shares
(e) NA
(f) Distributor
(g) Alternative purchase arrangements; Reductions and waivers of the
sales charge
8(a) How to redeem shares
(b) NA
(c) How to purchase shares: Three ways to invest
(d) How to purchase, exchange or redeem shares:Redemption
policies-"Important...
9 None
PART B
Item No. Section in Statement of Additional Information
10 Cover page of SAI
11 Table of Contents
12 NA
13(a) Additional Investment Policies; all appendices except Dollar-Cost
Averaging
(b) Additional Investment Policies
(c) Additional Investment Policies
(d) Security Transactions
14(a) Board members and officers**; Board Members and Officers
(b) Board Members and Officers
(c) Board Members and Officers
15(a) NA
(b) Principal Holders of Securities, if applicable
(c) Board Members and Officers
16(a)(i) How the Fund is organized; About the American Express Financial
Corporation**
(a)(ii) Agreements: Investment Management Services Agreement, Plan and
Agreement of Distribution
(a)(iii) Agreements: Investment Management Services Agreement
(b) Agreements: Investment Management Services Agreement
(c) NA
(d) Agreements: Administrative Services Agreement, Shareholder Service
Agreement
(e) NA
(f) Agreement: Distribution Agreement
(g) NA
(h) Custodian Agreement; Independent Auditors
(i) Agreements: Transfer Agency Agreement; Custodian Agreement
17(a) Security Transactions
(b) Brokerage Commissions Paid to Brokers Affiliated with American
Express Financial Corporation
(c) Security Transactions
(d) Security Transactions
(e) Security Transactions
18(a) Shares; Voting rights**
(b) NA
19(a) Investing in the Fund
(b) Valuing Fund Shares; Investing in the Fund
(c) Redeeming Shares
20 Taxes
21(a) Agreements: Distribution Agreement
(b) NA
(c) NA
22(a) Performance Information (for money market funds only)
(b) Performance Information (for all funds except money market funds)
23 Financial Statements
<PAGE>
* Designates information is located in annual report.
** Designates location in prospectus.
<PAGE>
IDS Blue Chip Advantage Fund
Prospectus
April 1, 1998
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 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
800-862-7919
TTY: 800-846-4852
Web site address: http://www.americanexpress.com/advisors
<PAGE>
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
<PAGE>
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>
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. For further information, refer to the later section
in the prospectus titled "Investment policies and risks."
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 $72 billion
in assets for the IDS MUTUAL FUND GROUP. Shares of the Fund are sold through
American Express Financial Advisors Inc. (AEFA), a wholly-owned subsidiary of
AEFC.
Portfolio manager
Guru Baliga joined AEFC in 1991 and serves as vice president and senior
portfolio manager. He became portfolio manager of this Fund in September 1994.
He also is portfolio manager of Aggressive Growth Portfolio, IDS Small Company
Index Fund and is a member of the portfolio management team for Total Return
Portfolio.
<PAGE>
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 0.38% 0.38% 0.38%
12b-1 fee 0.00% 0.75% 0.00%
Other expenses** 0.40% 0.41% 0.33%
Total 0.78% 1.54% 0.71%
*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, a transfer agency fee and other
nonadvisory expenses. Class Y expenses have been restated to reflect the 0.10%
shareholder services fee effective May 9, 1997.
<PAGE>
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 $58 $74 $ 91 $142
Class B $66 $89 $104 $163**
Class B* $16 $49 $ 84 $163**
Class Y $ 7 $23 $ 40 $89
*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.
Performance
Financial highlights
<TABLE>
<CAPTION>
IDS Blue Chip Advantage Fund
Fiscal period ended Jan. 31,
Per share income and capital changesa
Class A
1998 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 0.10 .09 .11 .11 .10 .10 .12 .10
income (loss)
Net gains (losses) 1.67 1.69 2.18 (.13) .79 .50 .96 .25
(both realized
and unrealized)
Total from investment 1.77 1.78 2.29 (.02) .89 .60 1.08 .35
operations
Less distributions:
Dividends from net (.10) (.09) (.11) (.11) (.10) (.09) (.12) (.10)
investment income
Distributions from (1.15) (.34) (.53) (.48) (.41) (.27) (.25) --
realized gains
Total distributions (1.25) (.43) (.64) (.59) (.51) (.36) (.37) (.10)
Net asset value, $9.49 $8.97 $7.62 $5.97 $6.58 $6.20 $5.96 $5.25
end of period
Ratios/supplemental data
Class A
1998 1997 1996 1995 1994 1993 1992 1991b
Net assets, end of period $1,202 $687 $247 $151 $148 $124 $85 $36
(in millions)
Ratio of expenses to .78% .89% .96% .89% 1.03% 1.10% 1.11%c .85%c
average daily net assetsd
Ratio of net income (loss) 1.03% 1.18% 1.68% 1.77% 1.59% 1.63% 2.01%c 2.93%c,f
to average daily net assets
Portfolio turnover rate 145% 128% 126% 122% 156% 202% 154% 103%
(excluding short-term
securities)
Total returne 20.2% 23.8% 39.0% (0.2%) 14.7% 10.2% 21.2% 7.0%
Average brokerage
commission rateg $.0512 $.0388 -- -- -- -- -- --
aFor a share outstanding throughout the period. Rounded to the nearest
cent.
bInception date. Period from March 5, 1990 to Jan. 31, 1991.
<PAGE>
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.
eTotal return does not reflect payment of a sales charge.
f Adjusted to an annual basis.
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Blue Chip Advantage Fund
Fiscal period ended Jan. 31,
Per share income and capital changesa
Class B Class Y
1998 1997 1996b 1998 1997 1996b
<S> <C> <C> <C> <C> <C> <C>
Net asset value, $8.92 $7.59 $6.30 $8.97 $7.62 $6.30
beginning of period
Income from investment operations:
Net investment .03 .04 .07 .11 .10 .11
income (loss)
Net gains (losses) 1.66 1.67 1.83 1.68 1.69 1.86
(both realized and unrealized)
Total from investment 1.69 1.71 1.90 1.79 1.79 1.97
operations
Less distributions:
Distributions from net (.03) (.04) (.08) (.11) (.10) (.12)
investment income
Distributions from (1.15) (.34) (.53) (1.15) (.34) (.53)
realized gains
Total distributions (1.18) (.38) (.61) (1.26) (.44) (.65)
Net asset value, $9.43 $8.92 $7.59 $9.50 $8.97 $7.62
end of period
Ratios/supplemental data
Class B Class Y
1998 1997 1996b 1998 1997 1996b
Net assets, end of $645 $302 $42 $239 $77 $28
period (in millions)
Ratio of expenses to 1.54% 1.65% 1.74%d .69% .72% .80%d
average daily net assetsc
Ratio of net income (loss) .26% .39% .81%d 1.10% 1.33% 1.75%d
to average daily net assets
Portfolio turnover rate 145% 128% 126% 145% 128% 126%
(excluding short-term
securities)
Total returne 19.3% 22.9% 30.3% 20.4% 24.0% 31.3%
Average brokerage commission $.0512 $.0388 -- $.0512 $.0388 --
ratef
aFor a share outstanding throughout the period. Rounded to the nearest
cent.
bInception date was March 20, 1995.
<PAGE>
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.
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.
Average annual total return is the annually compounded rate of return over a
given time period (usually two or more years). It is the total return for the
period converted to an equivalent annual figure.
<PAGE>
Average annual total returns as of Jan. 31, 1998
Purchase 1 year 5 years Since
made ago ago inception
- ------- ---------------- ------------- -----------------
Blue Chip:
Class A +14.21% +17.62% +15.92%*
Class B +15.32% --% +24.58%**
Class Y +20.35% --% +26.62%**
S&P 500 +26.90% +20.31% +17.56%***
*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, 1998
Purchase 1 year 5 years Since
made ago ago inception
- --------------- -------------- ------------ ----------------
Blue Chip:
Class A +14.21% +125.07% +221.73%*
Class B +15.32% --% + 87.94%**
Class Y +20.35% --% + 96.95%**
S&P 500 +26.90% +152.06% +256.28%***
*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. 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
<PAGE>
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.
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 investment manager uses to achieve
investment performance are described in more detail in the next section and in
the SAI.
<PAGE>
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.
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.
<PAGE>
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.
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 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 Assets without readily available market values are valued according to
methods selected in good faith by the board
<PAGE>
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.
<TABLE>
<CAPTION>
Sales charge and
distribution
(12b-1) fee Service fee Other information
<S> <C> <C> <C>
Class A Maximum initial sales 0.175% of average daily net Initial sales charge waived
charge of 5%; no 12b-1 fee assets or reduced for certain
purchases
Class B No initial sales charge; 0.175% of average daily net Shares convert to Class A
maximum CDSC of 5% assets in the ninth year of
declines to 0% after six ownership; CDSC waived in
years; 12b-1 fee of 0.75% certain circumstances
of average daily net
assets
Class Y None 0.10% of average daily net Available only to certain
assets qualifying institutional
investors
</TABLE>
Conversion of Class B shares to Class A shares - During the ninth calendar year
of owning your Class B shares, Class B shares will convert to Class A shares and
will no longer be subject to a distribution fee. Class B shares that convert to
Class A shares are not subject to a sales charge. Class B shares purchased
through reinvested dividends and distributions also will convert to Class A
shares in the same proportion as the other Class B shares. This means more of
your money will be put to work for you.
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.
<PAGE>
Sales charges on purchase or redemption
If you purchase Class A shares If you purchase Class B shares
o You will not have all of your o All of your money is invested
purchase price invested.Part of in shares of stock. However, you
your purchase price will go to pay will pay a sales charge if you
the sales charge. You will not redeem your shares within six
pay a sales charge when you years of purchase.
redeem your shares.
o You will be able to take advantage o No reductions of the sales charge
of reductions in the sales charge. are available for large purchases.
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 shares If you purchase Class B shares
o Your shares will have a lower o The distribution and transfer
expense ratio than Class B shares because agency fees for Class B will
Class A does not pay a distribution cause your shares to have a
fee and the transfer agency fee for higher expense ratio and to pay
Class A is lower than the fee for Class B. lower dividends than Class A
As a result, Class A shares will pay shares. After eight years,
higher dividends than Class B shares. Class B shares will convert to
Class A shares and 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 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
<PAGE>
- at least $10 million in plan assets or
- 500 or more participants; or
- does not use daily transfer recordkeeping and has
- at least $3 million invested in funds of the IDS MUTUAL FUND
GROUP or
- 500 or more participants.
o Trust companies or similar institutions, and charitable organizations that
meet the definition in Section 501(c)(3) of the Internal Revenue Code.*
These must have at least $10 million invested in funds of the IDS MUTUAL
FUND GROUP.
o Nonqualified deferred compensation plans* whose participants are included
in a qualified employee benefit plan described above.
* Eligibility must be determined in advance by AEFA. To do so, contact your
financial advisor.
How to purchase shares
If you are investing in this Fund for the first time, you will 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 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 theFund
accepts the purchase.
<PAGE>
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.
<TABLE>
<CAPTION>
Three ways to invest
<S> <C> <C>
1
By regular account Send your check and application (or your name Minimum amounts
and account number if you have an established Initial investment: $2,000
account) to: Additional investments:$ 100
Account balances: $ 300*
American Express Financial Advisors Inc. Qualified retirement
P.O. Box 74 accounts: none
Minneapolis, MN 55440-0074
Your financial advisor will help you with this
process.
2
By scheduled investment Contact your financial advisor to set up one Minimum amounts
plan of the following scheduled plans: Initial investment: $ 100
Additional investments:$ 100/
o automatic payroll deduction each payment
Account balances: none
o bank authorization (on active plans of
monthly payments)
o direct deposit of Social Security check
If account balance is below
o other plan approved by the Fund$ 2,000, frequency of payments
must be at least monthly.
3
By wire If you have an established account, you may If this information is not
wire money to: included, the order may be
rejected and all money
Norwest Bank Minneapolis received by the Fund, less any
Routing No. 091000019 costs the Fund or AEFC incurs,
Minneapolis, MN will be returned promptly.
Attn: Domestic Wire Dept.
Minimum amounts
Give these instructions: Each wire investment: $1,000
Credit IDS Account #00-30-015 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 do not do so
within 30 days, your shares can be redeemed and the proceeds mailed to you. If
you are in a "wrap-fee" program sponsored by AEFA and your wrap program balance
falls below the required program minimum or is terminated, your shares will be
redeemed and the proceeds mailed to you.
<PAGE>
How to exchange shares
You can exchange your shares of the Fund at no charge for shares of the same
class of any other publicly offered fund in the IDS MUTUAL FUND GROUP available
in your state. Exchanges into IDS Tax-Free Money Fund must be made from Class A
shares. For complete information on any other fund, including fees and expenses,
read that fund's prospectus carefully.
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 use the sales charge imposed on
the purchase of Class A shares to create or increase a tax loss (or reduce a
taxable gain) by exchanging from the Fund within 91 days of your purchase. For
further explanation, see the SAI.
How to redeem shares
You can redeem your shares at any time. American Express Shareholder Service
will mail payment within seven days after receiving your request.
When you redeem shares, the amount you receive may be more or less than the
amount you invested. Your shares will be redeemed at net asset value, minus any
applicable sales charge, at the close of business on the day your request is
accepted at the Minneapolis headquarters. If your request arrives after the
close of business, the price per share will be the net asset value, minus any
applicable sales charge, at the close of business on the next business day.
A redemption is a taxable transaction. If the proceeds from your redemption are
more or less than the cost of your shares, you will have a gain or loss, which
can affect your tax liability. Redeeming shares held in an IRA or qualified
retirement account may subject you to certain federal taxes, penalties and
reporting requirements. Consult your tax advisor.
<PAGE>
Two ways to request an exchange or redemption of shares
1
By letter Include in your letter:
o the name of the fund (s)
o the class of shares to be exchanged or
redeemed
o your account number(s) (for exchanges, both
funds must be registered in the same
ownership)
o your Tax payer 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
Financial Advisors
Telephone Transaction Service:
800-437-3133 or 612-671-3800
o The Fund and AEFC will honor any telephone exchange
or redemption request believed to be authentic
and will use reasonable procedures to confirm that they are. This
includes asking identifying questions and tape recording calls.
If reasonable procedures are followed, the Fund or AEFC will not 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.
<PAGE>
o Phone privileges may be modified or discontinued at any time.
Minimum amount
Redemption: $100
Maximum amount
Redemption: $50,000
Exchange policies:
o You may make up to three exchanges within any 30-day period, with each limited
to $300,000. These limits do not apply to scheduled exchange programs and
certain employee benefit plans or other arrangements through which one
shareholder represents the interests of several. Exceptions may be allowed with
pre-approval of the Fund.
o Exchanges must be made into the same class of shares of the new fund.
o If your exchange creates a new account, it must satisfy the minimum investment
amount for new purchases.
o Once we receive your exchange request, you cannot cancel it.
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
<PAGE>
the date your redemption request was received. Include your account number and
mention this option. This privilege may be limited or withdrawn at any time, and
it may have tax consequences.
o A telephone redemption request will not be allowed within 30 days of a
phoned-in address change.
Important: If you request a redemption of shares you recently purchased by a
check or money order that is not guaranteed, the Fund will wait for your check
to clear. It may take up to 10 days from the date of purchase before a check is
mailed to you. (A check may be mailed earlier if your bank provides evidence
satisfactory to the Fund and AEFC that your check has cleared.)
Three ways to receive payment when you redeem shares
1 o Mailed to the address on record
By regular or o Payable to names listed on the account
express mail NOTE: You will be charged a fee if you
request express mail delivery.
2 o Minimum wire redemption: $1,000
By wire 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 o Minimum payment: $50
By scheduled o Contact your financial advisor or American
payout plan Express Shareholder Serviceto set up regular
payments to you on a monthly, bimonthly,
quarterly, semiannual or annual basis
o Purchasing new shares while under a payout
plan may be disadvantageous because of the
sales charges
Reductions and waivers of the sales charge
Class A - initial sales charge alternative
On purchases of Class A shares, you pay a 5% sales charge on the first $50,000
of your total investment and less on investments after the first $50,000:
<PAGE>
Total investment Sales charge as a
percentage of:*
Public Net
offering amount
price invested
Up to $50,000 5.0% 5.26%
Next $50,000 4.5 4.71
Next $400,000 3.8 3.95
Next $500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
* To calculate the actual sales charge on an investment greater than $50,000 and
less than $1,000,000, amounts for each applicable increment must be totaled. See
the SAI.
Reductions of the sales charge on Class A shares Your sales charge may be
reduced, depending on the totals of:
o the amount you are investing in this Fund now;
o the amount of your existing investment in this Fund, if any; and
o the amount you and your 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.
<PAGE>
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 Investors who have a business relationship with a newly associated financial
advisor who joined AEFA from another investment firm provided that (1) the
purchase is made within six months of the advisor's appointment date with AEFA,
(2) the purchase is made with proceeds of a redemption of shares that were
sponsored by the financial advisor's previous broker-dealer, and (3) the
proceeds must be the result of a redemption of an equal or greater value where a
sales load was previously assessed.
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. The CDSC will be waived only in
the circumstances described for waivers for Class B shares.
o Purchases made within 30 days after a redemption of shares (up to the
amount redeemed):
- of a product distributed by AEFA 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 the same class
of another fund in the IDS MUTUAL FUND GROUP that has a sales charge.
o Purchases made through or under a "wrap fee" product sponsored by AEFA (total
amount of all investments must be $50,000); the University of Texas System ORP;
or a segregated separate account offered by Nationwide Life Insurance Company or
Nationwide Life and Annuity Insurance Company.
<PAGE>
o Purchases made with the proceeds from IDS Life Real Estate Variable Annuity
surrenders.
* Eligibility must be determined in advance by AEFA. To do so, contact your
financial advisor.
Class B - contingent deferred sales charge alternative
Where a CDSC is imposed on a redemption, it is based on the amount of the
redemption and the number of calendar years, including the year of purchase,
between purchase and redemption. The following table shows the declining scale
of percentages that apply to redemptions during each year after a purchase:
If a redemption is The percentage rate
made during the for the CDSC is:
First year 5%
Second year 4%
Third year 4%
Fourth year 3%
Fifth year 2%
Sixth year 1%
Seventh year 0%
If the amount you are redeeming reduces the current net asset value of your
investment in Class B shares below the total dollar amount of all your purchase
payments during the last six years (including the year in which your redemption
is made), the CDSC is based on the lower of the redeemed purchase payments or
market value.
The following example illustrates how the CDSC is applied. Assume you had
invested $10,000 in Class B shares and that your investment had appreciated in
value to $12,000 after 15 months, including reinvested dividend and capital gain
distributions. You could redeem any amount up to $2,000 without paying a CDSC
($12,000 current value less $10,000 purchase amount). If you redeemed $2,500,
the CDSC would apply only to the $500 that represented part of your original
purchase price. The CDSC rate would be 4% because a redemption after 15 months
would take place during the second year after purchase.
Because the CDSC is imposed only on redemptions that reduce the total of your
purchase payments, you never have to pay a CDSC on any amount you redeem that
represents appreciation in the value of your shares, income earned by your
shares or capital gains. In addition, when determining the rate of any CDSC,
your redemption will be made from the oldest purchase payment you made. Of
course, once a purchase payment is considered
<PAGE>
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 AEFA,
or a custodian-to-custodian transfer to a product not distributed by
AEFA, the CDSC will not be waived), or
- redeeming under an approved substantially equal periodic payment
arrangement.
Special shareholder services
Services
To help you track and evaluate the performance of your investments, AEFC
provides these services:
Quarterly statements listing all of your holdings and transactions during the
previous three months.
Yearly tax statements featuring average-cost-basis reporting of capital gains or
losses if you redeem your shares along with distribution information which
simplifies tax calculations.
A personalized mutual fund progress report detailing returns on your initial
investment and cash-flow activity in your account. It calculates a total return
to reflect your individual history in owning Fund shares. This report is
available from your financial advisor.
<PAGE>
Quick telephone reference
American Express Redemptions and exchanges, dividend payments
Financial Advisors or reinvestments and automatic payment
Telephone Transaction Service arrangements
National/Minnesota: 800-437-3133
Mpls./St. Paul area: 671-3800
TTY Service
For the hearing impaired
800-846-4852
American Express Financial Advisors Easy Access Line
Automated account information (TouchToneR phones only), including current Fund
prices and performance, account values and recent account transactions
800-862-7919
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. Capital gains are realized
when a security is sold for a higher price than was paid for it. 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 when a security
is held for more than one year. 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. These long-term capital gains will be subject to differing tax
rates depending on the holding period of the underlying investments. 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.
<PAGE>
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 have 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. Prior to
reinvestment, no interest will accrue on amounts represented by uncashed
distribution or redemption checks.
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 short term (for shares held for one year or less) or long term (for shares
held for more than one year).
Long-term capital gains will be taxed at rates that vary depending upon the
holding period. Long-term capital gains are divided into two holding periods:
(1) shares held more than one year but not more than 18 months and (2) shares
held more than 18 months.
<PAGE>
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.
If you do not 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, The legal entity (not the personal
pension trust or estate 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 tax-exempt The organization
organization
<PAGE>
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.
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. 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.
<PAGE>
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.
Independent board members and officers
Chairman of the board
William R. Pearce*
Chairman of the board, Board Services Corporation (provides administrative
services to boards including the boards of the IDS and IDS Life funds and Master
Trust portfolios).
H. Brewster Atwater, Jr.
Retired chairman and chief executive officer, General Mills, Inc.
Lynne V. Cheney
Distinguished fellow, American Enterprise Institute for Public Policy Research.
Heinz F. Hutter
Retired president and chief operating officer, Cargill, Inc.
Anne P. Jones
Attorney and telecommunications consultant.
Alan K. Simpson
Former United States senator for Wyoming.
Edson W. Spencer
Retired chairman and chief executive officer, Honeywell, Inc.
Wheelock Whitney
Chairman, Whitney Management Company.
C. Angus Wurtele
Chairman of the board, The Valspar Corporation.
<PAGE>
Officer
Vice president, general counsel and secretary
Leslie L. Ogg*
President of Board Services Corporation.
Board members and officers associated with AEFC
President
John R. Thomas*
Senior vice president, AEFC.
William H. Dudley*
Senior advisor to the chief executive officer, AEFC.
David R. Hubers*
President and chief executive officer, AEFC.
Officers associated with AEFC
Vice president
Peter J. Anderson*
Senior vice president, AEFC.
Vice president
Frederick C. Quirsfeld*
Vice president, AEFC.
Treasurer
Matthew N. Karstetter*
Vice president, AEFC.
Refer to the SAI for the board members' and officers' biographies.
* Interested person as defined by the Investment Company Act of 1940.
<PAGE>
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, 1998, the Fund paid AEFC a total investment
management fee of 0.38% of its average daily net assets. Under the Agreement,
the Fund also pays taxes, brokerage commissions and nonadvisory expenses.
Administrator and transfer agent
Under an Administrative Services Agreement, the Fund pays AEFC for
administration and accounting services at an annual rate of 0.04% decreasing in
gradual percentages to 0.02% as assets increase.
Under a separate Transfer Agency Agreement, American Express Client Service
Corporation (AECSC) maintains shareholder accounts and records. The Fund pays
AECSC an annual fee per shareholder account for this service 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
AEFA provide information to investors about individual investment programs, the
Fund and its operations, new account applications, and exchange and redemption
requests. The cost of these services is paid partially by the Fund's sales
charges.
<PAGE>
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 fee) 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 average daily net assets for Class A
and Class B shares and 0.10% for Class Y shares.
Total expenses paid by the Fund's Class A shares for the fiscal year ended Jan.
31, 1998, were 0.78% of its average daily net assets. Expenses for Class B and
Class Y were 1.54% and 0.69%, 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, 1998 were more than $181 billion.
AEFA serves individuals and businesses through its nationwide network of more
than 175 offices and more than 8,600 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>
IDS Small Company Index Fund
Prospectus
April 1, 1998
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(R)
(S&P SmallCap 600 Index(R)) 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 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
800-862-7919
TTY: 800-846-4852
Web site address: http://www.americanexpress.com/advisors
<PAGE>
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
<PAGE>
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
Descriptions of derivative instruments
<PAGE>
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 goal.
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 Index based upon their market
size, liquidity and industry group representation. 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 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 Index has above-average risk and may fluctuate more than the
Standard & Poor's 500 Stock Price Index, which includes stock 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 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. For further information,
refer to the later section in the prospectus titled "Investment policies and
risks."
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 $72 billion
in assets for the IDS MUTUAL FUND GROUP. Shares of the Fund are sold through
American Express Financial Advisors Inc. (AEFA), a wholly-owned subsidiary of
AEFC.
<PAGE>
Portfolio manager
Guru Baliga joined AEFC in 1991 and serves as vice president and senior
portfolio manager. He became portfolio manager of this Fund and Aggressive
Growth Portfolio 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.
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%
<PAGE>
Annual Fund operating expenses (as a percentage of average daily net assets):
Class A Class B Class Y
Management fee** 0.33% 0.33% 0.33%
12b-1 fee 0.00% 0.75% 0.00%
Other expenses*** 0.67% 0.68% 0.59%
Total**** 1.00% 1.76% 0.92%
*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, a transfer agency fee and other
nonadvisory expenses. Class Y expenses have been restated to reflect the 0.10%
shareholder services fee effective May 9, 1997. ****AEFC and AEFA have agreed to
waive certain fees and reimburse expenses, with the exception of 12b-1 fees, for
a minimum period ending July 31, 1998 to the extent that total expenses exceed
1.00 % for Class A shares, 1.76% for Class B shares and .92% for Class Y shares.
Any waiver or reimbursement applies to each class on a pro rata basis. Absent
fee waivers and expense reimbursements, total expenses would have been 1.05% for
Class A, 1.81% for Class B and .92% 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 $ 9 $29 $ 51 $114
*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>
Performance
Financial highlights
<TABLE>
<CAPTION>
Fiscal period ended Jan. 31,
Per share income and capital changesa
Class A Class B Class Y
1998 1997b 1998 1997b 1998 1997b
Net asset value,
<S> <C> <C> <C> <C> <C> <C>
beginning of period $5.51 $5.00 $5.50 $5.00 $5.51 $5.00
Income from investment operations:
Net investment income (loss) -- .02 (.05) .02 -- .02
Net gains (losses) (both 1.05 .52 1.04 .50 1.05 .52
realized and unrealized)
Total from investment 1.05 .54 .99 .52 1.05 .54
operations
Less distributions:
Dividends from net -- (.03) -- (.02) -- (.03)
investment income
Distributions from (.09) -- (.09) -- (.09) --
realized gains
Total distributions (.09) (.03) (.09) (.02) (.09) (.03)
Net asset value, $6.47 $5.51 $6.40 $5.50 $6.47 $5.51
end of period
Ratios/supplemental data
Class A Class B Class Y
1998 1997b 1998 1997b 1998 1997b
Net assets, end of $391 $95 $225 $42 $1 --
period (in millions)
Ratio of expenses to 1.00f 1.00%c,f 1.76f 1.76%c,f .92f .82%c,f
average daily net assetsd
Ratio of net income (loss) to (.05%) 1.55%c (.81%) .63%c .01% 1.93%c
average daily net assets
Portfolio turnover rate 25% 48% 25% 48% 25% 48%
(excluding short-term
securities)
Total returne 19.0% 10.8% 18.1% 10.5% 19.1% 10.9%
Average brokerage $.0340 $.0266 $.0340 $.0266 $.0340 $.0266
commission rateg
</TABLE>
aFor a share outstanding throughout the period. Rounded to the nearest
cent.
bInception date. Period from Aug. 19, 1996 to Jan. 31, 1997.
cAdjusted to an annual basis.
dExpense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
eTotal return does not reflect payment of a sales charge.
f AEFC reimbursed the Fund for certain expenses. Had AEFC not done so, the
annual ratios of expenses would have been 1.05% and 1.48% for Class A,
1.81% and 2.60% for Class B, and .92% and 1.22 for Class Y, for the year
ended 1998 and the period ended 1997, respectively.
gThe 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.
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.
<PAGE>
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 returns as of Jan. 31, 1998
Purchase 1 year Since
made ago inception
- -------------------------- --------------- ---------------
Small Company Index:
Class A +13.05% +16.81%*
Class B +14.12% +17.56%*
Class Y +19.13% +21.11%*
S&P Small Cap 600 Index +21.12% +23.61%**
*Inception date was Aug. 19, 1996.
**Measurement period started Sept. 1, 1996
Cumulative total returns as of Jan. 31, 1998
Purchase 1 year Since
made ago inception
- --------------------- ------------------ ---------------
Small Company Index:
Class A +13.05% +25.31%*
Class B +14.12% +26.48%*
Class Y +19.13% +32.07%*
S&P Small Cap 600 Index +21.12% +35.84%**
*Inception date was Aug. 19, 1996.
**Measurement period started Sept. 1, 1996
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.
<PAGE>
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.
Standard & Poor's Small Cap 600 Index is an unmanaged 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 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 stocks comprising the
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 Index. Generally, the investment manager will not select
securities for the Fund's portfolio based upon traditional economic, financial
and market analyses or forecasting.
The Fund seeks to mirror the performance of the Index by replicating the Index
or by investing in a statistically selected sample of the approximately 600
stocks included in the Index. The Fund will invest in as many stocks as
necessary to closely track the performance of the Index. Under normal market
conditions, the Fund will invest at least 80% of its net assets in stocks of
issuers that comprise the 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 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.
<PAGE>
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.
The stocks of the Index included in the Fund's investment portfolio may be
selected by utilizing 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 Index. Over the long term,
AEFC seeks a correlation between the performance of the Fund and that of the
Index of 0.95 or better. It is not possible to attain a perfect correlation
between the performance of the Fund and the 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 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 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 investment 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
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.
<PAGE>
Derivative instruments: The investment 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 investment 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 investment 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.
The investment policies described above, including the Fund's investment in
stocks listed on the Index, may be changed by the board.
<PAGE>
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 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 Assets without readily available market values are valued according to
methods selected in good faith by the board
<PAGE>
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Sales charge and
distribution
(12b-1) fee Service fee Other information
Class A Maximum initial sales 0.175% of average daily net Initial sales charge waived
charge of 5%; no 12b-1 fee assets or reduced for certain
purchases
Class B No initial sales charge; 0.175% of average daily net Shares convert to Class A
maximum CDSC of 5% assets in the ninth year of
declines to 0% after six ownership; CDSC waived in
years; 12b-1 fee of 0.75% certain circumstances
of average daily net
assets
Class Y None 0.10% of average daily net Available only to certain
assets qualifying institutional
investors
</TABLE>
Conversion of Class B shares to Class A shares - During the ninth calendar year
of owning your Class B shares, Class B shares will convert to Class A shares and
will no longer be subject to a distribution fee. Class B shares that convert to
Class A shares are not subject to a sales charge. Class B shares purchased
through reinvested dividends and distributions also will convert to Class A
shares in the same proportion as the other Class B shares. This means more of
your money will be put to work for you.
<PAGE>
Considerations in determining whether to purchase Class A or Class B shares -
You should consider the information below in determining whether to purchase
Class A or Class B shares. 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 shares If you purchase Class B shares
o You will not have all of your o All of your money is invested
purchase price invested.Part of in shares of stock. However, you
your purchase price will go to pay will pay a sales charge if you
the sales charge. You will not redeem your shares within six
pay a sales charge when you years of purchase.
redeem your shares.
o You will be able to take advantage o No reductions of the sales charge
of reductions in the sales charge. are available for large purchases.
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 shares If you purchase Class B shares
o Your shares will have a lower o The distribution and transfer
expense ratio than Class B shares because agency fees for Class B will
Class A does not pay a distribution cause your shares to have a
fee and the transfer agency fee for higher expense ratio and to pay
Class A is lower than the fee for Class B. lower dividends than Class A
As a result, Class A shares will pay shares. After eight years,
higher dividends than Class B shares. Class B shares will convert to
Class A shares and 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.
<PAGE>
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 a distribution fee. The following investors are eligible to purchase
Class Y shares:
o Qualified employee benefit plans* if the plan:
- uses a daily transfer recordkeeping service offering participants
daily access to IDS funds and has
- at least $10 million in plan assets or
- 500 or more participants; or
- does not use daily transfer recordkeeping and has
- at least $3 million invested in funds of the IDS MUTUAL FUND GROUP
or
- 500 or more participants.
o Trust companies or similar institutions, and charitable organizations that
meet the definition in Section 501(c)(3) of the Internal Revenue Code.*
These must have at least $10 million invested in funds of the IDS MUTUAL
FUND GROUP.
o Nonqualified deferred compensation plans* whose participants are included
in a qualified employee benefit plan described above.
* Eligibility must be determined in advance by AEFA. To do so, contact your
financial advisor.
How to purchase shares
If you are investing in this Fund for the first time, you will 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 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.
<PAGE>
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.
<TABLE>
<CAPTION>
Three ways to invest
<S> <C> <C>
1
By regular account Send your check and application (or your name Minimum amounts
and account number if you have an established Initial investment: $2,000
account) to: Additional investments: $100
Account balances: $300*
American Express Financial Advisors Inc.
P.O. Box 74 Qualified retirement
Minneapolis, MN 55440-0074 accounts: none
Your financial advisor will help you with this
process.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
2
By scheduled investment Contact your financial advisor to set up one Minimum amounts
plan of the following scheduled plans: Initial investment: $100
Additional investments: $100/
o automatic payroll deduction each payment
Account balances: none
o bank authorization (on active plans of
monthly payments)
o direct deposit of Social Security check
If account balance is below
o other plan approved by the Fund $2,000, frequency of payments
must be at least monthly.
3
By wire If you have an established account, you may If this information is not
wire money to: included, the order may be
rejected and all money
Norwest Bank Minneapolis received by the Fund, less any
Routing No. 091000019 costs the Fund or AEFC incurs,
Minneapolis, MN will be returned promptly.
Attn: Domestic Wire Dept.
Minimum amounts
Give these instructions: Each wire investment: $1,000
Credit IDS Account #00-30-015 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 do not do so
within 30 days, your shares can be redeemed and the proceeds mailed to you. If
you are in a "wrap-fee" program sponsored by AEFA and your wrap program balance
falls below the required program minimum or is terminated, your shares will 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 on any other fund, including fees and expenses,
read that fund's prospectus carefully.
<PAGE>
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 use the sales charge imposed on
the purchase of Class A shares to create or increase a tax loss (or reduce a
taxable gain) by exchanging from the Fund within 91 days of your purchase. For
further explanation, see the SAI.
How to redeem shares
You can redeem your shares at any time. American Express Shareholder Service
will mail payment within seven days after receiving your request.
When you redeem shares, the amount you receive may be more or less than the
amount you invested. Your shares will be redeemed at net asset value, minus any
applicable sales charge, at the close of business on the day your request is
accepted at the Minneapolis headquarters. If your request arrives after the
close of business, the price per share will be the net asset value, minus any
applicable sales charge, at the close of business on the next business day.
A redemption is a taxable transaction. If the proceeds from your redemption are
more or less than the cost of your shares, you will have a gain or loss, which
can affect your tax liability. Redeeming shares held in an IRA or qualified
retirement account may subject you to certain federal taxes, penalties and
reporting requirements. Consult your tax advisor.
<PAGE>
Two ways to request an exchange or redemption of shares
1
By letter Include in your letter:
o the name of the fund (s)
o the class of shares to be exchanged or
redeemed
o your account number(s) (for exchanges, both
funds must be registered in the same
ownership)
o your Taxpayer Identification
Number (TIN)
o the dollar amount or number of
shares you want to exchange or redeem
o signature of all registered account owners
o for redemptions, indicate how you want your
money delivered to you
o any paper certificates of shares you hold
Regular mail:
American Express Shareholder Service
Attn: Redemptions
P.O. Box 534
Minneapolis, MN 55440-0534
Express mail:
American Express Shareholder Service
Attn: Redemptions
733 Marquette Ave.
Minneapolis, MN 55402
<PAGE>
2
By phone
American Express Financial Advisors
Telephone Transaction Service
800-437-3133 or 612-671-3800
o The Fund and AEFC will honor any telephone exchange
or redemption request believed to be authentic
and will use reasonable procedures to confirm that they are. This
includes asking identifying questions and tape recording calls.
If reasonable procedures are followed, the Fund or AEFC will not be
liable for any loss resulting from fraudulent requests.
o Phone exchange and redemption privileges automatically apply to all accounts
except custodial, corporate or qualified retirement accounts unless you request
these privileges NOT apply by writing American Express Shareholder Service. Each
registered owner must sign the request.
o AEFC answers phone requests promptly, but you may experience delays when call
volume is high. If you are unable to get through, use mail procedure as an
alternative.
o Acting on your instructions, your financial advisor may conduct telephone
transactions on your behalf.
o Phone privileges may be modified or discontinued at any time.
Minimum amount
Redemption: $100
Maximum amount
Redemption: $50,000
Exchange policies:
o You may make up to three exchanges within any 30-day period, with each limited
to $300,000. These limits do not apply to scheduled exchange programs and
certain employee benefit plans or other arrangements through which one
shareholder represents the interests of several. Exceptions may be allowed with
pre-approval of the Fund.
o Exchanges must be made into the same class of shares of the new fund.
o If your exchange creates a new account, it must satisfy the minimum investment
amount for new purchases.
o Once we receive your exchange request, you cannot cancel it.
o Shares of the new fund may not be used on the same day for another exchange.
<PAGE>
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.)
Three ways to receive payment when you redeem shares
1 o Mailed to the address on record
By regular or o Payable to names listed on the account
express mail NOTE: You will be charged a fee if you request
express mail delivery.
2 o Minimum wire redemption: $1,000
By wire o Request that money be wired to your bank
o Bank account must be in the same ownership as
the IDS fund account NOTE: Pre-authorization
required. For instructions, contact your
financial advisor or American Express
Shareholder Service.
<PAGE>
3 o Minimum payment: $50
By scheduled o Contact your financial advisor or American
payout plan Express Shareholder Serviceto set up regular
payments to you on a monthly, bimonthly,
quarterly, semiannual or annual basis
o Purchasing new shares while under a payout
plan may be disadvantageous because of the
sales charges
Reductions and waivers of the sales charge
Class A - initial sales charge alternative
On purchases of Class A shares, you pay a 5% sales charge on the first $50,000
of your total investment and less on investments after the first $50,000:
Total investment Sales charge as a
percentage of:*
Public Net
offering amount
price invested
Up to $50,000 5.0% 5.26%
Next $50,000 4.5 4.71
Next $400,000 3.8 3.95
Next $500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
* To calculate the actual sales charge on an investment greater than $50,000 and
less than $1,000,000, amounts for each applicable increment must be totaled. See
the SAI.
Reductions of the sales charge on Class A shares Your sales charge may be
reduced, depending on the totals of:
o the amount you are investing in this Fund now;
o the amount of your existing investment in this Fund, if any; and
o the amount you and your 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.)
<PAGE>
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 Investors who have a business relationship with a newly associated financial
advisor who joined AEFA from another investment firm provided that (1) the
purchase is made within six months of the advisor's appointment date with AEFA,
(2) the purchase is made with proceeds of a redemption of shares that were
sponsored by the financial advisor's previous broker-dealer, and (3) the
proceeds must be the result of a redemption of an equal or greater value where a
sales load was previously assessed.
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. The CDSC will be waived only in
the circumstances described for waivers for Class B shares.
<PAGE>
o Purchases made within 30 days after a redemption of shares (up to the
amount redeemed):
- of a product distributed by AEFA 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 the same class
of another fund in the IDS MUTUAL FUND GROUP that has a sales charge.
o Purchases made through or under a "wrap fee" product sponsored by AEFA (total
amount of all investments must be $50,000); the University of Texas System ORP;
or a segregated separate account offered by Nationwide Life Insurance Company or
Nationwide Life and Annuity Insurance Company.
o Purchases made with the proceeds from IDS Life Real Estate Variable Annuity
surrenders.
* Eligibility must be determined in advance by AEFA. 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
<PAGE>
last six years (including the year in which your redemption is made), the CDSC
is based on the lower of the redeemed purchase payments or market value.
The following example illustrates how the CDSC is applied. Assume you had
invested $10,000 in Class B shares and that your investment had appreciated in
value to $12,000 after 15 months, including reinvested dividend and capital gain
distributions. You could redeem any amount up to $2,000 without paying a CDSC
($12,000 current value less $10,000 purchase amount). If you redeemed $2,500,
the CDSC would apply only to the $500 that represented part of your original
purchase price. The CDSC rate would be 4% because a redemption after 15 months
would take place during the second year after purchase.
Because the CDSC is imposed only on redemptions that reduce the total of your
purchase payments, you never have to pay a CDSC on any amount you redeem that
represents appreciation in the value of your shares, income earned by your
shares or capital gains. In addition, when determining the rate of any CDSC,
your redemption will be made from the oldest purchase payment you made. Of
course, once a purchase payment is considered to have been redeemed, the next
amount redeemed is the next oldest purchase payment. By redeeming the oldest
purchase payments first, lower CDSCs are imposed than would otherwise be the
case.
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 AEFA,
or a custodian-to-custodian transfer to a product not distributed by
AEFA, the CDSC will not be waived), or
- redeeming under an approved substantially equal periodic payment
arrangement.
<PAGE>
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 Redemptions and exchanges, dividend payments
Financial Advisors or reinvestments and automatic payment
Telephone Transaction Service arrangements
National/Minnesota: 800-437-3133
Mpls./St. Paul area: 671-3800
TTY Service
For the hearing impaired
800-846-4852
American Express Financial Advisors Easy Access Line
Automated account information (TouchToneR phones only), including current Fund
prices and performance, account values and recent account transactions
800-862-7919
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.
<PAGE>
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. Capital gains are realized
when a security is sold for a higher price than was paid for it. Short-term
capital gains are included in net investment income. Long-term capital gains are
realized when a security is held for more than one year. 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. These long-term capital gains will
be subject to differing tax rates depending on the holding period of the
underlying investments. 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 have 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. Prior to
reinvestment, no interest will accrue on amounts represented by uncashed
distribution or redemption checks.
<PAGE>
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 short term (for shares held for one year or less) or long term (for shares
held for more than one year). Long-term capital gains will be taxed at rates
that vary depending upon the holding period. Long-term capital gains are divided
into two holding periods: (1) shares held more than one year but not more than
18 months and (2) shares held more than 18 months.
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.
If you do not 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>
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 (Uniform The minor
Gifts/Transfers to Minors Act)
A living trust The grantor-trustee (the
person who puts the money
into the trust)
An irrevocable trust, The legal entity (not the personal
pension trust or estate 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 tax-exempt organization The 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>
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.
Independent board members and officers
Chairman of the board
William R. Pearce*
Chairman of the board, Board Services Corporation (provides administrative
services to boards including the boards of the IDS and IDS Life funds and Master
Trust portfolios).
H. Brewster Atwater, Jr.
Retired chairman and chief executive officer, General Mills, Inc.
Lynne V. Cheney
Distinguished fellow, American Enterprise Institute for Public Policy Research.
Heinz F. Hutter
Retired president and chief operating officer, Cargill, Inc.
<PAGE>
Anne P. Jones
Attorney and telecommunications consultant.
Alan K. Simpson
Former United States senator for Wyoming.
Edson W. Spencer
Retired chairman and chief executive officer, Honeywell, Inc.
Wheelock Whitney
Chairman, Whitney Management Company.
C. Angus Wurtele
Chairman of the board, The Valspar Corporation.
Officer
Vice president, general counsel and secretary
Leslie L. Ogg*
President of Board Services Corporation.
Board members and officers associated with AEFC
President
John R. Thomas*
Senior vice president, AEFC.
William H. Dudley*
Senior advisor to the chief executive officer, AEFC.
David R. Hubers*
President and chief executive officer, AEFC.
Officers associated with AEFC
Vice president
Peter J. Anderson*
Senior vice president, AEFC.
Frederick C. Quirsfeld*
Vice President, AEFC.
<PAGE>
Treasurer
Matthew N. Karstetter*
Vice president, AEFC.
Refer to the SAI for the board members' and officers' biographies.
* Interested person as defined by the Investment Company Act of 1940.
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 0.38%
Next 0.25 0.37
Next 0.25 0.36
Next 0.25 0.35
Over 1.0 0.34
For the fiscal year ended Jan. 31, 1998, the Fund paid AEFC a total investment
management fee, after waiver, of 0.33% of its average daily net assets. Under
the Agreement, the Fund also pays taxes, brokerage commissions and nonadvisory
expenses.
Administrator and transfer agent
Under an Administrative Services Agreement, the Fund pays AEFC for
administration and accounting services at an annual rate of 0.10% decreasing in
gradual percentages to 0.02% as assets increase.
Under a separate Transfer Agency Agreement, American Express Client Service
Corporation (AECSC) maintains shareholder accounts and records. The Fund pays
AECSC an annual fee per shareholder account for this service as follows:
o Class A $15
o Class B $16
o Class Y $15
<PAGE>
Distributor
The Fund has an exclusive distribution agreement with American Express Financial
Advisors, a wholly-owned subsidiary of AEFC. Financial advisors representing
AEFA 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 fee) 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 average daily net assets for Class A
and Class B shares and 0.10% for Class Y shares.
Total expenses paid by the Fund's Class A shares for the fiscal year ended Jan.
31, 1998, were 1.00% of its average daily net assets. Expenses for Class B and
Class Y were 1.76% and 0.92%, 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, 1998 were more than $181 billion.
<PAGE>
AEFA serves individuals and businesses through its nationwide network of more
than 175 offices and more than 8,600 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>
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>
IDS MARKET ADVANTAGE SERIES, INC.
STATEMENT OF ADDITIONAL INFORMATION
FOR
IDS BLUE CHIP ADVANTAGE FUND
April 1, 1998
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, 1998, and it is to be used with the prospectus dated
April 1, 1998, and the Annual Report for the fiscal year ended Jan. 31, 1998.
<PAGE>
IDS Market Advantage Series, Inc.
IDS Blue Chip Advantage Fund
TABLE OF CONTENTS
Goal and Investment Policies....................................See Prospectus
Additional Investment Policies.......................... .....................3
Security Transactions.........................................................6
Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation........................................7
Performance Information.......................................................8
Valuing Fund Shares...........................................................9
Investing in the Fund........................................................11
Redeeming Shares.............................................................15
Pay-out Plans................................................................16
Taxes........................................................................17
Agreements...................................................................19
Organizational Information...................................................21
Board Members and Officers...................................................22
Compensation for Fund Board Members..........................................25
Independent Auditors.........................................................26
Financial Statements..........................................See Annual Report
Prospectus...................................................................26
Appendix A: Stock Index Futures Contracts and Related Call Options..........27
Appendix B: Dollar-Cost Averaging...........................................31
<PAGE>
ADDITIONAL INVESTMENT POLICIES
These are investment policies in addition to those presented in the prospectus.
The policies below are fundamental policies of IDS Blue Chip Advantage Fund,
(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 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>
`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 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, except the Fund 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 a futures contract 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.
The Fund has no current intention to invest in securities of other 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 the Fund's net assets in securities and derivative
instruments that are illiquid. For purposes of this policy illiquid securities
include some privately placed securities, public securities and Rule 144A
securities that for one reason or another may no longer have a readily available
market, repurchase agreements with maturities greater than seven days,
non-negotiable fixed-time deposits and over-the-counter options.
<PAGE>
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.
The Fund may invest in foreign securities that are traded in the form of
American Depositary Receipts (ADRs). ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying securities of
foreign issuers. European Depositary Receipts (EDRs) and Global Depositary
Receipts (GDRs) are receipts typically issued by foreign banks or trust
companies, evidencing ownership of underlying securities issued by either a
foreign or U.S. issuer. Generally Depositary Receipts in registered form are
designed for use in the U.S. securities market and Depositary Receipts
<PAGE>
in bearer form are designed for use in securities markets outside the U.S.
Depositary Receipts may not necessarily be denominated in the same currency as
the underlying securities into which they may be converted. Depositary Receipts
also involve the risks of other investments in foreign securities.
Notwithstanding any of the Fund's other investment policies, the Fund may invest
its assets in an open-end management investment company having substantially the
same investment objectives, policies and restrictions as the Fund for the
purpose of having those assets managed as part of a combined pool.
For a discussion on 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 $4,523,705 for the fiscal year
ended Jan. 31, 1998, $1,362,614 for the fiscal year 1997, and $6,144 for the
fiscal year 1996. Substantially all firms through whom transactions were
executed provide research services.
In fiscal year 1998, transactions amounting to $30,693,000, on which $42,569 in
commissions were imputed or paid, were specifically directed to firms in
exchange for research services.
<PAGE>
As of the fiscal year ended Jan. 31, 1998, 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
Name of Issuer End of Fiscal Year
BankAmerica $46,588,574
First Chicago NBD 38,812,463
The portfolio turnover rate was 145% in the fiscal year ended Jan. 31, 1998, and
128% in fiscal year 1997. Higher turnover rates may result in higher brokerage
expenses.
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 that
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.
<PAGE>
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,
1998 1997 1996
------------------------------------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Percent of
Aggregate
Dollar Amount
Aggregate Percent of of Aggregate Aggregate
Dollar Amount Aggregate Transactions Dollar Amount Dollar Amount
Nature of Brokerage Involving of of
Broker of Commissions Commissions Payment of Commissions Commissions
- ------ -----------
Affiliation Paid to Broker Commissions Paid to Broker Paid to Broker
------------------------- ----------- -------------- --------------
American (1) $332,604 7.35% 12.03% $43,722 $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 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
<PAGE>
after which a sale 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, 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
<TABLE>
<CAPTION>
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. 2, 1998, the first business day following the end of the
fiscal year, the computation looked like this:
<S> <C> <C> <C>
Net assets Shares
before outstanding at Net asset value
shareholder the end of of one share
transactions previous day
----------------- ----------------- ----------------- ----------------- -----------------
Class A $1,225,937,431 divided by 126,581,046 equals $9.685
Class B 657,425,347 68,332,330 9.621
Class Y 243,353,017 25,111,239 9.691
</TABLE>
<PAGE>
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 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.
`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.
<PAGE>
`Securities without a readily available market price 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 adjusted for the sales charge for Class A. 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. 2, 1998, was determined by
dividing the net asset value of one share, $9.685, by 0.95 (1.00-0.05 for a
maximum 5% sales charge) for a public offering price of $10.19. The sales charge
is paid to American Express Financial Advisors Inc. (AEFA) 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.
<PAGE>
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%
Next 50,000 to 100,000 5.00-4.50 5.26-4.71
Next 100,000 to 500,000 4.50-3.80 4.71-3.95
Next 500,000 to 999,999 3.80-2.00 3.95-2.04
$1,000,000 or more 0.00 0.00
The initial sales charge is waived for certain qualified plans that meet the
requirements described in the prospectus. Participants in these qualified plans
may be subject to a deferred sales charge on certain redemptions. The deferred
sales charge on certain redemptions will be waived if the redemption is a result
of a participant's death, disability, retirement, attaining age 59 1/2, loans or
hardship withdrawals. The deferred sales charge varies depending on the number
of participants in the qualified plan and total plan assets as follows:
Deferred Sales Charge
Number of Participants
Total Plan Assets 1-99 100 or more
- ----------------- ---- -----------
Less than $1 million 4% 0%
$1 million or more 0% 0%
- -------------------------------------------------------------------------------
<PAGE>
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 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.
<PAGE>
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 $100 or more, you must make additional
payments of $100 or more on at least a monthly basis until your balance reaches
$2,000. These minimums do not apply to all systematic investment programs. You
decide how often to make payments - monthly, quarterly, or semiannually. You are
not obligated to make any payments. You can omit payments or discontinue the
investment program altogether. The Fund also can change the program or end it at
any time. If there is no obligation, why do it? Putting money aside is an
important part of financial planning. With a systematic investment program, you
have a goal to work for.
How does this work? Your regular investment amount will purchase more shares
when the net asset value per share decreases, and fewer shares when the net
asset value per share increases. Each purchase is a separate transaction. After
each purchase your new shares will be added to your account. Shares bought
through these programs are exactly the same as any other fund shares. They can
be bought and sold at any time. A systematic investment program is not an option
or an absolute right to buy shares.
The systematic investment program itself cannot ensure a profit, nor can it
protect against a loss in a declining market. If you decide to discontinue the
program and redeem your shares when their net asset value is less than what you
paid for them, you will incur a loss.
For a discussion on dollar-cost averaging, see Appendix B.
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:
<PAGE>
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 that fund's prospectus. You will receive a
confirmation that the automatic directed dividend service has been set up for
your account.
REDEEMING SHARES
You have a right to redeem your shares at any time. For an explanation of
redemption procedures, please see the prospectus.
During an emergency, the board can suspend the computation of net asset value,
stop accepting payments for purchase of shares or suspend the duty of the Fund
to redeem shares for more than seven days. Such emergency situations would occur
if:
`The Exchange closes for reasons other than the usual weekend and holiday
closings or trading on the Exchange is restricted, or
`Disposal of the Fund's securities is not reasonably practicable or it is not
reasonably practicable for the Fund to determine the fair value of its net
assets, or
`The SEC, under the provisions of the Investment Company Act of 1940, as amended
(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.
<PAGE>
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 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 American Express Shareholder Service,
P.O. Box 534, Minneapolis, MN 55440-0534, or call American Express Financial
Advisors Telephone Transaction Service at 800-437-3133 (National/Minnesota) or
612-671-3800 (Mpls./St. Paul). 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.
<PAGE>
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 redemption 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 redemption 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
<PAGE>
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, 1998, 18.75% of the Fund's net investment income
dividends qualified for the corporate deduction.
Capital gain distributions, if any, received by corporate shareholders should be
treated as long-term capital gains regardless of how long they owned their
shares. Capital gain distributions, if any, received by individuals should be
treated as long-term if held for more than one year; however, recent tax laws
have divided long-term capital gains into two holding periods: (1) shares held
more than one year but not more than 18 months and (2) shares held more than 18
months. 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 application of federal,
state and local income tax laws to Fund distributions.
<PAGE>
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, 1998, the daily rate applied to the Fund's net assets was equal to
0.370% 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 $5,953,408 for the fiscal year ended Jan. 31, 1998, $2,565,671 for fiscal
year 1997, and $951,438 for fiscal year 1996.
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 $887,606 for the fiscal year ended Jan. 31, 1998, $646,315 for fiscal year
1997, and $264,215 for fiscal year 1996.
Administrative Services Agreement
The Fund has an Administrative Services Agreement with AEFC. Under this
agreement, the Fund pays AEFC for providing administration and accounting
services. The fee is calculated as follows:
Assets Annual rate
(billions) each asset level
- --------- ----------------
First $0.25 0.040%
Next 0.25 0.035
Next 0.25 0.030
Next 0.25 0.025
Over 1.0 0.020
<PAGE>
On Jan. 31, 1998, the daily rate applied to the Fund's net assets was equal to
0.026% 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 $450,673 for the fiscal year ended Jan. 31, 1998.
Transfer Agency Agreement
The Fund has a Transfer Agency Agreement with American Express Client Service
Corporation (AECSC). This agreement governs AECSC'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, AECSC 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 AECSC may be changed from time to time upon agreement of the parties
without shareholder approval. Under the agreement, the Fund paid fees of
$2,203,371 for the fiscal year ended Jan. 31, 1998.
Distribution Agreement
Under a Distribution Agreement, sales charges deducted for distributing Fund
shares are paid to AEFA daily. These charges amounted to $8,090,835 for the
fiscal year ended Jan. 31, 1998. After paying commissions to personal financial
advisors, and other expenses, the amount retained was $(822,617). The amounts
were $5,916,606 and $(1,403,139) for fiscal year 1997, and $1,265,670 and
$1,046,290 for fiscal year 1996.
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 average
daily net assets for Class A and Class B and 0.10% for Class Y.
Plan and Agreement of Distribution
For Class B shares, to help AEFA defray the cost of distribution and servicing,
not covered by the sales charges received under the Distribution Agreement, the
Fund and AEFA 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, AEFA is paid a fee at an annual rate of 0.75% of the Fund's average daily
net assets attributable to Class B shares.
<PAGE>
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 AEFA. 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. The Plan may not be amended to increase the
amount to be spent for distribution without shareholder approval, and all
material amendments to the Plan must be approved by a majority of the board
members, including a majority of the board members who are not interested
persons of the Fund and who do not have a financial interest in the operation of
the Plan or any agreement related to it. The selection and nomination of
disinterested board members is the responsibility of the other disinterested
board members. No board member who is not an interested person, has any direct
or indirect financial interest in the operation of the Plan or any related
agreement. For the fiscal year ended Jan. 31, 1998, under the agreement, the
Fund paid fees of $3,544,614.
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 custodian's out-of-pocket expenses.
Total fees and expenses
The Fund paid total fees and nonadvisory expenses, net of earnings credits, of
$15,640,405 for the fiscal year ended Jan. 31, 1998.
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 1940 Act.
It was incorporated on Aug. 25, 1989 in Minnesota. The Fund headquarters are at
901 S. Marquette Ave., Suite 2810, Minneapolis, MN 55402-3268.
<PAGE>
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
Retired chairman and chief executive officer, General Mills, Inc. Director,
Merck & Co., Inc. and Darden Restaurants, Inc.
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, and Union
Pacific Resources.
William H. Dudley**
Born in 1932
2900 IDS Tower
Minneapolis, MN
Senior advisor to the chief executive officer of AEFC.
David R. Hubers+**
Born in 1943
2900 IDS Tower
Minneapolis, MN
President and chief executive officer of AEFC since August 1993, and director of
AEFC. Previously, senior vice president, finance and chief financial officer of
AEFC.
<PAGE>
Heinz F. Hutter+'
Born in 1929
P.O. Box 2187
Minneapolis, MN
Retired 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.
William R. Pearce+*
Born in 1927
901 S. Marquette Ave.
Minneapolis, MN
Chairman of the board, Board Services Corporation (provides administrative
services to boards). Director, trustee and officer of registered investment
companies whose boards are served by the company. Retired vice chairman of the
board, Cargill, Incorporated (commodity merchants and processors).
Alan K. Simpson'
Born in 1931
1201 Sunshine Ave.
Cody, WY
Former three-term United States Senator for Wyoming. Former Assistant Republican
Leader, U.S. Senate. Director, PacifiCorp (electric power) and Biogen
(pharmaceuticals).
Edson W. Spencer+
Born in 1926
4900 IDS Center
80 S. 8th St.
Minneapolis, MN
President, Spencer Associates Inc. (consulting). Retired 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>
John R. Thomas**
Born in 1937
2900 IDS Tower
Minneapolis, MN
Senior vice president 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 chairman of the board and Mr. Thomas, who is
president, the Fund's other officers are:
<PAGE>
Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN
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.
Fredrick C. Quirsfeld
Born in 1947
IDS Tower 10
Minneapolis, MN
Vice president-taxable mutual fund investments of AEFC. He joined AEFC in 1985
and serves as senior portfolio manager. He manages IDS Bond Fund and is a member
of the portfolio management team for Total Return Portfolio. Vice
president-fixed income investments for the Fund.
Matthew N. Karstetter
Born in 1961
IDS Tower 10
Minneapolis, MN
Vice president of Investment Accounting for AEFC since 1996. Prior to joining
AEFC, he served as vice president of State Street Bank's mutual fund service
operation from 1991 to 1996. Treasurer for the Fund.
COMPENSATION FOR FUND BOARD MEMBERS
Members of the Fund board who are not officers of the Fund or of AEFC receive an
annual fee of $1,000 and the chair of the Contracts Committee receives an
additional fee of $86. Board members receive a $50 per day attendance fee for
board meetings. The
<PAGE>
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 $10.00. Expenses for attending meetings are
reimbursed.
During the fiscal year ended Jan. 31, 1998, the independent members of the
board, for attending up to 30 meetings, received the following compensation:
<TABLE>
<CAPTION>
Compensation Table
Total cash
<S> <C> <C> <C> <C> <C>
compensation from
Aggregate Aggregate Pension or Estimated annual the IDS MUTUAL
compensations compensations from Retirement benefit upon FUND GROUP and
Board member from the Fund the Portfolio benefits accrued retirement Preferred Master
as Fund expenses Trust Group
- ------------------------- ------------------- -------------------- -------------------- -------------------- --------------------
H. Brewster Atwater, Jr. $1,304 $0 $0 $0 $101,100
Lynne V. Cheney 1,184 0 0 0 95,200
Robert F. Froehlke 1,087 0 0 0 86,800
Heinz F. Hutter 1,404 0 0 0 107,000
Anne P. Jones 1,338 0 0 0 104,500
Melvin R. Laird 895 0 0 0 74,100
Alan K. Simpson 1,080 0 0 0 88,700
Edson W. Spencer 1,790 0 0 0 129,800
Wheelock Whitney 1,454 0 0 0 110,100
C. Angus Wurtele 1,429 0 0 0 108,400
</TABLE>
On Jan. 31, 1998, the Fund's board members and officers as a group owned less
than 1% of the outstanding shares of any class.
INDEPENDENT AUDITORS
The financial statements contained in the Annual Report to shareholders for the
fiscal year ended Jan. 31, 1998 were audited by independent auditors, KPMG Peat
Marwick LLP, 4200 Norwest Center, 90 S. Seventh St., Minneapolis, MN 55402-3900.
The independent auditors also provide other accounting and tax-related services
as requested by the Fund.
FINANCIAL STATEMENTS
The Independent Auditors' Report and the Financial Statements, including Notes
to the Financial Statements and the Schedule of Investments in Securities,
contained in the Annual Report to shareholders for the fiscal year ended Jan.
31, 1998, pursuant to Section 30(d) of the 1940 Act, 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, 1998, is hereby
incorporated in this SAI by reference.
<PAGE>
APPENDIX A
STOCK INDEX FUTURES CONTRACTS AND RELATED CALL OPTIONS
The Fund may buy stock index futures contracts (futures contracts), buy call
options on futures contracts and buy call options on stock indexes.
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 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
<PAGE>
transactions. Rather, the initial margin is in the nature of a performance bond
or good-faith deposit on the contract that is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied.
Subsequent payments, called variation margin, to and from the broker would be
made on a daily basis as the price of the underlying stock index fluctuates,
making the long and short positions in the contract more or less valuable, a
process known as marking to the market. For example, when the Fund enters into a
contract in which it benefits from a rise in the value of an index and the price
of the underlying stock index has risen, the Fund will receive from the broker a
variation margin payment equal to that increase in value. Conversely, if the
price of the underlying stock index declines, the Fund would be required to make
a variation margin payment to the broker equal to the decline in value.
How the Fund Would Use Stock Index Futures Contracts. The Fund intends to use
stock index futures contracts and related options for hedging and not for
speculation. Hedging permits the Fund to gain rapid exposure to changes in the
market. For example, the Fund may find itself with a high cash position because
of new purchases of Fund shares. Conventional procedures of purchasing a number
of individual issues entail the lapse of time and the possibility of missing a
significant market movement. By using futures contracts, the Fund can obtain
immediate exposure to the market. The buying program can then proceed and once
it is completed (or as it proceeds), the contracts can be closed.
Special Risks of Transactions in Stock Index Futures Contracts.
1. Liquidity. The Fund may elect to close some or all of its contracts prior to
expiration. The purpose of making such a move would be to reduce or eliminate
the hedge position held by the Fund. The Fund may close its positions by taking
opposite positions. Final determinations of variation margin are then made,
additional cash as required is paid by or to the Fund, and the Fund realizes a
gain or a loss.
Positions in stock index futures contracts may be closed only on an exchange or
board of trade providing a secondary market for such futures contracts. For
example, futures contracts transactions can currently be entered into with
respect to the S&P 500 Stock Index on the Chicago Mercantile Exchange. Although
the Fund intends to enter into futures contracts only on exchanges or boards of
trade where there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular contract
at any particular time. In such event, it may not be possible to close a futures
contract position, and in the event of adverse price movements, the Fund would
have to make daily cash payments of variation margin. Further, there is no
guarantee the price of the securities will correlate with the price movements in
the futures contract.
2. Hedging Risks. There are several risks in using stock index futures contracts
as a hedging device. One risk arises because the 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
<PAGE>
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 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.
<PAGE>
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.
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.
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>
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>
IDS MARKET ADVANTAGE SERIES, INC.
STATEMENT OF ADDITIONAL INFORMATION
FOR
IDS SMALL COMPANY INDEX FUND
April 1, 1998
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, 1998, and it is to be used with the prospectus dated
April 1, 1998, and the Annual Report for the fiscal year ended Jan. 31, 1998.
<PAGE>
IDS Small Company Index Fund
TABLE OF CONTENTS
Goal and Investment Policies...................................See Prospectus
Additional Investment Policies............................................p. 3
Security Transactions.....................................................p. 6
Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation....................................p. 8
Performance Information...................................................p. 9
Valuing Fund Shares.......................................................p. 11
Investing in the Fund.....................................................p. 13
Redeeming Shares..........................................................p. 17
Pay-out Plans.............................................................p. 18
Taxes.....................................................................p. 19
Agreements................................................................p. 20
Organizational Information................................................p. 23
Board Members and Officers................................................p. 24
Compensation for Fund Board Members.......................................p. 28
Independent Auditors......................................................p. 28
Financial Statements..........................................See Annual Report
Prospectus................................................................p. 29
Appendix A: Options and Stock Index Futures Contracts.....................p. 30
Appendix B: Dollar-Cost Averaging.........................................p. 37
<PAGE>
ADDITIONAL INVESTMENT POLICIES
These are investment policies in addition to those presented in the prospectus.
The policies below are fundamental policies of IDS Small Company Index Fund,
(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 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.
<PAGE>
`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 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, except the Fund 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
on a futures contract 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.
The Fund has no current intention to invest in securities of other 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>
Invest more than 10% of the Fund's net assets in securities and derivative
instruments that are illiquid. For purposes of this policy illiquid securities
include some privately placed securities, public securities and Rule 144A
securities that for one reason or another may no longer have a readily available
market, repurchase agreements with maturities greater than seven days,
nonnegotiable fixed-time deposits, over-the-counter options.
In determining the liquidity of Rule 144A securities, which are unregistered
securities offered to qualified institutional buyers, and interest-only and
principal-only, fixed mortgage-backed securities (IOs and POs) issued by the
U.S. government or its agencies and instrumentalities, the investment manager,
under guidelines established by the board, will consider any relevant factors
including the frequency of trades, the number of dealers willing to purchase or
sell the security and the nature of marketplace trades.
In determining the liquidity of commercial paper issued in transactions not
involving a public offering under Section 4(2) of the Securities Act of 1933,
the investment manager, under guidelines established by the board, will evaluate
relevant factors such as the issuer and the size and nature of its commercial
paper programs, the willingness and ability of the issuer or dealer to
repurchase the paper, and the nature of the clearance and settlement procedures
for the paper.
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
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 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.
<PAGE>
The Fund may invest in foreign securities that are traded in the form of
American Depositary Receipts (ADRs). ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying securities of
foreign issuers. European Depositary Receipts (EDRs) and Global Depositary
Receipts (GDRs) are receipts typically issued by foreign banks or trust
companies, evidencing ownership of underlying securities issued by either a
foreign or U.S. issuer. Generally Depositary Receipts in registered form are
designed for use in the U.S. securities market and Depositary Receipts in bearer
form are designed for use in securities markets outside the U.S. Depositary
Receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. Depositary Receipts also
involve the risks of other investments in foreign securities.
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 where 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 with respect to the Fund and other funds and trusts in the IDS
MUTUAL FUND GROUP for which it acts as investment advisor.
<PAGE>
Research provided by brokers supplements AEFC's own research activities. Such
services include economic data on, and analysis of, U.S. and foreign economies;
information on specific industries; information about specific companies,
including earnings estimates; purchase recommendations for stocks and bonds;
portfolio strategy services; political, economic, business and industry trend
assessments; historical statistical information; market data services providing
information on specific issues and prices; and technical analysis of various
aspects of the securities markets, including technical charts. Research services
may take the form of written reports, computer software or personal contact by
telephone or at seminars or other meetings. AEFC has obtained, and in the future
may obtain, computer hardware from brokers, including but not limited to
personal computers that will be used exclusively for investment decision-making
purposes, which include the research, portfolio management and trading functions
and other services to the extent permitted under an interpretation by the SEC.
When paying a commission that might not otherwise be charged or a commission in
excess of the amount another broker might charge, AEFC must follow procedures
authorized by the board. To date, three procedures have been authorized. One
procedure permits AEFC to direct an order to buy or sell a security traded on a
national securities exchange to a specific broker for research services it has
provided. The second procedure permits AEFC, in order to obtain research, to
direct an order on an agency basis to buy or sell a security traded in the
over-the-counter market to a firm that does not make a market in that security.
The commission paid generally includes compensation for research services. The
third procedure permits AEFC, in order to obtain research and brokerage
services, to cause the Fund to pay a commission in excess of the amount another
broker might have charged. AEFC has advised the Fund it is necessary to do
business with a number of brokerage firms on a continuing basis to obtain such
services as the handling of large orders, the willingness of a broker to risk
its own money by taking a position in a security, and the specialized handling
of a particular group of securities that only certain brokers may be able to
offer. As a result of this arrangement, some portfolio transactions may not be
effected at the lowest commission, but AEFC believes it may obtain better
overall execution. AEFC has represented that under all three procedures the
amount of commission paid will be reasonable and competitive in relation to the
value of the brokerage services performed or research provided.
All other transactions shall be placed on the basis of obtaining the best
available price and the most favorable execution. In so doing, if in the
professional opinion of the person responsible for selecting the broker or
dealer, several firms can execute the transaction on the same basis,
consideration will be given by such person to those firms offering research
services. Such services may be used by AEFC in providing advice to all the funds
in the IDS MUTUAL FUND GROUP even though it is not possible to relate the
benefits to any particular fund or account.
Each investment decision made for the Fund is made independently from any
decision made for another fund in the IDS MUTUAL FUND GROUP or other accounts
advised
<PAGE>
by AEFC or any AEFC subsidiary. 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 $471,412 for the fiscal year ended
Jan. 31, 1998, and $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 except for the affiliates as noted below.
As of the fiscal year ended Jan. 31, 1998, 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
Name of Issuer End of Fiscal Year
Morgan Stanley Group $1,789,880
Piper Jaffray Cos. 1,168,000
Raymond James Financial 1,937,269
The portfolio turnover rate was 25% in the fiscal year ended Jan. 31, 1998, and
48% in fiscal period 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 that
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.
<PAGE>
AEFC may direct brokerage to compensate an affiliate. AEFC will receive research
on South Africa from New Africa Advisors, a wholly-owned subsidiary of Sloan
Financial Group. AEFC owns 100% of IDS Capital Holdings Inc. which in turn owns
40% of Sloan Financial Group. New Africa Advisors will send research to AEFC and
in turn AEFC will direct trades to a particular broker. The broker will have an
agreement to pay New Africa Advisors. All transactions will be on a best
execution basis. Compensation received will be reasonable for the services
rendered.
No brokerage commissions were paid to brokers affiliated with AEFC for the three
most recent fiscal years.
PERFORMANCE INFORMATION
The Fund may quote various performance figures to illustrate past performance.
Average annual total return 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:
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)
Standard & Poor's Small Capitalization Stock(R) Index total return
The Standard & Poor's Small Capitalization Stock Index ("S&P SmallCap 600(R)
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 group representation. It is a market value weighted index.
The S&P Small Cap 600 Index is valued at the end of every day using composite
prices and available shares. A geometric rate of return is calculated from the
daily valuations.
<PAGE>
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 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.
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.
<PAGE>
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, 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. 2, 1998, the
first business day following the end of the fiscal year, the computation looked
like this:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Net assets before Shares
shareholder outstanding at Net asset
transactions the end of value of one
previous day share
------------------- ---------------- ----------------- ----------------- ----------------
Class A $396,503,575 divided by 60,534,897 equals $6.55
Class B 227,670,991 35,080,276 6.49
Class Y 808,809 123,294 6.56
</TABLE>
<PAGE>
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 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.
`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.
<PAGE>
`Securities without a readily available market price 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
net asset value of one share adjusted for the sales charge for Class A. 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. 2, 1998 was determined by
dividing the net asset value of one share $6.55 by 0.95 (1.00-0.05 for a maximum
5% sales charge) for a public offering price of $6.89. The sales charge is paid
to American Express Financial Advisors Inc. (AEFA) 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 0.00 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.
<PAGE>
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%
Next 50,000 to 100,000 5.00-4.50 5.26-4.71
Next 100,000 to 500,000 4.50-3.80 4.71-3.95
Next 500,000 to 999,999 3.80-2.00 3.95-2.04
$1,000,000 or more 0.00 0.00
The initial sales charge is waived for certain qualified plans that meet the
requirements described in the prospectus. Participants in these qualified plans
may be subject to a deferred sales charge on certain redemptions. The deferred
sales charge on certain redemptions will be waived if the redemption is a result
of a participant's death, disability, retirement, attaining age 59 1/2, loans or
hardship withdrawals. The deferred sales charge 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.
<PAGE>
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.
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 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.
<PAGE>
Systematic Investment Programs
After you make your initial investment of $100 or more, you must make additional
payments of $100 or more on at least a monthly basis until your balance reaches
$2,000. These minimums do not apply to all systematic investment programs. You
decide how often to make payments - monthly, quarterly or semiannually. You are
not obligated to make any payments. You can omit payments or discontinue the
investment program altogether. The Fund also can change the program or end it at
any time. If there is no obligation, why do it? Putting money aside is an
important part of financial planning. With a systematic investment program, you
have a goal to work for.
How does this work? Your regular investment amount will purchase more shares
when the net asset value per share decreases, and fewer shares when the net
asset value per share increases. Each purchase is a separate transaction. After
each purchase your new shares will be added to your account. Shares bought
through these programs are exactly the same as any other fund shares. They can
be bought and sold at any time. A systematic investment program is not an option
or an absolute right to buy shares.
The systematic investment program itself cannot ensure a profit, nor can it
protect against a loss in a declining market. If you decide to discontinue the
program and redeem your shares when their net asset value is less than what you
paid for them, you will incur a loss.
For a discussion on dollar-cost averaging, see Appendix B.
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);
<PAGE>
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 that fund's prospectus. You will receive a
confirmation that the automatic directed dividend service has been set up for
your account.
REDEEMING SHARES
You have a right to redeem your shares at any time. For an explanation of
redemption procedures, please see the prospectus.
During an emergency, the board can suspend the computation of net asset value,
stop accepting payments for purchase of shares or suspend the duty of the Fund
to redeem shares for more than seven days. Such emergency situations would occur
if:
`The Exchange closes for reasons other than the usual weekend and holiday
closings or trading on the Exchange is restricted, or
`Disposal of the Fund's securities is not reasonably practicable or it is not
reasonably practicable for the Fund to determine the fair value of its net
assets, or
`The SEC, under the provisions of the Investment Company Act of 1940, as amended
(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
<PAGE>
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.
To start any of these plans, please write American Express Shareholder Service,
P.O. Box 534, Minneapolis, MN 55440-0534, or call American Express Financial
Advisors Telephone Transaction Service at 800-437-3133 (National/Minnesota) or
612-671-3800 (Mpls./St. Paul). 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.
<PAGE>
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 redemption 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 redemption 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.
<PAGE>
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, 1998, 23.42% of the Fund's net investment income
dividends qualified for the corporate deduction.
Capital gain distributions, if any, received by corporate shareholders should be
treated as long-term capital gains regardless of how long they owned their
shares. Capital gain distributions, if any, received by individuals should be
treated as long-term if held for more than one year; however, recent tax laws
have divided long-term capital gains into two holding periods: (1) shares held
more than one year but not more than 18 months and (2) shares held more than 18
months. 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 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
<PAGE>
On Jan. 31, 1998, the daily rate applied to the Fund's net assets was equal to
0.33% on an annual basis. Absent fee waivers, the management fee would be 0.38%.
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 net amount paid,
absent fee waivers, was $1,080,910 for the fiscal year ended Jan. 31, 1998, and
$101,385 for the period from Aug. 19, 1996 to Jan. 31, 1997.
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. Under the agreement, the Fund paid nonadvisory
expenses of $628,519 for the fiscal year ended Jan. 31, 1998, and $39,011 for
the period from Aug. 19, 1996 to Jan. 31, 1997.
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:
Assets Annual rate
(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 0.02
On Jan. 31, 1998, the daily rate applied to the Fund's net assets was equal to
0.084% 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 $324,356 for the fiscal year ended Jan. 31, 1998.
<PAGE>
Transfer Agency Agreement
The Fund has a Transfer Agency Agreement with American Express Client Service
Corporation (AECSC). This agreement governs AECSC'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, AECSC 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 AECSC may be changed from time to time upon agreement of the parties
without shareholder approval. Under the agreement, the Fund paid fees of
$760,936 for the fiscal year ended Jan. 31, 1998.
Distribution Agreement
Under a Distribution Agreement, sales charges deducted for distributing Fund
shares are paid to AEFA daily. These charges amounted to $4,106,630 for the
fiscal year ended Jan. 31, 1998. After paying commissions to personal financial
advisors, and other expenses, the amount retained was $(432,620). The amounts
were $1,114,087 and $(255,297) for fiscal period 1997.
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 average
daily net assets for Class A and Class B and 0.10% for Class Y.
Plan and Agreement of Distribution
For Class B shares, to help AEFA defray the cost of distribution and servicing,
not covered by the sales charges received under the Distribution Agreement, the
Fund and AEFA 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, AEFA is paid a fee at an annual rate of 0.75% of the Fund's average daily
net assets attributable to Class B shares.
<PAGE>
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 AEFA. 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. The Plan may not be amended to increase the
amount to be spent for distribution without shareholder approval, and all
material amendments to the Plan must be approved by a majority of the board
members, including a majority of the board members who are not interested
persons of the Fund and who do not have a financial interest in the operation of
the Plan or any agreement related to it. The selection and nomination of
disinterested board members is the responsibility of the other disinterested
board members. No board member who is not an interested person, has any direct
or indirect financial interest in the operation of the Plan or any related
agreement. For the fiscal year ended Jan. 31, 1998, under the agreement, the
Fund paid fees of $908,232.
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 custodian's out-of-pocket expenses.
Total fees and expenses
The Fund paid total fees and nonadvisory expenses, net of earnings credits and
waivers, of $4,307,743 for the fiscal year ended Jan. 31, 1998.
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 1940 Act.
It was incorporated on Aug. 25, 1989 in Minnesota. The Fund headquarters are at
901 S. Marquette Ave., Suite 2810, Minneapolis, MN 55402-3268.
<PAGE>
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
Retired chairman and chief executive officer, General Mills, Inc. Director,
Merck & Co., Inc. and Darden Restaurants, Inc.
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 and Union
Pacific Resources.
William H. Dudley**
Born in 1932
2900 IDS Tower
Minneapolis, MN
Senior advisor to the chief executive officer of AEFC.
David R. Hubers+**
Born in 1943
2900 IDS Tower
Minneapolis, MN
President and chief executive officer of AEFC since August 1993, and director of
AEFC. Previously, senior vice president, finance and chief financial officer of
AEFC.
<PAGE>
Heinz F. Hutter+'
Born in 1929
P.O. Box 2187
Minneapolis, MN
Retired 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.
William R. Pearce+*
Born in 1927
901 S. Marquette Ave.
Minneapolis, MN
Chairman of the board, 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 Ave.
Cody, WY
Former three-term United States Senator for Wyoming. Former Assistant Republican
Leader, U.S. Senate. Director, PacifiCorp (electric power) and Biogen
(pharmaceuticals).
Edson W. Spencer+
Born in 1926
4900 IDS Center
80 S. 8th St.
Minneapolis, MN
President, Spencer Associates Inc. (consulting). Retired 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>
John R. Thomas**
Born in 1937
2900 IDS Tower
Minneapolis, MN
Senior vice president 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.
<PAGE>
In addition to Mr. Pearce, who is chairman of the board and Mr. Thomas, who is
president, the Fund's other officers are:
Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN
President 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.
Frederick C. Quirsfeld
Born in 1947
IDS Tower 10
Minneapolis, MN
Vice president-taxable mutual fund investments of AEFC. He joined AEFC in 1985
and serves as senior portfolio manager. He manages IDS Bond Fund and is a member
of the portfolio management team for Total Return Portfolio. Vice
president-fixed income investments for the Fund.
Matthew N. Karstetter
Born in 1961
IDS Tower 10
Minneapolis, MN
Vice president of Investment Accounting for AEFC since 1996. Prior to joining
AEFC, he served as vice president of State Street Bank's mutual fund service
operation from 1991 to 1996. Treasurer for the Fund.
<PAGE>
COMPENSATION FOR FUND BOARD MEMBERS
Members of the Fund board who are not officers of the Fund or of AEFC receive an
annual fee of $300 and the chair of the Contracts Committee receives an
additional fee of $86. 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 $3. Expenses for attending
meetings are reimbursed.
During the fiscal year ended Jan. 31, 1998, the independent members of the
board, for attending up to 30 meetings, received the following compensation:
<TABLE>
<CAPTION>
Compensation Table
<S> <C> <C> <C> <C>
Total cash
compensation from
Aggregate Pension or the IDS MUTUAL
compensation from Retirement Estimated annual FUND GROUP and
Board member the Fund benefits accrued benefit upon Preferred Master
as Fund expenses retirement Trust Group
- ---------------------- --------------------- -------------------- --------------------- --------------------
H. Brewster Atwater, $ 968 $0 $0 $101,100
Jr.
Lynne V. Cheney 826 0 0 95,200
Robert F. Froehlke 834 0 0 86,800
Heinz F. Hutter 1,068 0 0 107,000
Anne P. Jones 977 0 0 104,500
Melvin R. Laird 655 0 0 74,100
Alan K. Simpson 725 0 0 88,700
Edson W. Spencer 1,454 0 0 129,800
Wheelock Whitney 1,118 0 0 110,100
C. Angus Wurtele 1,093 0 0 108,400
On Jan. 31, 1998, the Fund's board members and officers as a group owned less than 1% of the outstanding
shares of any class.
</TABLE>
INDEPENDENT AUDITORS
The financial statements contained in the Annual Report to shareholders for the
fiscal year ended Jan. 31, 1998, 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>
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, 1998, pursuant to Section 30(d) of the 1940 Act, 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, 1998, is hereby
incorporated in this SAI by reference.
<PAGE>
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.
Some options are exercisable only on a specific date. In that case, or if a
liquid secondary market does not exist, the Fund could be required to buy or
sell securities at disadvantageous prices, thereby incurring losses.
OPTIONS. An option is a contract. A person who buys a call option for a security
has the right to buy the security at a set price for the length of the contract.
A person who sells a call option is called a writer. The writer of a call option
agrees to sell the security at the set price when the buyer wants to exercise
the option, no matter what the market price of the security is at that time. A
person who buys a put option has the right to sell a security at a set price for
the length of the contract. A person who writes a put option agrees to buy the
security at the set price if the purchaser wants to exercise the option, no
matter what the market price of the security is at that time. An option is
covered if the writer owns the security (in the case of a call) or sets aside
the cash 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.
Buying options. Put and call options may be used as a trading technique to
facilitate buying and selling securities for investment reasons. Options are
used as a trading technique to take advantage of any disparity between the price
of the underlying security in the securities market and its price on the options
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
<PAGE>
bought or sold directly. When the option is purchased, the Fund pays a premium
and a commission. It then pays a second commission on the purchase or sale of
the underlying security when the option is exercised. For record keeping and tax
purposes, the price obtained on the purchase of the underlying security will be
the combination of the exercise price, the premium and both commissions. When
using options as a trading technique, commissions on the option will be set as
if only the underlying securities were traded.
Put and call options also may be held by the Fund for investment purposes.
Options permit the Fund to experience the change in the value of a security with
a relatively small initial cash investment.
The risk the Fund assumes when it buys an option is the loss of the premium. To
be beneficial to the Fund, the price of the underlying security must change
within the time set by the option contract. Furthermore, the change must be
sufficient to cover the premium paid, the commissions paid both in the
acquisition of the option and in a closing transaction or in the exercise of the
option and 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.)
Net premiums on call options closed or premiums on expired call options are
treated as short-term capital gains.
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.
<PAGE>
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 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.
<PAGE>
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 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 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 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 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, 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
<PAGE>
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
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 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 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 and a short position if
<PAGE>
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.
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 non-equity option, the Fund will either make a
1256(d) election and treat the option as a mixed straddle or mark to market the
option at fiscal year end and treat the gain/loss as 40% short-term and 60%
long-term. Certain provisions of the Internal Revenue Code may 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.
<PAGE>
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.
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>
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>
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, 1998, 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 seven-year period ended January 31, 1998, 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, 1998, 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 6, 1998
(This annual report is not part of the prospectus.)
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
IDS Blue Chip Advantage Fund
Jan. 31, 1998
Assets
Investments in securities, at value (Note 1)
<S> <C>
(identified cost $1,881,834,046) $2,050,916,956
Cash in bank on demand deposit 4,466,544
Dividends and accrued interest receivable 2,245,172
Receivable for investment securities sold 39,580,814
----------
Total assets $2,097,209,486
--------------
Liabilities
Payable for investment securities purchased 11,817,969
Accrued investment management services fee 21,043
Accrued distribution fee 13,157
Accrued service fee 9,441
Accrued transfer agency fee 7,666
Accrued administrative services fee 1,479
Other accrued expenses 370,099
-------
Total liabilities 12,240,854
----------
Net assets applicable to outstanding capital stock $2,084,968,632
==============
Represented by
Capital stock-- of $.01 par value (Note 1) $ 2,200,246
Additional paid-in capital 1,877,787,394
Undistributed net investment income 469,238
Accumulated net realized gain (loss) 35,179,241
Unrealized appreciation (depreciation) on investments (Note 4) 169,332,513
- -----------
Total-- representing net assets applicable to outstanding capital stock $2,084,968,632
==============
Net assets applicable to outstanding shares: Class A $1,201,863,808
Class B $ 644,545,273
Class Y $ 238,559,551
Net asset value per share of outstanding capital stock: Class A shares 126,581,046 $ 9.49
Class B shares 68,332,330 $ 9.43
Class Y shares 25,111,239 $ 9.50
See accompanying notes to financial statements.
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
IDS Blue Chip Advantage Fund
Year ended Jan. 31, 1998
Investment income
Income:
<S> <C>
Dividends $ 23,498,585
Interest 4,890,759
Less foreign taxes withheld (173,242)
--------
Total income 28,216,102
----------
Expenses (Note 2):
Investment management services fee 5,953,408
Distribution fee -- Class B 3,544,614
Transfer agency fee 2,154,412
Incremental transfer agency fee-- Class B 48,959
Service fee
Class A 1,662,550
Class B 823,916
Class Y 114,267
Administrative services fees and expenses 450,673
Compensation of board members 12,965
Custodian fees 127,504
Postage 180,705
Registration fees 550,867
Reports to shareholders 64,644
Audit fees 21,500
Other 4,750
-----
Total expenses 15,715,734
Earnings credits on cash balances (Note 2) (75,329)
-------
Total net expenses 15,640,405
----------
Investment income (loss) -- net 12,575,697
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 180,462,076
Financial futures contracts 14,057,520
----------
Net realized gain (loss) on investments 194,519,596
Net change in unrealized appreciation (depreciation) on investments 60,226,086
----------
Net gain (loss) on investments 254,745,682
-----------
Net increase (decrease) in net assets resulting from operations $267,321,379
============
See accompanying notes to financial statements.
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statements of changes in net assets
IDS Blue Chip Advantage Fund
Year ended Jan. 31,
Operations and distributions 1998 1997
<S> <C> <C>
Investment income (loss)-- net $ 12,575,697 $ 6,185,148
Net realized gain (loss) on investments 194,519,596 77,840,591
Net change in unrealized appreciation (depreciation) on investments 60,226,086 67,091,179
---------- ----------
Net increase (decrease) in net assets resulting from operations 267,321,379 151,116,918
----------- -----------
Distributions to shareholders from:
Net investment income
Class A (9,530,732) (4,932,940)
Class B (1,407,230) (792,370)
Class Y (1,412,952) (499,317)
Net realized gain
Class A (126,459,942) (23,865,453)
Class B (67,409,896) (10,006,369)
Class Y (20,060,243) (1,978,241)
----------- ----------
Total distributions (226,280,995) (42,074,690)
------------ -----------
Capital share transactions (Note 5)
Proceeds from sales
Class A shares (Note 2) 798,030,015 512,364,398
Class B shares 313,187,632 235,221,663
Class Y shares 187,457,450 52,505,648
Reinvestment of distributions at net asset value
Class A shares 128,577,777 27,946,936
Class B shares 68,351,842 10,736,585
Class Y shares 21,473,195 2,477,558
Payments for redemptions
Class A shares (442,501,316) (175,913,305)
Class B shares (Note 2) (47,783,649) (11,636,869)
Class Y shares (48,925,596) (13,337,249)
----------- -----------
Increase (decrease) in net assets from capital share transactions 977,867,350 640,365,365
----------- -----------
Total increase (decrease) in net assets 1,018,907,734 749,407,593
Net assets at beginning of year 1,066,060,898 316,653,305
------------- -----------
Net assets at end of year $2,084,968,632 $1,066,060,898
============== ==============
Undistributed net investment income $ 469,238 $ 244,455
-------------- --------------
See accompanying notes to financial statements.
(This annual report is not part of the prospectus.)
</TABLE>
<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 and such shares automatically convert to
Class A shares 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. Debt securities are
generally traded in the over-the-counter market and are valued at a price
deemed best to reflect fair value as quoted by dealers who make markets in
these securities or by an independent pricing service. Securities for
which market quotations are not readily available are valued at fair value
according to methods selected in good faith by the board. 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 an 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 0.44% to 0.34%
annually.
Under an 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, American Express Client
Service Corporation (AECSC) maintains shareholder accounts and records.
The Fund pays AECSC an annual fee per shareholder account for this service
as follows:
oClass A $15
oClass B $16
oClass 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
9th, 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 $7,790,577 for Class A and $300,258 for
Class B for the year ended Jan. 31, 1998. The Fund also pays custodian
fees to American Express Trust Company, an affiliate of AEFC.
During the year ended Jan. 31, 1998, the Fund's custodian and transfer
agency fees were reduced by $75,329 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 $2,968,753,849 and $2,155,683,800
respectively, for the year ended Jan. 31, 1998. Realized gains and losses
are determined on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $332,604
for the year ended Jan. 31, 1998.
4
Financial futures
contracts
Investments in securities at Jan. 31, 1998, included securities valued at
$30,778,125 that were pledged as collateral to cover initial margin
deposits on 112 open purchase contracts. The market value of the open
purchase contracts at Jan. 31, 1998 was $27,658,400 with a net unrealized
gain of $249,603.
5
Capital share
transactions
Transactions in shares of capital stock for the years indicated are as
follows:
Year ended Jan. 31, 1998
Class A Class B Class Y
Sold 81,047,186 31,894,665 19,205,312
Issued for reinvested 13,851,152 7,422,304 2,312,625
distributions
Redeemed (44,911,144) (4,846,317) (4,957,569)
----------- ---------- ----------
Net increase (decrease) 49,987,194 34,470,652 16,560,368
---------- ---------- ----------
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
---------- ---------- ---------
6
Financial
highlights
"Financial highlights" showing per share data and selected information is
presented on page 7 and 8 of the prospectus.
(This annual report is not part of the prospectus.)
<PAGE>
Investments in securities
IDS Blue Chip Advantage Fund (Percentages represent
Jan. 31, 1998 value of investments
compared to net assets)
Common stocks - 98.3%
Issuer Shares Value(a)
Aerospace & defense - 4.8%
AlliedSignal 498,100 $ 19,394,769
Goodrich (BF) 266,900 11,193,119
Lockheed Martin 243,900 25,380,843
Raytheon Cl B 345,800 18,024,825
Rockwell Intl 452,700 25,294,613
Total 99,288,169
Airlines - 0.8%
AMR 140,000(b) 17,675,000
Automotive & related - 1.2%
Ford Motor 200,000 10,200,000
TRW 284,200 14,458,675
Total 24,658,675
Banks and savings & loans - 9.3%
BankAmerica 655,600 46,588,574
Citicorp 47,100 5,604,900
First Chicago NBD 520,100 38,812,463
First Union 858,300 41,252,043
Norwest 32,600 1,189,900
Wachovia 522,600 40,632,150
Washington Mutual 320,700 20,604,975
Total 194,685,005
Beverages & tobacco - 6.1%
Coca-Cola 937,300 60,690,175
Fortune Brands 705,000 26,966,250
Philip Morris 934,900 38,798,350
Total 126,454,775
Building materials & construction - 1.0%
Masco 119,100 5,865,675
Tyco Intl 343,400 15,238,375
Total 21,104,050
Chemicals - 1.2%
Air Products & Chemicals 291,400 23,330,213
Du Pont (EI) de Nemours 41,000 2,321,625
Total 25,651,838
Communications equipment & services - 1.6%
Lucent Technologies 164,800 14,584,800
Motorola 160,400 9,533,775
Northern Telecom 79,300 3,578,413
Tellabs 117,200(b) 5,999,175
Total 33,696,163
Computers & office equipment - 7.7%
Automatic Data Processing 371,400 22,214,362
Cisco Systems 282,900(b) 17,840,380
Compaq Computer 525,600(b) 15,800,850
Computer Associates Intl 333,312 17,728,059
Computer Sciences 138,500(b) 11,755,188
Hewlett-Packard 290,700 17,442,000
Microsoft 301,600(b) 44,994,949
Xerox 152,700 12,273,263
Total 160,049,051
Electronics - 3.1%
Applied Materials 228,000(b) 7,481,250
Intel 587,700 47,603,700
KLA-Tencor 109,400(b) 4,102,500
Texas Instruments 110,800 6,052,450
Total 65,239,900
Energy - 7.0%
Amoco 548,500 44,634,187
Anadarko Petroleum 15,800 932,200
Mobil 102,100 6,955,563
Royal Dutch Petroleum 1,182,300 60,592,874
Texaco 68,800 3,581,900
Unocal 832,400 28,613,750
Total 145,310,474
Energy equipment & services - 0.5%
Baker Hughes 259,800(d) 10,018,538
Financial services - 4.2%
Fannie Mae 190,000 11,732,500
H&R Block 341,400 14,978,925
MBNA 619,400(d) 19,240,113
Travelers Group 819,799 40,580,050
Total 86,531,588
Food - 4.1%
Bestfoods 308,700 30,098,250
ConAgra 417,000 13,187,625
General Mills 316,500 23,559,469
Sara Lee 351,600 19,184,175
Total 86,029,519
Furniture & appliances - 0.6%
Maytag 333,400 12,815,063
Health care - 12.6%
ALZA 153,100(b) 5,454,188
American Home Products 276,100 26,350,294
Amgen 174,200(b) 8,710,000
Baxter Intl 286,300 15,943,331
Boston Scientific 125,300(b) 6,358,975
Bristol-Myers Squibb 394,200 39,296,812
Guidant 103,100 6,624,175
Johnson & Johnson 583,900(d) 39,084,806
Lilly (Eli) 139,500 9,416,250
Merck & Co 397,600 46,618,599
Pfizer 446,300 36,568,706
Schering-Plough 294,100 21,285,488
Total 261,711,624
Health care services - 1.9%
HBO & Co 171,500 8,971,594
Service Corp Intl 340,100 13,263,900
Tenet Healthcare 295,100(b) 10,180,950
United Healthcare 148,800 7,626,000
Total 40,042,444
Household products - 4.2%
Colgate-Palmolive 209,800 15,367,850
Gillette 282,800 27,926,500
Proctor & Gamble 562,000 44,046,750
Total 87,341,100
Industrial equipment & services - 0.2%
Case 30,200 1,761,038
Deere & Co 35,300 1,862,075
Total 3,623,113
Insurance - 1.5%
SunAmerica 298,500 11,995,969
UNUM 405,600 19,722,300
Total 31,718,269
Leisure time & entertainment - 0.2%
Marriott Intl 52,900 3,656,713
Media - 1.8%
CBS 630,600(d) 18,878,588
Clear Channel
Communications 184,500(b) 14,206,500
Gannett 40,200 2,432,100
Tribune 36,700 2,229,525
Total 37,746,713
Metals - 2.1%
Aluminum Co of America 304,500 23,256,188
Reynolds Metals 318,900 20,110,631
Total 43,366,819
Multi-industry conglomerates - 3.7%
General Electric 696,800(d) 54,002,000
Minnesota Mining & Mfg 277,100 23,137,850
Total 77,139,850
Paper & packaging - 1.1%
Intl Paper 43,000 1,964,563
Mead 43,300 1,407,250
Tenneco 462,500 18,760,156
Total 22,131,969
Retail - 5.0%
Dayton Hudson 195,500(d) 14,063,781
Jostens 135,000 3,045,938
Kroger 404,000(b) 15,806,500
Penney (JC) 175,000 11,790,625
Rite Aid 165,500 10,333,406
Toys "R" Us 362,500(b) 9,719,531
Wal-Mart Stores 948,400 37,817,450
Walgreen 47,300 1,566,813
Total 104,144,044
Utilities -- electric - 1.3%
Consolidated Edison 277,700 11,472,481
Edison Intl 416,600 11,196,125
Unicom 161,000 4,991,000
Total 27,659,606
Utilities -- gas - 1.3%
Coastal 38,700 2,244,600
Consolidated Natural Gas 61,700 3,351,081
Enron 516,100 21,385,894
Total 26,981,575
Utilities -- telephone - 7.2%
AirTouch Communications 545,600(b) 23,938,199
Ameritech 360,600 15,483,263
AT&T 469,500 29,402,437
BellSouth 381,600 23,110,650
MCI Communications 205,300 9,533,619
SBC Communications 267,700 20,813,675
U S WEST Communications
Group 390,000 18,768,750
WorldCom 257,600(b) 9,225,300
Total 150,275,893
Foreign - 1.0%(c)
Schlumberger 286,100 21,081,994
Total common stocks
(Cost: $1,878,746,624) $2,047,829,534
Short-term security - 0.1%
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agency
Federal Natl Mtge Assn Disc Nt
02-27-98 5.43% $3,100,000 $ 3,087,422
Total short-term security
(Cost: $3,087,422) $ 3,087,422
Total investments in securities
(Cost $1,881,834,046)(e) $2,050,916,956
==============
See accompanying notes to investments in securities.
(This annual report is not part of the prospectus.)
<PAGE>
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, March 1998 $28,000,000
(e) At Jan. 31, 1998, the cost of securities for federal income tax purposes was
$1,886,912,329 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation.........................................$199,127,479
Unrealized depreciation..........................................(35,122,852)
-----------
Net unrealized appreciation.....................................$164,004,627
(This annual report is not part of the prospectus.)
<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, 1998, and the related statement of operations for the year then ended
and the statements of changes in net assets and the financial highlights
for the year then ended and 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 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 Small Company
Index Fund at January 31, 1998, and the results of its operations, changes
in its net assets, and 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 6, 1998
(This annual report is not part of the prospectus.)
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
IDS Small Company Index Fund
Jan. 31, 1998
Assets
Investments in securities, at value (Note 1)
<S> <C>
(identified cost $589,195,940) $628,026,341
Cash in bank on demand deposit 2,638,982
Dividends and accrued interest receivable 177,776
Receivable for investment securities sold 4,122,716
---------
Total assets 634,965,815
-----------
Liabilities
Payable for investment securities purchased 6,460,403
Payable upon return of securities loaned (Note 4) 11,409,800
Accrued investment management services fee 6,240
Accrued distribution fee 4,573
Accrued service fee 2,932
Accrued transfer agency fee 1,776
Accrued administrative services fee 1,417
Other accrued expenses 169,317
-------
Total liabilities 18,056,458
----------
Net assets applicable to outstanding capital stock $616,909,357
============
Represented by
Capital stock-- $.01 par value (Note 1) $ 957,385
Additional paid-in capital 571,245,278
Accumulated net realized gain (loss) 5,802,780
Unrealized appreciation (depreciation) of investments (Note 5) 38,903,914
----------
Total-- representing net assets applicable to outstanding capital stock $616,909,357
============
Net assets applicable to outstanding shares: Class A $391,470,731
Class B $224,640,601
Class Y $ 798,025
Net asset value per share of outstanding capital stock: Class A shares 60,534,897 $ 6.47
Class B shares 35,080,276 $ 6.40
Class Y shares 123,294 $ 6.47
See accompanying notes to financial statements.
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
IDS Small Company Index Fund
Year ended Jan. 31, 1998
Investment income
Income:
<S> <C>
Dividends $ 2,739,734
Interest 509,181
Less foreign taxes withheld (125)
----
Total income 3,248,790
---------
Expenses (Note 2):
Investment management services fee 1,309,725
Distribution fee -- Class B 908,232
Transfer agency fee 741,987
Incremental transfer agency fee-- Class B 18,949
Service fee
Class A 392,799
Class B 211,685
Class Y 306
Administrative services fees and expenses 324,356
Compensation of board members 9,716
Custodian fees 299,901
Postage 76,718
Registration fees 247,585
Reports to shareholders 21,758
Audit fees 14,000
Other 19,053
------
Total expenses 4,596,770
Expenses voluntarily reimbursed by AEFC (Note 2) (228,815)
--------
4,367,955
Earnings credits on cash balances (Note 2) (60,212)
-------
Total net expenses 4,307,743
---------
Investment income (loss)-- net (1,058,953)
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 15,434,804
Financial futures contracts (547,020)
--------
Net realized gain (loss) on investments 14,887,784
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 33,252,013
----------
Net gain (loss) on investments and foreign currencies 48,139,797
----------
Net increase (decrease) in net assets resulting from operations $47,080,844
===========
See accompanying notes to financial statements.
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statements of changes in net assets
IDS Small Company Index Fund
Operations and distributions
For the period
Year ended from Aug 19, 1996*
Jan. 31, 1998 to Jan. 31, 1997
<S> <C> <C>
Investment income (loss)-- net $ (1,058,953) $ 398,738
Net realized gain (loss) on investments 14,887,784 317,573
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 33,252,013 5,651,901
---------- ---------
Net increase (decrease) in net assets resulting from operations 47,080,844 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 (5,245,145) (58,220)
Class B (3,004,087) (24,313)
Class Y (10,721) --
-------
Total distributions (8,259,953) (499,251)
---------- --------
Capital share transactions (Note 6)
Proceeds from sales
Class A shares (Note 2) 301,545,821 93,847,466
Class B shares 177,300,599 40,421,294
Class Y shares 911,375 816
Reinvestment of distributions at net asset value
Class A shares 4,865,785 356,913
Class B shares 2,986,421 119,807
Class Y shares 10,721 5
Payments for redemptions
Class A shares (36,734,310) (3,320,576)
Class B shares (Note 2) (9,507,988) (444,042)
Class Y shares (143,602) --
-------- ----------
Increase (decrease) in net assets from capital share transactions 441,234,822 130,981,683
----------- -----------
Total increase (decrease) in net assets 480,055,713 136,850,644
Net assets at beginning of period 136,853,644 3,000
----------- -----
Net assets at end of period $616,909,357 $136,853,644
============ ============
*Commencement of operations
See accompanying notes to financial statements.
(This annual report is not part of the prospectus.)
</TABLE>
<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. AEFC continues to hold these shares at Jan. 31,
1998. 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 600 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 shares 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. Debt securities are
generally traded in the over-the-counter market and are valued at a price
deemed best to reflect fair value as quoted by dealers who make markets in
these securities or by an independent pricing service. Securities for
which market quotations are not readily available are valued at fair value
according to methods selected in good faith by the board. 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 or in the
over-the-counter market where the completion of the obligation is
dependent upon the credit standing of the other party. The Fund also may
buy and sell put and call 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 and write put and call options
on these futures contracts. Risks of entering into futures contracts and
related options include the possibility that there may be an illiquid
market and that a change in the value of the contract or option may not
correlate with changes in the value of the underlying securities.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin)
are made or received by the Fund each day. The variation margin payments
are equal to the daily changes in the contract value and are recorded as
unrealized gains and losses. The Fund recognizes a realized gain or loss
when the contract is closed or expires.
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 investment income has been
increased by $1,058,953 and accumulated net realized gain has been
decreased by $1,058,853 resulting in a net reclassification adjustment to
decrease additional paid-in capital by $100.
Dividends to shareholders
An annual dividend from net investment income, declared and paid at the
end of the calendar year, is reinvested in additional shares of the Fund
at net asset value or payable in cash. Capital gains, when available, are
distributed along with the income dividend.
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
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 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 0.10% 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, American Express Client
Service Corporation (AECSC) maintains shareholder accounts and records.
The Fund pays AECSC an annual fee per shareholder account for this service
as follows:
oClass A $15
oClass B $16
oClass 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 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 $4,044,576 for Class A and $62,054 for Class
B for the year ended Jan. 31, 1998. 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, 1998. Under this agreement, the Fund's
total expenses will not exceed 1.00% for Class A, 1.76% for Class B and
0.92% for Class Y of the Fund's average daily net assets.
During the year ended Jan. 31, 1998, the Fund's custodian and transfer
agency fees were reduced by $60,212 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 $516,087,442 and $87,027,400,
respectively, for the year ended Jan. 31, 1998. Realized gains and losses
are determined on an identified cost basis.
4
Lending of
portfolio securities
At Jan. 31, 1998, securities valued at $10,967,575 were on loan to
brokers. For collateral, the Fund received $11,409,800 in cash. Income
from securities lending amounted to $157,898 for the year ended Jan. 31,
1998. 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
Financial futures
contracts
Investments in securities at Jan. 31, 1998, included securities valued at
$1,115,638 that were pledged as collateral to cover initial margin
deposits on eight open purchase contracts. The market value of the open
purchase contracts at Jan. 31, 1998 was $1,975,600 with a net unrealized
gain of $73,513.
6
Capital share
transactions
Transactions in shares of capital stock for the periods indicated are as
follows:
Year ended Jan. 31, 1998
Class A Class B Class Y
Sold 48,477,409 28,574,068 143,930
Issued for reinvested 754,620 467,432 1,661
distributions
Redeemed (5,969,331) (1,534,900) (22,498)
---------- ---------- -------
Net increase (decrease) 43,262,698 27,506,600 123,093
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 (decrease) 17,271,999 7,573,476 1
* 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.
(This annual report is not part of the prospectus.)
<PAGE>
Investments in securities
IDS Small Company Index Fund (Percentages represent
Jan. 31, 1998 value of investments
compated to net assets)
Common stocks - 99.2%
Issuer Shares Value(a)
Aerospace & defense - 0.9%
AAR 31,700 $ 1,442,350
Alliant Techsystems 23,100(b) 1,373,006
BE Aerospace 39,000(b) 940,875
Kaman Cl A 33,600 571,200
Tracor 43,250(b) 1,227,219
Total 5,554,650
Airlines - 1.0%
Air Express Intl 59,700 1,585,781
Comair Holdings 116,500 3,283,844
Mesa Air Group 51,800(b) 333,463
SkyWest 18,100 669,700
Total 5,872,788
Automotive & related - 2.5%
Breed Technologies 56,600(c) 1,022,338
Central Parking 45,600 1,869,600
Discount Auto Parts 28,200(b) 588,675
Gentex 61,600(b) 1,924,999
Global Motorsport Group 9,100(b) 113,750
Intermet 45,600 758,100
Myers Inds 30,920 529,505
O'Reilly Automotive 36,900(b) 936,338
Simpson Inds 30,300 363,600
Smith (AO) 29,500 1,239,000
Spartan Motors 20,700 146,194
SPS Technologies 21,200(b) 862,575
SPX 21,000 1,533,000
Standard Motor Products 24,100 399,156
Standard Products 28,700 823,331
TBC 42,100(b) 384,163
Titan Intl 36,400 650,650
Walbro 16,400 234,725
Winnebago Inds 42,500 379,844
Wynn's Intl 34,575 788,742
Total 15,548,285
Banks and savings & loans - 8.2%
Astoria Financial 46,000 2,363,250
CCB Financial 36,000 3,678,750
Centura Banks 44,900 3,058,813
Coast Savings Financial 32,500(b) 1,941,875
Commercial Federal 56,025 1,820,813
Cullen/Frost Bankers 38,700 2,123,663
Deposit Guaranty 71,500 3,691,187
Downey Financial 46,575 1,309,922
First Commercial 64,611 4,022,049
FirstBank Puerto Rico 26,900 919,644
FirstMerit 108,000 3,064,500
HUBCO 38,600 1,379,950
JSB Financial 17,500 857,500
Keystone Financial 90,450 3,618,000
Magna Group 58,100 2,618,131
ONBANCorp 22,100 1,541,475
Provident Financial Group 72,850 3,328,334
Riggs Natl 52,600 1,351,163
Sovereign Bancorp 156,460 2,914,068
St. Paul Bancorp 59,925 1,453,181
U.S. Trust 33,600 1,995,000
Whitney Holding 36,600 2,008,425
Total 51,059,693
Beverages & tobacco - 0.8%
Canandaigua Wine Cl A 32,700(b) 1,745,362
Coca-Cola 14,700 823,200
DIMON 77,100 1,585,369
Schweitzer-Mauduit Intl 27,400 979,550
Total 5,133,481
Building materials & construction - 3.6%
Apogee Enterprises 48,100 568,181
Building Materials
Holding Corp 22,800(b) 250,800
Butler Mfg 14,200 456,175
Continental Homes Holding 12,400 545,600
Horton (DR) 65,000(c) 1,283,750
Hughes Supply 31,800 1,037,475
Insituform Technologies
Cl A 49,300(b) 446,781
Insteel Inds 15,500 97,844
Juno Lighting 31,100 509,263
Lone Star Inds 19,200 1,068,000
M.D.C. Holdings 31,100(c) 470,388
Medusa 29,300 1,291,031
Morrison Knudsen 95,200(b) 981,750
Oakwood Homes 80,300 2,885,780
Republic Group 21,130 384,302
Ryland Group 26,200 638,625
Skyline 16,200 449,550
Southern Energy Homes 28,900(b) 260,100
Standard Pacific 52,000 913,250
Stone & Webster 22,000 852,500
Texas Inds 36,600 1,791,112
TJ Intl 29,900 736,288
Toll Brothers 58,800(b) 1,639,050
Tredegar Inds 21,300 1,369,856
U.S. Home 20,500(b) 777,719
Universal Forest Products 31,700 418,044
Total 22,123,214
Chemicals - 1.9%
Cambrex 21,300 895,931
Chemed 17,100 685,069
ChemFirst 34,400 894,400
Dames & Moore Group 33,300 422,494
Geon 40,500 860,625
Hauser 22,400(b) 133,000
Ionics 27,300(b) 1,122,713
Lilly Inds Cl A 39,200 710,500
MacDermid 14,300 1,179,749
Mississippi Chemical 49,105 880,821
OHM 49,200(b) 559,650
OM Group 38,300 1,467,368
Penford 13,600 421,600
Quaker Chemical 16,800 284,550
TETRA Technologies 22,900(b) 489,488
WD-40 27,000 749,250
Total 11,757,208
Communications equipment & services - 2.2%
Allen Group 46,700(b) 875,625
Aspect Telecommunications 87,700(b) 2,181,537
Belden 45,600 1,738,500
BroadBand Technologies 21,200(b) 87,450
C-COR Electronics 14,800(b) 229,400
California Microwave 27,700(b) 505,525
Centigram Communications 14,500(b) 174,000
Dialogic 28,500(b) 1,043,813
Digi Intl 24,300(b) 557,381
Digital Microwave 65,500(b) 1,322,281
General Communication Cl A 84,100(b) 583,444
InterVoice 24,100(b) 236,481
Network Equipment
Technologies 38,500(b) 486,063
Oak Inds 30,800(b) 950,950
P-COM 73,300(b) 1,429,350
PictureTel 64,800(b) 449,550
SymmetriCom 28,800(b) 291,600
TCSI 35,500(b) 284,000
Total 13,426,950
Computers & office equipment - 9.2%
Acxiom 91,300(b) 1,552,100
ADAC Laboratories 33,000 697,125
American Management
Systems 71,900(b) 1,626,738
Amtech 29,600(b) 131,350
Analysts Intl 38,950 1,129,550
Applied Magnetics 41,200(b,c) 478,950
Auspex Systems 43,600(b) 392,400
BancTec 37,400(b) 956,038
Billing Information Concepts27,700(b) 1,218,800
BISYS Group 46,200(b) 1,536,150
BMC Inds 49,700 807,625
Boole & Babbage 32,500(b) 1,044,063
Broderbund Software 35,100(b) 741,488
Ciber 36,350(b) 2,040,144
Cognex 72,400(b) 1,493,250
Computer Task Group 36,100 1,353,750
Comverse Technology 74,410(b) 2,506,687
Envoy 29,100(b,c) 1,098,525
Exabyte 39,700(b) 280,381
Fair Isaac & Co 24,300 715,331
FileNet 26,000(b) 834,438
Hadco 23,200(b) 985,275
Henry (Jack) & Associates 33,000 1,134,375
Hyperion Software 32,500(b) 1,312,188
Intermagnetics General 26,056(b) 241,018
Keane 114,700(b) 4,659,687
Komag 92,400(b) 1,247,400
Kronos 15,000(b) 466,875
MicroAge 30,300(b) 331,406
Natl Computer Systems 27,000 924,750
Natl Data 46,200 1,738,275
New England Business
Service 23,500 775,500
Platinum Software 37,500(b) 410,156
Platinum Technology 109,400(b) 3,063,199
Primark 45,900(b) 1,861,819
Progress Software 20,400(b) 451,350
Read-Rite 83,700(b) 1,239,806
Sanmina 35,700(b) 2,400,825
Sterling Software 66,600(b) 2,547,450
System Software
Associates 73,200(b) 558,150
Tech Data 83,000(b) 3,517,124
Telxon 26,600 628,425
Vanstar 75,500(b) 1,005,094
Vantive 44,800(b) 1,103,200
Wall Data 18,300(b) 300,806
Xircom 42,100(b) 444,681
Zebra Technologies Cl A 43,100(b) 1,196,025
Total 57,179,742
Electronics - 7.2%
Anixter Intl 82,700(b) 1,374,888
Bell Inds 17,040(b) 240,690
Benchmark Electronics 20,500(b) 529,156
C-Cube Microsystems 65,300(b,c) 1,224,375
Cable Design Technologies 50,150(b) 1,394,797
Dallas Semiconductor 48,200 2,277,449
Dionex 20,600(b) 1,133,000
Dynatech 29,100(b) 1,367,700
Electro Scientific Inds 19,400(b) 601,400
Electroglas 33,000(b) 478,500
Etec Systems 38,400(b) 1,593,600
Figgie Intl Cl A 34,200(b) 453,150
Fluke 32,400 753,300
Gerber Scientific 38,800 703,250
Harmon Inds 13,100 347,150
Helix Technology 33,800 646,425
Innovex 24,800 542,500
Integrated Circuit Systems 22,800(b) 589,950
Intl Rectifier 90,000(b) 1,029,375
Itron 25,200(b) 400,050
Kent Electronics 45,300(b) 1,081,538
Kuhlman 28,600 1,140,425
Kulicke & Soffa Inds 39,400(b) 797,850
Lattice Semiconductor 40,200(b) 1,854,225
Marshall Inds 29,300(b) 882,663
Methode Electronics Cl A 60,700 872,563
Microchip Technology 93,850(b) 2,167,347
Novellus Systems 58,400(b) 2,106,050
Pacific Scientific 22,600 567,825
Park Electrochemical 19,200 614,400
Photronics 42,600(b) 979,800
Pioneer-Standard Electronics44,900 625,794
Plexus 24,100(b) 373,550
S3 89,400(b) 463,763
SpeedFam Intl 28,100(b) 669,131
Standard Microsystems 25,800(b) 219,300
Technitrol 27,500 885,156
Three-Five Systems 14,500 274,594
Trimble Navigation 40,500(b) 779,625
Ultratech Stepper 37,200(b,c) 762,600
Unitrode 41,100(b) 744,938
Vicor 73,900(b) 1,755,125
Vitesse Semiconductor 61,950(b) 2,690,952
VLSI Technology 82,800(b) 1,650,825
Watkins-Johnson 14,400 360,000
X-Rite 36,300 562,650
Zilog 34,500(b) 661,969
Total 44,225,363
Energy - 3.1%
Atmos Energy 50,700 1,444,950
Barrett Resources 55,500(b) 1,554,000
Benton Oil & Gas 50,100(b) 619,988
Cabot Oil & Gas Cl A 43,600 863,825
Cross Timbers Oil 45,050 1,058,675
Devon Energy 55,900 1,949,512
HS Resources 31,500(b) 442,969
KCS Energy 51,500 862,625
Newfield Exploration 63,400(b) 1,426,500
Pogo Producing 58,600 1,662,775
Santa Fe Energy Resources 180,500(b) 1,895,250
Snyder Oil 56,500 942,844
St. Mary Land & Exploration 19,900 671,625
United Meridian 62,700(b) 1,724,250
Vintage Petroleum 91,200 1,607,400
Wiser Oil 17,400 228,375
Total 18,955,563
Energy equipment & services - 1.9%
Camco Intl 66,870 3,656,952
Daniel Inds 31,300 547,750
Input/Output 76,900(b) 1,528,388
Oceaneering Intl 40,800(b) 655,350
Plains Resources 28,600(b) 443,300
Pool Energy Services 35,100(b) 721,744
Pride Intl 83,000(b) 1,768,938
Remington Oil & Gas Cl B 32,400(b) 194,400
Seitel 39,700(b) 553,319
Tuboscope 77,200(b) 1,558,475
Total 11,628,616
Financial services - 3.0%
AMRESCO 63,900(b) 1,811,166
Bowne & Co 31,100 1,140,981
CMAC Investment 38,900 2,426,387
Dain Rauscher 22,000 1,248,500
Eaton Vance 32,200 1,183,350
Insurance Auto Auctions 21,600(b) 189,000
Legg Mason 47,233 2,335,081
Mutual Risk Management 67,300 2,006,381
Natl Auto Credit 54,700(b) 58,119
Pioneer Group 43,500 1,235,672
Piper Jaffray Cos 32,000 1,168,000
Raymond James Financial 55,950 1,937,269
SEI Investments 31,200 1,497,600
Total 18,237,506
Food - 2.2%
Chiquita Brands Intl 108,700 1,467,450
Corn Products Intl 62,100(b) 1,987,200
DEKALB Genetics Cl B 59,500 1,628,813
Delta & Pine Land 65,033(c) 1,950,996
Earthgrains 37,500 1,725,000
Fleming Cos 66,100 995,631
GoodMark Foods 11,000 198,000
J & J Snack Foods 14,100(b) 200,925
Mycogen 53,700(b) 1,107,563
Nash Finch 19,800 386,100
Smithfield Foods 65,500(b) 2,186,062
Total 13,833,740
Furniture & appliances - 1.6%
Bassett Furniture Inds 23,200 667,000
Ethan Allen Interiors 50,100 2,398,537
Fedders 60,800 349,600
Interface 42,800 1,514,050
La-Z-Boy 31,300 1,359,594
Mohawk Inds 91,000(b) 2,195,375
Natl Presto Inds 12,500 498,438
Rival 18,700 266,475
Royal Appliance Mfg 43,100(b) 255,906
Thomas Inds 27,800 608,125
Total 10,113,100
Health care - 5.9%
Advanced Tissue Sciences 63,700(b,c) 875,875
Alliance Pharmaceutical 53,700(b) 382,613
Alpharma Cl A 45,700(e) 939,706
Ballard Medical Products 51,100 1,283,888
Bio-Technology General 82,000(b) 789,250
Cephalon 45,800(b) 449,413
Circon 21,900(b) 344,925
Coherent 20,000(b) 925,000
Collagen 15,300 267,750
Cooper Cos 25,600(b) 1,270,400
COR Therapeutics 40,300(b) 390,406
Cygnus 32,400(b) 595,350
Enzo Biochem 41,712(b) 542,259
Hologic 24,200(b) 468,875
ICN Pharmaceuticals 76,700 3,940,462
IDEXX Laboratories 68,000(b) 930,750
ImmuLogic Pharmaceutical 26,100(b) 47,306
Immune Response 42,000(b) 409,500
Invacare 50,800 1,016,000
Liposome 62,900(b) 349,881
MedImmune 45,100(b) 2,068,963
Mentor 43,600 1,111,800
Molecular Biosystems 31,900(b) 247,225
North American Vaccine 54,200(b,c) 1,063,675
Noven Pharmaceuticals 36,400(b) 293,475
Parexel Intl 35,200(b) 1,214,400
Pharmaceutical Marketing
Services 24,500(b) 217,438
Protein Design Labs 31,400(b) 1,173,575
Regeneron Pharmaceuticals 52,600(b) 368,200
ReSound 41,200(b) 211,150
Respironics 35,000(b,c) 805,000
Roberts Pharmaceutical 50,000(b) 578,125
Safeskin 46,100(b) 2,607,530
SciClone Pharmaceuticals 39,400(b) 124,356
SEQUUS Pharmaceuticals 57,600(b) 478,800
Spacelabs Medical 17,000(b) 344,250
Steris 59,200(b) 3,100,599
Summit Technology 55,000(b) 256,094
Sunrise Medical 35,100(b) 508,950
Syncor Intl 16,300(b) 236,350
TheraTech 34,200(b) 260,775
US Bioscience 45,400(b) 354,688
Vertex Pharmaceuticals 43,500(b) 1,707,375
VISX 27,300(b) 583,538
Vital Signs 23,500 452,375
Zoll Medical 11,900(b) 75,863
Total 36,664,178
Health care services - 4.8%
Access Health 31,900(b) 1,088,588
American Oncology
Resources 49,700(b) 782,775
Cerner 57,600(b) 1,198,800
Coventry 59,200(b) 795,500
Express Scripts Cl A 28,800(b) 1,764,000
Genesis Health Ventures 61,500(b,c) 1,675,875
Gulf South Medical Supply 28,700(b) 914,813
Integrated Health Services 73,800 2,112,524
Lincare Holdings 49,900(b) 3,050,137
Magellan Health Services 50,800(b) 1,000,125
Mariner Health Group 51,800(b) 796,425
NCS HealthCare 32,600(b) 843,525
Orthodontic Centers
of America 80,400(b) 1,356,750
Owens & Minor 54,600 740,513
Patterson Dental 38,200(b) 1,793,013
Pediatrix Medical Group 26,900(b) 1,005,388
PhyCor 112,500(b) 2,264,062
Renal Care Group 39,600(b) 1,341,450
Renal Treatment Centers 43,500(b) 1,394,719
Sierra Health Services 31,200(b) 1,012,050
Universal Health
Services Cl B 56,000(b) 2,610,999
Total 29,542,031
Household products - 0.6%
Nature's Sunshine Products 31,800 842,700
Scotts Cl A 32,600(b) 1,028,938
Sola Intl 42,700(b) 1,355,724
USA Detergents 27,300(b) 271,294
Valence Technology 36,600(b) 169,275
Total 3,667,931
Industrial equipment & services - 3.4%
Applied Industrial
Technologies 38,400 1,020,000
Applied Power Cl A 24,200 1,687,949
Artic Cat 49,500 476,438
Astec Inds 16,800(b) 273,000
Barnes Group 35,800 903,950
Blount Intl Cl A 64,800 1,611,900
Clarcor 29,000 781,188
Dravo 28,200(b) 282,000
Flow Intl 25,700(b) 250,575
G & K Services Cl A 35,600 1,504,100
Global Industrial
Technologies 39,400(b) 650,100
Halter Marine Group 49,700(b) 1,025,063
JLG Inds 77,100 1,036,031
Kemet 68,100(b) 1,259,850
Lindsay Mfg 15,950 614,075
LSB Inds 29,100 120,038
Lydall 30,000(b) 598,125
Manitowoc 29,800 1,013,200
O'Sullivan 30,300 303,000
Regal Beloit 36,700 1,107,881
Robbins & Myers 19,400 606,250
Roper Inds 54,600 1,627,762
Toro 21,400 833,263
Watsco 25,900 678,256
Wolverine Tube 23,900(b) 794,675
Total 21,058,669
Insurance - 4.9%
Allied Group 52,600 1,446,500
American Bankers
Insurance Group 72,000 3,977,999
Capital Re 27,800 1,655,838
Compdent 16,700(b) 194,138
Enhance Financial
Services Group 32,200 1,791,125
Executive Risk 18,700 1,332,375
Fidelity Natl Financial 31,557 907,264
First American Financial 30,750 1,529,813
Fremont General 57,300 2,911,556
Frontier Insurance Group 59,200 1,413,400
Gallagher (Arthur J) 28,200 1,043,400
Hilb, Rogal & Hamilton 22,600 398,325
Life Re 24,000 1,476,000
NAC Re 32,400 1,620,000
Orion Capital 48,100 2,143,456
Protective Life 53,600 3,366,750
Selective Insurance Group 51,700 1,344,200
Trenwick Group 21,200 736,700
Zenith Natl Insurance 30,050 753,128
Total 30,041,967
Leisure time & entertainment - 1.6%
Aztar 77,400(b) 614,363
Bell Sports 23,500(b) 212,969
Carmike Cinemas Cl A 19,100(b) 574,194
Cineplex Odeon 316,700(b) 475,050
Galoob Toys 29,100(b) 260,081
Grand Casinos 74,900(b) 1,001,788
Hollywood Park 45,900(b) 705,713
Huffy 23,400 345,150
K2 28,100 565,513
Players Intl 53,900(b) 215,600
Polaris Inds 45,200(b) 1,361,649
Primadonna Resorts 51,000 886,125
Showboat 27,300 805,350
Thor Inds 14,800 490,250
WMS Inds 46,800(b) 1,143,674
Total 9,657,469
Media - 2.6%
ADVO 43,000(b) 946,000
Catalina Marketing 32,200(b) 1,571,763
GC Cos 13,700(b) 633,625
HA-LO Inds 35,300(b) 942,069
Merrill 28,500 555,750
Metro Networks 29,000(b) 991,438
Plenum Publishing 6,300 294,525
Regal Cinemas 63,050(b) 1,832,391
Thomas Nelson 28,100 310,856
True North Communications 77,920 1,933,390
Valassis Communications 69,600(b) 2,401,199
Westwood One 55,700(b,e) 1,865,950
World Color Press 66,150(b) 1,819,125
Total 16,098,081
Metals - 2.1%
Acme Metals 22,200(b) 215,063
Amcast Inds 15,200 342,000
AMCOL Intl 51,000 726,750
Birmingham Steel 52,400 867,874
Castle (AM) 23,600 542,800
Coeur d'Alene Mines 35,800(b) 326,675
Commercial Metals 25,200 762,300
Commonwealth Inds 27,400 383,600
Getchell Gold 46,800(b) 1,193,399
Glamis Gold 49,500 213,469
Handy & Harman 21,000 761,250
Hecla Mining 97,700(b) 451,863
IMCO Recycling 27,400 458,950
Lukens 26,600 786,363
Material Sciences 24,900(b) 291,019
Mueller Inds 30,900(b) 1,664,737
Northwestern Steel & Wire 46,500(b) 168,563
Pittston Burlington Group 34,500 741,750
Quanex 24,900 726,769
Steel Technologies 23,600 277,300
Stillwater Mining 35,900(b) 706,781
WHX35,500(b,c) 432,656
Total 13,041,931
Multi-industry conglomerates - 2.6%
Baldor Electric 61,833 1,410,565
Brady (WH) 39,900 1,187,025
CDI 35,100(b) 1,485,168
Cyrk Intl 25,800(b) 258,000
DeVry 59,800(b) 1,808,949
Franklin Covey 42,300(b) 925,313
Griffon 53,500(b) 799,156
Interim Services 68,100(b) 1,625,887
NFO Worldwide 37,000(b) 691,438
Norrell 46,800 930,150
Paxar 84,512(b) 1,204,296
Standex Intl 22,700 625,669
Triarc Cos 55,700(b) 1,343,763
Valmont Inds 48,300 941,850
Whittaker 18,100(b) 229,644
ZERO Corp 22,500 576,563
Total 16,043,436
Paper & packaging - 0.9%
AptarGroup 31,200 1,591,200
Buckeye Technologies 32,800(b) 1,344,800
Caraustar Inds 44,400 1,576,200
Pope & Talbot 22,100 320,450
Shorewood Packaging 32,500(b) 796,250
Total 5,628,900
Restaurants & lodging - 2.7%
Applebee's Intl 55,000 931,563
Au Bon Pain Cl A 18,900(b) 151,200
Bertucci's 20,100(b) 121,856
CapStar Hotel 43,000(b) 1,437,813
Cheesecake Factory (The) 22,400(b) 653,800
CKE Restaurants 80,650 3,563,721
Consolidated Products 34,875(b) 558,000
Foodmaker 66,800(b) 1,085,500
IHOP 17,400(b) 622,050
Landry's Seafood
Restaurants 46,000(b) 1,017,750
Luby's Cafeterias 39,700 635,200
Marcus 52,800 930,600
Prime Hospitality 82,700(b) 1,560,962
Ruby Tuesday 29,700(b) 740,644
Ryan's Family Steak Houses 82,500(b) 685,781
Shoney's 79,300(b) 287,463
Showbiz Pizza Time 32,400(b) 797,850
Sonic 22,400(b) 632,800
Taco Cabana Cl A 27,800(b) 151,163
TCBY Enterprises 41,900 314,250
Total 16,879,966
Retail - 6.4%
AnnTaylor Stores 42,800(b) 500,225
Arbor Drugs 104,400 2,146,724
Baker (J) 23,000 103,500
Bombay 62,200(b) 283,788
Books-A-Million 29,400(b) 172,725
Casey's General Stores 45,500 1,279,688
Cash America Intl 43,800 520,125
Cato Cl A 49,300 560,788
Checkpoint Systems 59,400(b) 1,020,938
CPI 19,800 476,438
Damark Intl Cl A 12,800(b) 131,200
Designs 44,900(b) 98,219
Dress Barn 39,800(b) 1,069,625
Eagle Hardware & Garden 49,800(b) 927,525
Fabri-Centers of America
Cl A 31,600(b) 770,250
Filene's Basement 31,800(b) 138,131
Footstar 49,900(b) 1,334,825
Gottschalks 17,700(b) 129,431
Gymboree 42,500(b) 1,120,938
Hancock Fabrics 36,600 569,588
Jan Bell Marketing 55,100(b) 148,081
Just For Feet 51,400(b) 732,450
Justin Inds 47,100 624,075
Lechters 28,400(b) 143,775
Lillian Vernon 16,400 275,725
Linens `N Things 33,800(b) 1,493,538
Men's Wearhouse 38,800(b) 1,391,950
Michaels Stores 49,900(b) 1,534,425
Nashua 10,400(b) 132,600
NBTY 33,000(b) 1,346,813
Phillips-Van Heusen 48,800 588,650
Pier 1 Imports 117,350 2,743,055
Regis 40,700 1,139,600
Richfood Holdings 82,800 2,214,899
Ross Stores 85,300 2,772,249
Russ Berrie 38,400 986,400
ShopKo Stores 44,100 1,124,550
Sports Authority 56,900(b) 704,138
Stein Mart 39,600(b) 997,425
Sturm, Ruger & Co 45,800 798,638
Swiss Army Brands 14,400(b) 142,200
Whole Foods Market 42,300(b) 2,125,574
Williams-Sonoma 44,700(b) 1,902,544
Total 39,418,025
Textiles & apparel - 2.5%
Angelica 15,600 358,800
Ashworth 23,600(b) 336,300
Authentic Fitness 40,300 722,881
Brown Group 31,900 462,550
Cone Mills 43,600(b) 318,825
Delta Woodside Inds 43,900(b) 203,038
Dixie Group 18,300(b) 205,875
Galey & Lord 19,300(b) 307,594
Guilford Mills 44,900 1,189,850
Haggar 13,700 189,231
Hartmarx 62,200(b) 462,613
Johnston Inds 26,400 128,700
K-Swiss Cl A 9,600 168,000
Kellwood 37,600 1,142,100
Nautica Enterprises 67,600(b) 1,892,800
Oshkosh B'Gosh Cl A 17,300 592,525
Oxford Inds 15,000 450,000
Pillowtex 18,200 589,225
St. John Knits 29,600 1,161,800
Stride Rite 81,700 929,338
Timberland Cl A 19,800(b) 1,153,350
Tultex 53,200(b) 199,500
Wolverine World Wide 73,200 1,976,399
Total 15,141,294
Transportation - 2.2%
American Freightways 53,800(b) 517,825
Arkansas Best 32,200(b) 324,013
Expeditors Intl
of Washington 43,200 1,344,599
Fritz Cos 63,800(b) 845,350
Frozen Food Express Inds 33,000 330,000
Heartland Express 53,100(b) 1,320,863
Landstar System 21,100(b) 551,238
M.S. Carriers 22,100(b) 488,963
Offshore Logistics 38,300(b) 665,463
RailTex 16,900(b) 278,850
Rollins Truck Leasing 70,500 1,282,219
USFreightways 45,600 1,595,999
Wabash Natl 34,400 1,051,350
Werner Enterprises 66,500 1,529,499
Yellow Corp 49,400(b) 1,290,575
Total 13,416,806
Utilities -- electric - 1.7%
Bangor Hydro Electric 17,500 114,844
Central Hudson Gas
& Electric 30,900 1,230,206
Central Vermont
Public Service 21,000 279,563
CILCORP 23,200 1,038,200
Commonwealth Energy
System 37,500 1,289,063
Eastern Utilities
Associates 36,100 868,656
Green Mountain Power 8,800 169,400
Interstate Power 17,100 595,294
Orange & Rockland Utilities 23,800 1,059,100
Sierra Pacific Resources 53,500 1,892,562
TNP Enterprises 23,100 772,406
United Illuminating 24,600 1,048,575
Total 10,357,869
Utilities -- gas - 2.1%
Cascade Natural Gas 19,400 317,675
Connecticut Energy 18,200 494,813
Energen 25,300 986,700
Kirby 43,500(b) 908,063
KN Energy 54,700 2,748,674
New Jersey Resources 31,900 1,132,450
Northwest Natural Gas 39,150 1,042,369
Pennsylvania Enterprises 16,000 414,000
Piedmont Natural Gas 52,200 1,582,312
Public Service Co of
North Carolina 34,100 713,969
Southwest Gas 48,900 871,031
Southwestern Energy 45,400 499,400
WICOR 32,800 1,453,450
Total 13,164,906
Utilities -- telephone - 1.3%
ACC 29,700(b) 1,441,378
CommNet Cellular 24,700(b) 887,656
Geotek Communications 129,800(b,c) 85,181
Inter-Tel 45,000 1,127,813
Orbital Sciences 57,000(b) 1,895,250
Tel-Save Holdings 117,100(b,c) 2,781,125
Total 8,218,403
Miscellaneous - 1.6%
ABM Inds 36,100 1,103,306
Aquarion 12,600 437,063
Champion Enterprises 82,100(b) 1,606,080
Consumers Water 16,900 363,350
Cross (AT) Cl A 31,400 357,175
Paragon Health Network 67,895(b) 1,256,058
Philadelphia Suburban 44,800 1,033,200
Rural/Metro 23,050(b) 697,263
Southern California Water 16,500 417,656
United Water Resources 61,800 1,120,125
Volt Information Sciences 26,400(b) 1,188,000
Total 9,579,276
Total common stocks
(Cost: $573,440,636) $612,271,037
Short-term securities - 2.6%
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
Commercial paper - 1.1%
Bell Atlantic Financial Services
02-27-98 5.49% $1,000,000 $ 995,897
Commerzbank U.S. Finance
02-13-98 5.50 1,400,000 1,397,230
Delaware Funding
02-20-98 5.48 1,300,000(d) 1,296,057
Morgan Stanley, Dean Witter,
Discover & Co
03-09-98 5.50 1,800,000 1,789,880
Novartis Finance
02-11-98 5.48 1,500,000 1,497,493
Total 6,976,557
U.S. government agencies - 1.5%
Federal Home Loan Mtge Corp Disc Nts
02-09-98 5.37 1,200,000 1,198,395
02-17-98 5.39 1,900,000 1,895,182
02-20-98 5.51 700,000 697,873
Federal Natl Mtge Assn Disc Nt
02-17-98 5.40 5,000,000 4,987,297
Total 8,778,747
Total short-term securities
(Cost: $15,755,304) $ 15,755,304
Total investments in securities
(Cost: $589,195,940)(f) $628,026,341
See accompanying notes to investments in securities.
(This annual report is not part of the prospectus.)
<PAGE>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Security is partially or fully on loan. See Note 4 to the financial
statements.
(d) Commercial paper sold within terms of private placement memorandum, exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
and may be sold only to dealers in that program or other "accredited investors."
This security has been determined to be liquid under guidelines established by
the board.
(e) Security is partially pledged as initial margin deposit on the following
open stock Index futures purchase contracts (see Note 5 to the financial
statements):
Type of security Notional amount
Standard & Poor's 500 Stock Index, March 1998 $2,000,000
(f) At Jan. 31, 1998, the cost of securities for federal income tax purposes was
$589,209,076 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation..........................................$76,255,436
Unrealized depreciation..........................................(37,438,171)
-----------
Net unrealized appreciation......................................$38,817,265
(This annual report is not part of the prospectus.)
<PAGE>
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
- Independent Auditors' Report dated March 6, 1998
- Statement of Assets and Liabilities, Jan. 31, 1998
- Statement of Operations, Year ended Jan. 31, 1998
- Statements of Changes in Net Assets, for the year ended Jan.
31, 1998 and Jan. 31, 1997
- Notes to Financial Statements
- Investments in Securities, Jan. 31, 1998
- Notes to investment in securities
For IDS Small Company Index Fund
- Independent Auditors' Report dated March 6, 1998
- Statement of Assets and Liabilities, Jan. 31, 1998
- Statement of Operations, year ended Jan. 31, 1998
- Statements of Changes in Net Assets for the year ended Jan.
31, 1998 and
- for the period from Aug. 19, 1996 to Jan. 31, 1997
- Notes to Financial Statements
- Investments in Securities, Jan. 31, 1998
- Notes to investment in securities
(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>
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.
8(c). Copy of Custodian Agreement Amendment between IDS International Fund,
Inc. and American Express Trust Company, dated October 9, 1997, filed
electronically on or about December 23, 1997 as Exhibit 8(c) to IDS
International Fund, Inc.'s Post-Effective Amendment No. 26 to
Registration Statement No. 2-92309, is incorporated herein by
reference. Registrant's Custodian Agreement Amendment differs from the
one incorporated by reference only by the fact that Registrant is one
executing party.
9(a). Copy of Transfer Agency Agreement between Registrant and American
Express Client Service Corporation, dated January 1, 1998, is filed
electronically herewith.
<PAGE>
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.
9(f). Copy of Class Y Shareholder Service Agreement between IDS Precious
Metals Fund, Inc. and American Express Financial Advisors Inc., dated
May 9, 1997, filed electronically on or about May 27, 1997 as Exhibit
9(e) to IDS Precious Metals Fund, Inc.'s Post-Effective Amendment No.
30 to Registration Statement No. 2-93745, is incorporated herein by
reference. Registrant's Class Y Shareholder Service Agreement differs
from the one incorporated by reference only by the fact that Registrant
is one executing party.
10. Opinion and consent of counsel as to the legality of the securities
being registered is filed electronically herewith.
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>
14. Forms of Keogh, IRA and other retirement plans, filed as Exhibits 14(a)
through 14(n) to IDS Growth Fund, Inc., Post-Effective Amendment No. 34 to
Registration Statement No. 2-38355 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 Schedules are filed electronically herewith.
18. Copy of 18f-3 Plan, dated May 9, 1997, filed electronically on or about
January 27, 1998 as Exhibit 18 to IDS Equity Select Fund, Inc.'s
Post-Effective Amendment No. 86 to Registration Statement No. 2-13188,
is incorporated herein by reference.
19(a). Directors' Power of Attorney to sign amendments to this Registration
Statement, dated January 7, 1998 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>
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Holders as of
Title of Class March 6 , 1998
-------------- --------------
IDS Blue Chip Advantage Fund
Common Stock
Class A 101,061
Class B 66,476
Class Y 24,050
------
Total 191,587
IDS Small Company Index Fund
Common Stock
Class A 53,660
Class B 35,170
Class Y 291
---
Total 89,121
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.
<PAGE>
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.
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>
Item 28. Business and Other Connections of Investment Adviser (American Express
Financial Corporation)
Directors and officers of American Express Financial Corporation who are
directors and/or officers of one or more other companies:
<TABLE>
<CAPTION>
Ronald G. Abrahamson, Vice President--Service Quality and Reeingineering
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
American Express Financial Advisors IDS Tower 10 Vice President - Service Quality
Minneapolis, MN 55440 and Reengineering
Douglas A. Alger, Senior Vice President--Human Resources
- -----------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Senior Vice President - Human
Minneapolis, MN 55440 Resources
Peter J. Anderson, Director and Senior Vice President--Investment Operations
- -----------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Senior Vice President -
Minneapolis, MN 55440 Investment Operations
IDS Advisory Group Inc. Director and Chairman of the Board
IDS Capital Holdings Inc. Director and President
IDS Futures Corporation Director
IDS Futures III Corporation Director
IDS International, Inc. Director, Chairman of the Board
and Executive Vice President
NCM Capital Management Group, Inc. 2 Mutual Plaza Director
501 Willard Street
Durham, NC 27701
Ward D. Armstrong, Vice President--American Express Retirement Services
- -----------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - American Express
Minneapolis, MN 55440 Retirement Services
John M. Baker, Vice President--Plan Sponsor Services
- -----------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Plan Sponsor
Minneapolis, MN 55440 Services
American Express Trust Company Senior Vice President
<PAGE>
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation) (cont'd)
Joseph M. Barsky III, Vice President--Senior Portfolio Manager
- -----------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President-Senior Portfolio
Minneapolis, MN 55440 Manager
Robert C. Basten, Vice President--Tax and Business Services
- -----------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Tax and Business
Minneapolis, MN 55440 Services
American Express Tax & Business Services Inc. Director, President and Chief
Executive Officer
Timothy V. Bechtold, Vice President--Risk Management Products
- -----------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Risk Management
Minneapolis, MN 55440 Products
IDS Life Insurance Company Executive Vice President - Risk
Management Products
Alan F. Bignall, Vice President--Technology and Development
- -----------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Technology and
Minneapolis, MN 55440 Development
John C. Boeder, Vice President--Mature Market Group
- -----------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Mature Market
Minneapolis, MN 55440 Group
IDS Life Insurance Company of New York Box 5144 Director
Albany, NY 12205
Douglas W. Brewers, Vice President--Sales Support
- -----------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Sales Support
Minneapolis, MN 55440
<PAGE>
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation) (cont'd)
Karl J. Breyer, Director, Senior Vice President--Law and Corporate Affairs
- -----------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Senior Vice President - Law and
Minneapolis, MN 55440 Corporate Affairs
American Express Minnesota Foundation Director
IDS Aircraft Services Corporation Director and President
Daniel J. Candura, Vice President--Marketing Support
- -----------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Marketing Support
Minneapolis, MN 55440
Cynthia M. Carlson, Vice President--American Express Securities Services
- -----------------------------------------------------------------------------------------------------------------------------
American Enterprise Investment Services Inc. IDS Tower 10 Director, President and Chief
Minneapolis, MN 55440 Executive Officer
American Express Financial Advisors Vice President - American Express
Securities Services
Mark W. Carter, Senior Vice President and Chief Marketing Officer
- -----------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Senior Vice President and Chief
Minneapolis, MN 55440 Marketing Officer
IDS Life Insurance Company Executive Vice President -
Marketing
James E. Choat, Senior Vice President--Institutional Products Group
- -------------------------------------------------------------------------------------------------------------------------------
American Enterprise Life Insurance Company IDS Tower 10 Director and Chief Executive Officer
Minneapolis, MN 55440
American Express Financial Advisors Senior Vice President -
Institutional Products Group
American Express Insurance Agency of Nevada Inc. Vice President - North Central
Region
IDS Insurance Agency of Alabama Inc. Vice President - North Central
Region
<PAGE>
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation) (cont'd)
IDS Insurance Agency of Arkansas Inc. Vice President - North Central
Region
IDS Insurance Agency of Massachusetts Inc. Vice President - North Central
Region
IDS Insurance Agency of New Mexico Inc. Vice President - North Central
Region
IDS Insurance Agency of North Carolina Inc. Vice President - North Central
Region
IDS Insurance Agency of Ohio Inc. Vice President - North Central
Region
IDS Insurance Agency of Wyoming Inc. Vice President - North Central
Region
Kenneth J. Ciak, Vice President and General Manager--IDS Property Casualty
- -----------------------------------------------------------------------------------------------------------------------------
AMEX Assurance Company IDS Tower 10 Director and President
Minneapolis, MN 55440
American Express Financial Advisors Vice President and General
Manager - IDS Property
Casualty
IDS Property Casualty Insurance Company I WEG Blvd. Director and President
DePere, WI 54115
Colleen Curran, Vice President and Assistant General Counsel
- -----------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President and Assistant
Minneapolis, MN 55440 General Counsel
American Express Service Corporation Vice President and Chief Legal
Counsel
Regenia David, Vice President--Systems Services
- -----------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Systems Services
Minneapolis, MN 55440
<PAGE>
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation) (cont'd)
Luz Maria Davis, Vice President--Communications
- -----------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Communications
Minneapolis, MN 55440
Gordon L. Eid, Director, Senior Vice President, Deputy General Counsel and Chief Compliance Officer
- ----------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Senior Vice President, General
Minneapolis, MN 55440 Counsel and Chief Compliance
Officer
American Express Insurance Agency of Nevada Inc. Director and Vice President
IDS Insurance Agency of Alabama Inc. Director and Vice President
IDS Insurance Agency of Arkansas Inc. Director and Vice President
IDS Insurance Agency of Massachusetts Inc. Director and Vice President
IDS Insurance Agency of New Mexico Inc. Director and Vice President
IDS Insurance Agency of North Carolina Inc. Director and Vice President
IDS Insurance Agency of Ohio Inc. Director and Vice President
IDS Insurance Agency of Wyoming Inc. Director and Vice President
IDS Real Estate Services, Inc. Vice President
Investors Syndicate Development Corp. Director
Robert M. Elconin, Vice President--Government Relations
- -----------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Government
Minneapolis, MN 55440 Relations
IDS Life Insurance Company Vice President
<PAGE>
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation) (cont'd)
Mark A. Ernst, Senior Vice President--Third Party Distribution
- -------------------------------------------------------------------------------------------------------------------------------
American Enterprise Investment Services Inc. IDS Tower 10 Director, Senior Vice President
Minneapolis, MN 55440
American Express Financial Advisors Senior Vice President - Third Party
Distribution
American Express Service Corporation Senior Vice President - Third Party
Distribution
American Express Tax & Business Services Inc. Director and Chairman of the Board
Gordon M. Fines, Vice President--Mutual Fund Equity Investments
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Mutual Fund
Minneapolis, MN 55440 Equity Investments
IDS Advisory Group Inc. Executive Vice President
Douglas L. Forsberg, Vice President--Institutional Products Group
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Institutional
Minneapolis, MN 55440 Products Group
Jeffrey P. Fox, Vice President and Corporate Controller
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President and Corporate
Minneapolis, MN 55440 Controller
John J. Golden, Vice President--Human Resources Planning and Field Support
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President-Human Resources
Minneapolis, MN 55440 Planning and Field Support
Harvey Golub, Director
- -------------------------------------------------------------------------------------------------------------------------------
American Express Company American Express Tower Chairman and Chief Executive Officer
World Financial Center
New York, NY 10285
American Express Travel Related Services Company, Chairman and Chief Executive Officer
Inc.
<PAGE>
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation) (cont'd)
David A. Hammer, Vice President and Marketing Controller
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President and Marketing
Minneapolis, MN 55440 Controller
IDS Plan Services of California, Inc. Director and Vice President
Lorraine R. Hart, Vice President--Insurance Investments
- -------------------------------------------------------------------------------------------------------------------------------
American Enterprise Life Insurance Company IDS Tower 10 Vice President - Investments
Minneapolis, MN 55440
American Express Financial Advisors Vice President - Insurance Investments
American Partners Life Insurance Company Director and Vice President -
Investments
AMEX Assurance Company Vice President - Investments
IDS Certificate Company Vice President - Investments
IDS Life Insurance Company Vice President - Investments
IDS Life Series Fund, Inc. Vice President - Investments
IDS Life Variable Annuity Funds A and B Vice President - Investments
IDS Property Casualty Insurance Company Vice President - Investment Officer
Investors Syndicate Development Corp. Director and Vice President -
Investments
Scott A. Hawkinson, Vice President--Assured Assets Product Development and Management
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Assured Assets
Minneapolis, MN 55440 Product Development and
Management
Janis K. Heaney, Vice President--Incentive Compensation
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Incentive
Minneapolis, MN 55440 Compensation
<PAGE>
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation) (cont'd)
James G. Hirsh, Vice President and Assistant General Counsel
- ------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President and Assistant
Minneapolis, MN 55440 General Counsel
Darryl G. Horsman, Vice President--Product Development and Technology, American Express Retirement Services
- -----------------------------------------------------------------------------------------------------------------------------
American Express Trust Company IDS Tower 10 Director and President
Minneapolis, MN 55440
Jeffrey S. Horton, Vice President and Corporate Treasurer
- ------------------------------------------------------------------------------------------------------------------------------
American Centurion Life Assurance Company IDS Tower 10 Vice President and Treasurer
Minneapolis, MN 55440
American Enterprise Investment Services Inc. Vice President and Treasurer
American Enterprise Life Insurance Company Vice President and Treasurer
American Express Financial Advisors Vice President and Treasurer
American Express Insurance Agency of Nevada Inc. Vice President and Treasurer
American Express Minnesota Foundation Vice President and Treasurer
American Express Tax and Business Services Inc. Vice President and Treasurer
IDS Aircraft Services Corporation Vice President and Treasurer
IDS Capital Holdings Inc. Vice President, Treasurer and
Assistant Secretary
IDS Certificate Company Vice President and Treasurer
IDS Insurance Agency of Alabama Inc. Vice President and Treasurer
IDS Insurance Agency of Arkansas Inc. Vice President and Treasurer
IDS Insurance Agency of Massachusetts Inc. Vice President and Treasurer
<PAGE>
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation) (cont'd)
IDS Insurance Agency of New Mexico Inc. Vice President and Treasurer
IDS Insurance Agency of North Carolina Inc. Vice President and Treasurer
IDS Insurance Agency of Ohio Inc. Vice President and Treasurer
IDS Insurance Agency of Wyoming Inc. Vice President and Treasurer
IDS Life Insurance Company Vice President, Treasurer and
Assistant Secretary
IDS Plan Services of California, Inc. Vice President and Treasurer
IDS Property Casualty Insurance Company Vice President, Treasurer and
Assistant Secretary
IDS Real Estate Services, Inc. Vice President and Treasurer
IDS Securities Corporation Vice President and Treasurer
Investors Syndicate Development Corp. Vice President and Treasurer
David R. Hubers, Director, President and Chief Executive Officer
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Chairman, President and Chief
Minneapolis, MN 55440 Executive Officer
American Express Service Corporation Director and President
AMEX Assurance Company Director
IDS Aircraft Services Corporation Director
IDS Certificate Company Director
IDS Life Insurance Company Director
IDS Plan Services of California, Inc. Director and President
IDS Property Casualty Insurance Company Director
Martin G. Hurwitz, Vice President--Senior Portfolio Manager
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Senior Portfolio
Minneapolis, MN 55440 Manager
<PAGE>
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation) (cont'd)
James M. Jensen, Vice President--Insurance Product Development and Management
- ------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Insurance Product
Minneapolis, MN 55440 Development and Management
IDS Life Insurance Company Vice President - Insurance Product
Development
Marietta L. Johns, Director and Senior Vice President--Field Management
- -----------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Senior Vice President - Field
Minneapolis, MN 55440 Management
James E. Kaarre, Vice President--Marketing Promotions
- -----------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Marketing
Minneapolis, MN 55440 Promotions
Matthew N. Karstetter, Vice President--Investment Accounting
- ------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Investment
Minneapolis, MN 55440 Accounting
Linda B. Keene, Vice President--Market Development
- -----------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Market
Minneapolis, MN 55440 Development
G. Michael Kennedy, Vice President--Investment Services and Investment Research
- -----------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Investment
Minneapolis, MN 55440 Services and Investment
Research
Susan D. Kinder, Director and Senior Vice President--Distribution Services
- ------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Senior Vice President -
Minneapolis, MN 55440 Distribution Services
Brian Kleinberg, Executive Vice President--Financial Direct
- ------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Executive Vice President -
Minneapolis, MN 55440 Financial Direct
<PAGE>
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation) (cont'd)
Richard W. Kling, Director and Senior Vice President--Products
- ----------------------------------------------------------------------------------------------------------------------------
American Centurion Life Assurance Company IDS Tower 10 Director
Minneapolis, MN 55440
American Enterprise Life Insurance Company Director and Chairman of the
Board
American Express Financial Advisors Senior Vice President - Products
American Express Insurance Agency of Nevada Inc. Director and President
American Express Service Corporation Vice President
American Partners Life Insurance Company Director and Chairman of the
Board
AMEX Assurance Company Director
IDS Certificate Company Director and Chairman of the
Board
IDS Insurance Agency of Alabama Inc. Director and President
IDS Insurance Agency of Arkansas Inc. Director and President
IDS Insurance Agency of Massachusetts Inc. Director and President
IDS Insurance Agency of New Mexico Inc. Director and President
IDS Insurance Agency of North Carolina Inc. Director and President
IDS Insurance Agency of Ohio Inc. Director and President
IDS Insurance Agency of Wyoming Inc. Director and President
IDS Life Insurance Company Director and President
IDS Life Series Fund, Inc. Director and President
IDS Life Variable Annuity Funds A and B Manager, Chairman of the Board
and President
<PAGE>
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation) (cont'd)
IDS Property Casualty Insurance Company Director
IDS Life Insurance Company of New York P.O. Box 5144 Director, Chairman of the Board
Albany, NY 12205 and President
Paul F. Kolkman, Vice President--Actuarial Finance
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Actuarial Finance
Minneapolis, MN 55440
IDS Life Insurance Company Director and Executive Vice
President
IDS Life Series Fund, Inc. Vice President and Chief Actuary
IDS Property Casualty Insurance Company Director
Claire Kolmodin, Vice President--Service Quality
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Service Quality
Minneapolis, MN 55440
Steven C. Kumagai, Director and Senior Vice President--Field Management and Business Systems
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Director and Senior Vice President
Minneapolis, MN 55440 - Field Management and
Business Systems
Edward Labenski, Jr., Vice President--Senior Portfolio Manager
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Senior Portfolio
Minneapolis, MN 55440 Manager
IDS Advisory Group Inc. Senior Vice President
Kurt A. Larson, Vice President--Senior Portfolio Manager
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Senior Portfolio
Minneapolis, MN 55440 Manager
<PAGE>
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation) (cont'd)
Lori J. Larson, Vice President--Variable Assets Product Development
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Variable Assets
Minneapolis, MN 55440 Product Development
IDS Cable Corporation Director and President
IDS Cable II Corporation Director and President
IDS Futures Brokerage Group Assistant Vice President - General
Manager and Director
IDS Futures Corporation Director and President
IDS Futures III Corporation Director and Vice President
IDS Management Corporation Director and President
IDS Partnership Services Corporation Director and President
IDS Realty Corporation Director and President
Ryan R. Larson, Vice President--IPG Product Development
- -------------------------------------------------------------------------------------------------------------------------------
American Centurion Life Assurance Company IDS Tower 10 Director and Vice President -
Minneapolis, MN 55440 Product Development
American Express Financial Advisors Vice President - IPG Product
Development
IDS Life Insurance Company Vice President
Daniel E. Laufenberg, Vice President and Chief U.S. Economist
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President and Chief U.S.
Minneapolis, MN 55440 Economist
Richard J. Lazarchic, Vice President--Senior Portfolio Manager
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Senior Portfolio
Minneapolis, MN 55440 Manager
<PAGE>
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation) (cont'd)
Peter A. Lefferts, Director and Senior Vice President--Corporate Strategy and Development
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Senior Vice President - Corporate
Minneapolis, MN 55440 Strategy and Development
American Express Trust Company Director
IDS Plan Services of California, Inc. Director
Douglas A. Lennick, Director and Executive Vice President--Private Client Group
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Director and Executive Vice
Minneapolis, MN 55440 President - Private Client
Group
Jonathan S. Linen, Director
- -------------------------------------------------------------------------------------------------------------------------------
Mary J. Malevich, Vice President--Senior Portfolio Manager
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Senior Portfolio
Minneapolis, MN 55440 Manager
Fred A. Mandell, Vice President--Field Marketing Readiness
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Field Marketing
Minneapolis, MN 55440 Readiness
Thomas W. Medcalf, Vice President--Senior Portfolio Manager
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Senior Portfolio
Minneapolis, MN 55440 Manager
William C. Melton, Vice President--International Research and Chief International Economist
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - International
Minneapolis, MN 55440 Research and Chief
International Economist
James A. Mitchell, Director and Executive Vice President--Marketing and Products
- -------------------------------------------------------------------------------------------------------------------------------
American Enterprise Investment Services Inc. IDS Tower 10 Director
Minneapolis, MN 55440
American Express Financial Advisors Executive Vice President -
Marketing and Products
<PAGE>
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation) (cont'd)
American Express Service Corporation Director and Senior Vice President
American Express Tax and Business Services Inc. Director
AMEX Assurance Company Director
IDS Certificate Company Director
IDS Life Insurance Company Director, Chairman of the Board and
Chief Executive Officer
IDS Plan Services of California, Inc. Director
IDS Property Casualty Insurance Company Director
William P. Miller, Vice President and Senior Portfolio Manager
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President and Senior Portfolio
Minneapolis, MN 55440 Manager
Pamela J. Moret, Vice President--Variable Assets
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Variable Assets
Minneapolis, MN 55440
American Express Trust Company Vice President
IDS Life Insurance Company Executive Vice President - Variable
Assets
Barry J. Murphy, Director and Senior Vice President--Client Service
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Senior Vice President - Client
Minneapolis, MN 55440 Service
IDS Life Insurance Company Director and Executive Vice
President - Client Service
Mary Owens Neal, Vice President--Mature Market Segment
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Mature Market
Minneapolis, MN 55440 Segment
<PAGE>
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation) (cont'd)
Robert J. Neis, Vice President--Technology Services
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Technology Services
Minneapolis, MN 55440
James R. Palmer, Vice President--Taxes
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Taxes
Minneapolis, MN 55440
IDS Aircraft Services Corporation Vice President
IDS Life Insurance Company Vice President - Taxes
Carla P. Pavone, Vice President--Compensation and Field Administration
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Compensation and
Minneapolis, MN 55440 Field Administration
Susan B. Plimpton, Vice President--Marketing Services
- -----------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Marketing
Minneapolis, MN 55440 Services
Ronald W. Powell, Vice President and Assistant General Counsel
- -----------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President and Assistant
Minneapolis, MN 55440 General Counsel
IDS Cable Corporation Vice President and Assistant
Secretary
IDS Cable II Corporation Vice President and Assistant
Secretary
IDS Management Corporation Vice President and Assistant
Secretary
IDS Partnership Services Corporation Vice President and Assistant
Secretary
IDS Plan Services of California, Inc. Vice President and Assistant
Secretary
IDS Realty Corporation Vice President and Assistant
Secretary
<PAGE>
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation) (cont'd)
James M. Punch, Vice President--Special Projects
- -----------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Special Projects
Minneapolis, MN 55440
Frederick C. Quirsfeld, Vice President--Taxable Mutual Fund Investments
- -----------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Taxable Mutual
Minneapolis, MN 55440 Fund Investments
IDS Advisory Group Inc. Vice President
Debra J. Rabe, Vice President--Financial Planning
- -----------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Financial
Minneapolis, MN 55440 Planning
ReBecca K. Roloff, Senior Vice President--Field Management and Financial Advisory Service
- ------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Senior Vice President - Field
Minneapolis, MN 55440 Management and Financial
Advisory Service
Stephen W. Roszell, Senior Vice President--Institutional
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Senior Vice President -
Minneapolis, MN 55440 Institutional
IDS Advisory Group Inc. Director
IDS International, Inc. Director
IDS Fund Management Limited Director
John P. Ryan, Vice President and General Auditor
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President and General Auditor
Minneapolis, MN 55440
Erven A. Samsel, Director and Senior Vice President--Field Management
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Senior Vice President - Field
Minneapolis, MN 55440 Management
American Express Insurance Agency of Nevada Inc. Vice President - New England Region
<PAGE>
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation) (cont'd)
IDS Insurance Agency of Alabama Inc. Vice President - New England Region
IDS Insurance Agency of Arkansas Inc. Vice President - New England Region
IDS Insurance Agency of Massachusetts Inc. Vice President - New England Region
IDS Insurance Agency of New Mexico Inc. Vice President - New England Region
IDS Insurance Agency of North Carolina Inc. Vice President - New England Region
IDS Insurance Agency of Ohio Inc. Vice President - New England Region
IDS Insurance Agency of Wyoming Inc. Vice President - New England Region
Stuart A. Sedlacek, Vice President--Assured Assets
- -------------------------------------------------------------------------------------------------------------------------------
American Centurion Life Assurance Company IDS Tower 10 Director, Chairman and President
Minneapolis, MN 55440
American Enterprise Life Insurance Company Director and Executive Vice
President, Assured Assets
American Express Financial Advisors Vice President - Assured Assets
American Partners Life Insurance Company Director and President
IDS Certificate Company Director and President
IDS Life Insurance Company Director and Executive Vice
President - Assured Assets
Investors Syndicate Development Corp. Director, Chairman of the Board
and President
<PAGE>
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation) (cont'd)
Donald K. Shanks, Vice President--Property Casualty
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Property Casualty
Minneapolis, MN 55440
IDS Property Casualty Insurance Company Senior Vice President
F. Dale Simmons, Vice President--Senior Portfolio Manager, Insurance Investments
- -------------------------------------------------------------------------------------------------------------------------------
American Enterprise Life Insurance Company IDS Tower 10 Vice President - Real Estate Loan
Minneapolis, MN 55440 Management
American Express Financial Advisors Vice President - Senior Portfolio
Manager, Insurance Investments
American Partners Life Insurance Company Vice President - Real Estate Loan
Management
AMEX Assurance Company Vice President
IDS Certificate Company Vice President - Real Estate Loan
Management
IDS Life Insurance Company Vice President - Real Estate Loan
Management and Assistant Treasurer
IDS Partnership Services Corporation Vice President
IDS Real Estate Services Inc. Director and Vice President
IDS Realty Corporation Vice President
IDS Life Insurance Company of New York Box 5144 Vice President and Assistant
Albany, NY 12205 Treasurer
Judy P. Skoglund, Vice President--Human Resources and Organization Development
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Human Resources
Minneapolis, MN 55440 and Organization Development
<PAGE>
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation) (cont'd)
Ben C. Smith, Vice President--Workplace Marketing
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Workplace
Minneapolis, MN 55440 Marketing
William A. Smith, Vice President and Controller--Private Client Group
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President and Controller -
Minneapolis, MN 55440 Private Client Group
Bridget Sperl, Vice President--Geographic Service Teams
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Geographic
Minneapolis, MN 55440 Service Teams
William A. Stoltzmann, Vice President and Assistant General Counsel
- -------------------------------------------------------------------------------------------------------------------------------
American Enterprise Life Insurance Company P.O. Box 534 Director, Vice President, General
Minneapolis, MN 55440 Counsel and Secretary
American Express Financial Advisors IDS Tower 10 Vice President and Assistant General
Minneapolis, MN 55440 Counsel
American Partners Life Insurance Company Director, Vice President, General
Counsel and Secretary
IDS Life Insurance Company Vice President, General Counsel and
Secretary
James J. Strauss, Vice President--Corporate Planning and Analysis
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Corporate Planning
Minneapolis, MN 55440 and Analysis
Jeffrey J. Stremcha, Vice President--Information Resource Management/ISD
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Information
Minneapolis, MN 55440 Resource Management/ISD
Barbara Stroup Stewart, Vice President--Corporate Reengineering
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Corporate
Minneapolis, MN 55440 Reengineering
<PAGE>
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation) (cont'd)
Wesley W. Wadman, Vice President--Senior Portfolio Manager
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Senior Portfolio
Minneapolis, MN 55440 Manager
IDS Advisory Group Inc. Executive Vice President
IDS Fund Management Limited Director and Vice Chairman
IDS International, Inc. Senior Vice President
Norman Weaver Jr., Director and Senior Vice President--Field Management
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Senior Vice President - Field
Minneapolis, MN 55440 Management
American Express Insurance Agency of Nevada Inc. Vice President - Pacific Region
IDS Insurance Agency of Alabama Inc. Vice President - Pacific Region
IDS Insurance Agency of Arkansas Inc. Vice President - Pacific Region
IDS Insurance Agency of Massachusetts Inc. Vice President - Pacific Region
IDS Insurance Agency of New Mexico Inc. Vice President - Pacific Region
IDS Insurance Agency of North Carolina Inc. Vice President - Pacific Region
IDS Insurance Agency of Ohio Inc. Vice President - Pacific Region
IDS Insurance Agency of Wyoming Inc. Vice President - Pacific Region
<PAGE>
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation) (cont'd)
Michael L. Weiner, Vice President--Tax Research and Audit
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Tax Research and
Minneapolis, MN 55440 Audit
American Express Service Corporation Assistant Treasurer
IDS Capital Holdings Inc. Vice President
IDS Futures Brokerage Group Vice President
IDS Futures Corporation Vice President, Treasurer and
Secretary
IDS Futures III Corporation Vice President, Treasurer and
Secretary
Lawrence J. Welte, Vice President--Investment Administration
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Investment
Minneapolis, MN 55440 Administration
Jeffry F. Welter, Vice President--Equity and Fixed Income Trading
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Equity and Fixed
Minneapolis, MN 55440 Income Trading
Edwin M. Wistrand, Vice President and Assistant General Counsel
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President and Assistant
Minneapolis, MN 55440 General Counsel
Michael D. Wolf, Vice President--Senior Portfolio Manager
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Vice President - Senior Portfolio
Minneapolis, MN 55440 Manager
IDS Advisory Group Inc. Executive Vice President
<PAGE>
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation) (cont'd)
Michael R. Woodward, Director and Senior Vice President--Field Management
- -------------------------------------------------------------------------------------------------------------------------------
American Express Financial Advisors IDS Tower 10 Senior Vice President - Field
Minneapolis, MN 55440 Management
American Express Insurance Agency of Nevada Inc. Vice President - North Region
IDS Insurance Agency of Alabama Inc. Vice President - North Region
IDS Insurance Agency of Arkansas Inc. Vice President - North Region
IDS Insurance Agency of Massachusetts Inc. Vice President - North Region
IDS Insurance Agency of New Mexico Inc. Vice President - North Region
IDS Insurance Agency of North Carolina Inc. Vice President - North Region
IDS Insurance Agency of Ohio Inc. Vice President - North Region
IDS Insurance Agency of Wyoming Inc. Vice President - North Region
IDS Life Insurance Company of New York Box 5144 Director
Albany, NY 12205
</TABLE>
<PAGE>
Item 29. Principal Underwriters.
(a) American Express Financial Advisors acts as principal underwriter for
the following investment companies:
IDS Bond Fund, Inc.; IDS California Tax-Exempt Trust; IDS Discovery
Fund, Inc.; IDS Equity Select Fund, Inc.; IDS Extra Income Fund, Inc.;
IDS Federal Income Fund, Inc.; IDS Global Series, Inc.; IDS Growth
Fund, Inc.; IDS High Yield Tax-Exempt Fund, Inc.; IDS International
Fund, Inc.; IDS Investment Series, Inc.; IDS Managed Retirement Fund,
Inc.; IDS Market Advantage Series, Inc.; IDS Money Market Series, Inc.;
IDS New Dimensions Fund, Inc.; IDS Precious Metals Fund, Inc.; IDS
Progressive Fund, Inc.; IDS Selective Fund, Inc.; IDS Special
Tax-Exempt Series Trust; IDS Stock Fund, Inc.; IDS Strategy Fund, Inc.;
IDS Tax-Exempt Bond Fund, Inc.; IDS Tax-Free Money Fund, Inc.; IDS
Utilities Income Fund, Inc., Growth Trust; Growth and Income Trust;
Income Trust, Tax-Free Income Trust, World Trust and IDS Certificate
Company.
(b) As to each director, officer or partner of the principal underwriter:
<TABLE>
<CAPTION>
Name and Principal Business Address Position and Offices with Offices with Registrant
Underwriter
- -------------------------------------------- ---------------------------------- --------------------------
<S> <C> <C>
Ronald G. Abrahamson Vice President-Service Quality None
IDS Tower 10 and Reengineering
Minneapolis, MN 55440
Douglas A. Alger Senior Vice President-Human None
IDS Tower 10 Resources
Minneapolis, MN 55440
Peter J. Anderson Senior Vice President-Investment Vice President
IDS Tower 10 Operations
Minneapolis, MN 55440
Ward D. Armstrong Vice President-American Express, None
IDS Tower 10 Institutional Services
Minneapolis, MN 55440
John M. Baker Vice President-Plan Sponsor None
IDS Tower 10 Services
Minneapolis, MN 55440
Joseph M. Barsky III Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Robert C. Basten Vice President-Tax and Business None
IDS Tower 10 Services
Minneapolis, MN 55440
<PAGE>
(b) As to each director, officer or partner of the principal underwriter (American Express
Financial Advisors, Inc.) (Con't):
Name and Principal Business Address Position and Offices with Offices with Registrant
Underwriter
- -------------------------------------------- ---------------------------------- --------------------------
Timothy V. Bechtold Vice President-Risk Management None
IDS Tower 10 Products
Minneapolis, MN 55440
John D. Begley Group Vice President-Ohio/Indiana None
Suite 100
7760 Olentangy River Rd.
Columbus, OH 43235
<PAGE>
Jack A. Benjamin Group Vice President-Greater None
Suite 200 Pennsylvania
3500 Market Street
Camp Hill, PA 17011
Alan F. Bignall Vice President-Technology and None
IDS Tower 10 Development
Minneapolis, MN 55440
Brent L. Bisson Group Vice President-Los None
Suite 900, E. Westside Twr Angeles Metro
11835 West Olympic Blvd.
Los Angeles, CA 90064
John C. Boeder Vice President-Mature Market None
IDS Tower 10 Group
Minneapolis, MN 55440
Walter K. Booker Group Vice President-New Jersey None
Suite 200, 3500 Market Street
Camp Hill, NJ 17011
Bruce J. Bordelon Group Vice President-Gulf States None
Galleria One Suite 1900
Galleria Blvd.
Metairie, LA 70001
Charles R. Branch Group Vice President-Northwest None
Suite 200
West 111 North River Dr
Spokane, WA 99201
Douglas W. Brewers Vice President-Sales Support None
IDS Tower 10
Minneapolis, MN 55440
<PAGE>
(b) As to each director, officer or partner of the principal underwriter (American Express
Financial Advisors, Inc.) (Con't):
Name and Principal Business Address Position and Offices with Offices with Registrant
Underwriter
- -------------------------------------------- ---------------------------------- --------------------------
Karl J. Breyer Senior Vice President-Law and None
IDS Tower 10 Corporate
Minneapolis, MN 55440 Affairs
Daniel J. Candura Vice President-Marketing Support None
IDS Tower 10
Minneapolis, MN 55440
Cynthia M. Carlson Vice President-American Express None
IDS Tower 10 Securities Services
Minneapolis, MN 55440
Mark W. Carter Senior Vice President and Chief None
IDS Tower 10 Marketing Officer
Minneapolis, MN 55440
James E. Choat Senior Vice None
IDS Tower 10 President-Institutional
Minneapolis, MN 55440 Products Group
Kenneth J. Ciak Vice President and General None
IDS Property Casualty Manager-IDS Property Casualty
1400 Lombardi Avenue
Green Bay, WI 54304
Roger C. Corea Group Vice President-Upstate None
290 Woodcliff Drive New York
Fairport, NY 14450
Henry J. Cormier Group Vice President-Connecticut None
Commerce Center One
333 East River Drive
East Hartford, CT 06108
John M. Crawford Group Vice President-Arkansas / None
Suite 200 Springfield / Memphis
10800 Financial Ctr Pkwy
Little Rock, AR 72211
Kevin F. Crowe Group Vice None
Suite 312 President-Carolinas/Eastern
7300 Carmel Executive Pk Georgia
Charlotte, NC 28226
<PAGE>
(b) As to each director, officer or partner of the principal underwriter (American Express
Financial Advisors, Inc.) (Con't):
Name and Principal Business Address Position and Offices with Offices with Registrant
Underwriter
- -------------------------------------------- ---------------------------------- --------------------------
Colleen Curran Vice President and assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
Reginia David Vice President-Systems Services None
IDS Tower 10
Minneapolis, MN 55440
Luz Maria Davis Vice President-Communications None
IDS Tower 10
Minneapolis, MN 55440
Scott M. DiGiammarino Group Vice None
Suite 500, 8045 Leesburg Pike President-Washington/Baltimore
Vienna, VA 22182
Bradford L. Drew Group Vice President-Eastern None
Two Datran Center Florida
Penthouse One B
9130 S. Dadeland Blvd.
Miami, FL 33156
Gordon L. Eid Senior Vice President, General None
IDS Tower 10 Counsel and Chief Compliance
Minneapolis, MN 55440 Officer
Robert M. Elconin Vice President-Government None
IDS Tower 10 Relations
Minneapolis, MN 55440
Mark A. Ernst Senior Vice President-Third None
IDS Tower 10 Party Distribution
Minneapolis, MN 55440
Joseph Evanovich Jr. Group Vice None
One Old Mill President-Nebraska/Iowa/Dakotas
101 South 108th Avenue
Omaha, NE 68154
<PAGE>
Louise P. Evenson Group Vice President-San None
Suite 200 Francisco Bay Area
1333 N. California Blvd.
Walnut Creek, CA 94596
<PAGE>
(b) As to each director, officer or partner of the principal underwriter (American Express
Financial Advisors, Inc.) (Con't):
Name and Principal Business Address Position and Offices with Offices with Registrant
Underwriter
- -------------------------------------------- ---------------------------------- --------------------------
Gordon M. Fines Vice President-Mutual Fund None
IDS Tower 10 Equity Investments
Minneapolis, MN 55440
Douglas L. Forsberg Vice President-Institutional None
IDS Tower 10 Products Group
Minneapolis, MN 55440
Jeffrey P. Fox Vice President and Corporate None
IDS Tower 10 Controller
Minneapolis, MN 55440
William P. Fritz Group Vice President-Northern None
Suite 160 Missouri
12855 Flushing Meadows Dr
St. Louis, MO 63131
Carl W. Gans Group Vice President-Twin City None
8500 Tower Suite 1770 Metro
8500 Normandale Lake Blvd.
Bloomington, MN 55437
John J. Golden Vice President-Human Resources None
IDS Tower 10 Planning and Field Support
Minneapolis, MN 55440
David A. Hammer Vice President and Marketing None
IDS Tower 10 Controller
Minneapolis, MN 55440
Teresa A. Hanratty Group Vice President-Northern None
Suites 6&7 New England
169 South River Road
Bedford, NH 03110
Robert L. Harden Group Vice President-Boston None
Two Constitution Plaza Metro
Boston, MA 02129
Lorraine R. Hart Vice President-Insurance None
IDS Tower 10 Investments
Minneapolis, MN 55440
<PAGE>
(b) As to each director, officer or partner of the principal underwriter (American Express
Financial Advisors, Inc.) (Con't):
Name and Principal Business Address Position and Offices with Offices with Registrant
Underwriter
- -------------------------------------------- ---------------------------------- --------------------------
Scott A. Hawkinson Vice President-Assured Assets None
IDS Tower 10 Product Development and
Minneapolis, MN 55440 Management
Brian M. Heath Group Vice President-North Texas None
Suite 150
801 E. Campbell Road
Richardson, TX 75081
Janis K. Heaney Vice President-Incentive None
IDS Tower 10 Compensation
Minneapolis, MN 55440
James G. Hirsh Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
Jon E. Hjelm Group Vice President-Rhode None
319 Southbridge Street Island/Central-Western
Auburn, MA 01501 Massachusetts
David J. Hockenberry Group Vice President-Eastern None
30 Burton Hills Blvd. Tennessee
Suite 175
Nashville, TN 37215
Jeffrey S. Horton Vice President and Treasurer None
IDS Tower 10
Minneapolis, MN 55440
David R. Hubers Chairman, President and Chief Board member
IDS Tower 10 Executive Officer
Minneapolis, MN 55440
Martin G. Hurwitz Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
James M. Jensen Vice President-Insurance None
IDS Tower 10 Product Development and
Minneapolis, MN 55440 Management
<PAGE>
(b) As to each director, officer or partner of the principal underwriter (American Express
Financial Advisors, Inc.) (Con't):
Name and Principal Business Address Position and Offices with Offices with Registrant
Underwriter
- -------------------------------------------- ---------------------------------- --------------------------
Marietta L. Johns Senior Vice President-Field None
IDS Tower 10 Management
Minneapolis, MN 55440
James E. Kaarre Vice President-Marketing None
IDS Tower 10 Promotions
Minneapolis, MN 55440
Matthew N. Karstetter Vice President-Investment None
IDS Tower 10 Accounting
Minneapolis, MN 55440
Linda B. Keene Vice President-Market None
IDS Tower 10 Development
Minneapolis, MN 55440
G. Michael Kennedy Vice President-Investment None
IDS Tower 10 Services and Investment Research
Minneapolis, MN 55440
Susan D. Kinder Senior Vice None
IDS Tower 10 President-Distribution Services
Minneapolis, MN 55440
Brian Kleinberg Executive Vice None
IDS Tower 10 President-Financial Direct
Minneapolis, MN 55440
Richard W. Kling Senior Vice President-Products None
IDS Tower 10
Minneapolis, MN 55440
Paul F. Kolkman Vice President-Actuarial Finance None
IDS Tower 10
Minneapolis, MN 55440
Claire Kolmodin Vice President-Service Quality None
IDS Tower 10
Minneapolis, MN 55440
David S. Kreager Group Vice President-Greater None
Suite 108 Michigan
Trestle Bridge V
5136 Lovers Lane
Kalamazoo, MI 49002
<PAGE>
(b) As to each director, officer or partner of the principal underwriter (American Express
Financial Advisors, Inc.) (Con't):
Name and Principal Business Address Position and Offices with Offices with Registrant
Underwriter
- -------------------------------------------- ---------------------------------- --------------------------
Steven C. Kumagai Director and Senior Vice None
IDS Tower 10 President-Field Management and
Minneapolis, MN 55440 Business Systems
Mitre Kutanovski Group Vice President-Chicago None
Suite 680 Metro
8585 Broadway
Merrillville, IN 48410
Edward Labenski Jr. Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Kurt A. Larson Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Lori J. Larson Vice President-Variable Assets None
IDS Tower 10 Product Development
Minneapolis, MN 55440
Ryan R. Larson Vice President- IPG Product None
IDS Tower 10 Development
Minneapolis, MN 55440
Daniel E. Laufenberg Vice President and Chief U.S. None
IDS Tower 10 Economist
Minneapolis, MN 55440
Richard J. Lazarchic Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Peter A. Lefferts Senior Vice President-Corporate None
IDS Tower 10 Strategy and Development
Minneapolis, MN 55440
Douglas A. Lennick Director and Executive Vice None
IDS Tower 10 President-Private Client Group
Minneapolis, MN 55440
<PAGE>
(b) As to each director, officer or partner of the principal underwriter (American Express
Financial Advisors, Inc.) (Con't):
Name and Principal Business Address Position and Offices with Offices with Registrant
Underwriter
- -------------------------------------------- ---------------------------------- --------------------------
Mary J. Malevich Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Fred A. Mandell Vice President-Field Marketing None
IDS Tower 10 Readiness
Minneapolis, MN 55440
Daniel E. Martin Group Vice President-Pittsburgh None
Suite 650 Metro
5700 Corporate Drive
Pittsburgh, PA 15237
Thomas W. Medcalf Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
William C. Melton Vice President-International None
IDS Tower 10 Research and Chief
Minneapolis, MN 55440 International Economist
William P. Miller Vice President and Senior None
IDS Tower 10 Portfolio Manager
Minneapolis, MN 55440
James A. Mitchell Executive Vice None
IDS Tower 10 President-Marketing and Products
Minneapolis, MN 55440
Pamela J. Moret Vice President-Variable Assets None
IDS Tower 10
Minneapolis, MN 55440
Alan D. Morgenstern Group Vice President-Central None
Suite 200 California/Western Nevada
3500 Market Street
Camp Hill, NJ 17011
Barry J. Murphy Senior Vice President-Client None
IDS Tower 10 Service
Minneapolis, MN 55440
<PAGE>
(b) As to each director, officer or partner of the principal underwriter (American Express
Financial Advisors, Inc.) (Con't):
Name and Principal Business Address Position and Offices with Offices with Registrant
Underwriter
- -------------------------------------------- ---------------------------------- --------------------------
Mary Owens Neal Vice President-Mature Market None
IDS Tower 10 Segment
Minneapolis, MN 55440
Robert J. Neis Vice President-Technology None
IDS Tower 10 Services
Minneapolis, MN 55440
Thomas V. Nicolosi Group Vice President-New York None
Suite 220 Metro Area
500 Mamaroneck Avenue
Harrison, NY 10528
James R. Palmer Vice President-Taxes None
IDS Tower 10
Minneapolis, MN 55440
Carla P. Pavone Vice President-Compensation and None
IDS Tower 10 Field Administration
Minneapolis, MN 55440
Susan B. Plimpton Vice President-Marketing None
IDS Tower 10 Services
Minneapolis, MN 55440
Larry M. Post Group Vice None
One Tower Bridge President-Philadelphia Metro
100 Front Street 8th Fl
West Conshohocken, PA 19428
Ronald W. Powell Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
James M. Punch Vice President-Special Projects None
IDS Tower 10
Minneapolis, MN 55440
Frederick C. Quirsfeld Vice President-Taxable Mutual None
IDS Tower 10 Fund Investments
Minneapolis, MN 55440
<PAGE>
(b) As to each director, officer or partner of the principal underwriter (American Express
Financial Advisors, Inc.) (Con't):
Name and Principal Business Address Position and Offices with Offices with Registrant
Underwriter
- -------------------------------------------- ---------------------------------- --------------------------
Debra J. Rabe Vice President-Financial None
IDS Tower 10 Planning
Minneapolis, MN 55440
R. Daniel Richardson Group Vice President-Southern None
Suite 800 Texas
Arboretum Plaza One
9442 Capital of Texas Hwy N.
Austin, TX 78759
ReBecca K. Roloff Senior Vice President-Field None
IDS Tower 10 Management and Financial
Minneapolis, MN 55440 Advisory Service
Stephen W. Roszell Senior Vice None
IDS Tower 10 President-Institutional
Minneapolis, MN 55440
Max G. Roth Group Vice None
Suite 201 S IDS Ctr President-Wisconsin/Upper
1400 Lombardi Avenue Michigan
Green Bay, WI 54304
John P. Ryan Vice President and General None
IDS Tower 10 Auditor
Minneapolis, MN 55440
Erven A. Samsel Senior Vice President-Field None
45 Braintree Hill Park Management
Suite 402
Braintree, MA 02184
Russell L. Scalfano Group Vice None
Suite 201 President-Illinois/Indiana/Kentucky
101 Plaza East Blvd.
Evansville, IN 47715
William G. Scholz Group Vice None
Suite 205 President-Arizona/Las Vegas
7333 E Doubletree Ranch Rd
Scottsdale, AZ 85258
<PAGE>
(b) As to each director, officer or partner of the principal underwriter (American Express
Financial Advisors, Inc.) (Con't):
Name and Principal Business Address Position and Offices with Offices with Registrant
Underwriter
- -------------------------------------------- ---------------------------------- --------------------------
Stuart A. Sedlacek Vice President-Assured Assets None
IDS Tower 10
Minneapolis, MN 55440
Donald K. Shanks Vice President-Property Casualty None
IDS Tower 10
Minneapolis, MN 55440
F. Dale Simmons Vice President-Senior Portfolio None
IDS Tower 10 Manager, Insurance Investments
Minneapolis, MN 55440
Judy P. Skoglund Vice President-Human Resources None
IDS Tower 10 and Organization Development
Minneapolis, MN 55440
Ben C. Smith Vice President- Workplace None
IDS Tower 10 Marketing
Minneapolis, MN 55440
William A. Smith Vice President and None
IDS Tower 10 Controller-Private Client Group
Minneapolis, MN 55440
James B. Solberg Group Vice President-Eastern None
466 Westdale Mall Iowa Area
Cedar Rapids, IA 52404
Bridget Sperl Vice President-Geographic None
IDS Tower 10 Service Teams
Minneapolis, MN 55440
Paul J. Stanislaw Group Vice President-Southern None
Suite 1100 California
Two Park Plaza
Irvine, CA 92714
Lois A. Stilwell Group Vice President-Outstate None
Suite 433 Minnesota Area/ North
9900 East Bren Road Dakota/Western Wisconsin
Minnetonka, MN 55343
<PAGE>
(b) As to each director, officer or partner of the principal underwriter (American Express
Financial Advisors, Inc.) (Con't):
Name and Principal Business Address Position and Offices with Offices with Registrant
Underwriter
- -------------------------------------------- ---------------------------------- --------------------------
William A. Stoltzmann Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
James J. Strauss Vice President-Corporate None
IDS Tower 10 Planning and Analysis
Minneapolis, MN 55440
Jeffrey J. Stremcha Vice President-Information None
IDS Tower 10 Resource Management/ISD
Minneapolis, MN 55440
Barbara Stroup Stewart Vice President-Corporate None
IDS Tower 10 Reengineering
Minneapolis, MN 55440
Craig P. Taucher Group Vice None
Suite 150 President-Orlando/Jacksonville
4190 Belfort Road
Jacksonville, FL 32216
Neil G. Taylor Group Vice None
Suite 425 President-Seattle/Tacoma
101 Elliott Avenue West
Seattle, WA 98119
Peter S. Velardi Group Vice None
Suite 180 President-Atlanta/Birmingham
1200 Ashwood Parkway
Atlanta, GA 30338
Charles F. Wachendorfer Group Vice None
Suite 100 President-Denver/Salt Lake
Stanford Plaza II City/Albuquerque
7979 East Tufts Ave Pkwy
Denver, CO 80237
Wesley W. Wadman Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
<PAGE>
(b) As to each director, officer or partner of the principal underwriter (American Express
Financial Advisors, Inc.) (Con't):
Name and Principal Business Address Position and Offices with Offices with Registrant
Underwriter
- -------------------------------------------- ---------------------------------- --------------------------
Norman Weaver Jr. Senior Vice President-Field None
1010 Main St. Suite 2B Management
Huntington Beach, CA 92648
Michael L. Weiner Vice President-Tax Research and None
IDS Tower 10 Audit
Minneapolis, MN 55440
Lawrence J. Welte Vice President-Investment None
IDS Tower 10 Administration
Minneapolis, MN 55440
Jeffry M. Welter Vice President-Equity and Fixed None
IDS Tower 10 Income Trading
Minneapolis, MN 55440
Thomas L. White Group Vice President-Cleveland None
Suite 200 Metro
28601 Chagrin Blvd.
Woodmere, OH 44122
Eric S. Williams Group Vice President-Virginia None
Suite 250
3951 Westerre Parkway
Richmond, VA 23233
William J. Williams Group Vice President-Western None
Two North Tamiami Trail Florida
Suite 702
Sarasota, FL 34236
Edwin M. Wistrand Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
Michael D. Wolf Vice President- Senior None
IDS Tower 10 Portfolio Manager
Minneapolis, MN 55440
Michael R. Woodward Senior Vice President-Field None
32 Ellicott St Management
Suite 100
Batavia, NY 14020
</TABLE>
<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>
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 30th day of March, 1998.
IDS MARKET ADVANTAGE SERIES, INC.
by ________________________________
Matthew N. Karstetter, Treasurer
by /s/ William R. Pearce**
William R. Pearce, Chairman of the board
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 30th day of March, 1998.
Signatures Capacity
/s/ William R. Pearce* Chairman of the board
William R. Pearce
/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/ David R. Hubers* Director
David R. Hubers
/s/ Heinz F. Hutter* Director
Heinz F. Hutter
/s/ Anne P. Jones* Director
Anne P. Jones
/s/ Alan K. Simpson* Director
Alan K. Simpson
<PAGE>
Signatures Capacity
/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 7, 1998, 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>
CONTENTS OF THIS
POST-EFFECTIVE AMENDMENT NO. 19
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.
IDS Market Advantage Series, Inc.
File No. 33-30770/811-5897
EXHIBIT INDEX
Exhibit 9(a): Copy of Transfer Agency Agreement
Exhibit 10: Opinion and consent of counsel
Exhibit 11: Independent Auditor's Consent
Exhibit 17: Financial Data Schedules
Exhibit 19(a): Directors' Power of Attorney
TRANSFER AGENCY AGREEMENT
AGREEMENT dated as of January 1, 1998, between IDS Market Advantage Series, Inc.
(the "Company"), a Minnesota corporation, on behalf of its underlying series
funds (individually a "Fund" and collectively the "Funds"), and American Express
Client Service Corporation (the "Transfer Agent"), a Minnesota corporation.
In consideration of the mutual promises set forth below, the Company and the
Transfer Agent agree as follows:
1. Appointment of the Transfer Agent. The Company hereby appoints the
Transfer Agent, as transfer agent for its shares and as shareholder
servicing agent for the Company, and the Transfer Agent accepts such
appointment and agrees to perform the duties set forth below.
2. Compensation. The Company will compensate the Transfer Agent for the
performance of its obligations as set forth in Schedule A. Schedule A
does not include out-of-pocket disbursements of the Transfer Agent for
which the Transfer Agent shall be entitled to bill the Company
separately.
The Transfer Agent will bill the Company monthly. The fee provided for
hereunder shall be paid in cash by the Company to the Transfer Agent
within five (5) business days after the last day of each month.
Out-of-pocket disbursements shall include, but shall not be limited to,
the items specified in Schedule B. Reimbursement by the Company for
expenses incurred by the Transfer Agent in any month shall be made as
soon as practicable after the receipt of an itemized bill from the
Transfer Agent.
Any compensation jointly agreed to hereunder may be adjusted from time
to time by attaching to this Agreement a revised Schedule A, dated and
signed by an officer of each party.
3. Documents. The Company will furnish from time to time such
certificates, documents or opinions as the Transfer Agent deems to be
appropriate or necessary for the proper performance of its duties.
4. Representations of the Company and the Transfer Agent.
(a) The Company represents to the Transfer Agent that all
outstanding shares are validly issued, fully paid and
non-assessable by the Company. When shares are hereafter
issued in accordance with the terms of the Company's Articles
of Incorporation and its By-laws, such shares shall be validly
issued, fully paid and non-assessable by the Company.
(b) The Transfer Agent represents that it is registered under
Section 17A(c) of the Securities Exchange Act of 1934. The
Transfer Agent agrees to maintain the necessary facilities,
equipment and personnel to perform its duties and obligations
under this agreement and to comply with all applicable laws.
<PAGE>
5. Duties of the Transfer Agent. The Transfer Agent shall be responsible,
separately and through its subsidiaries or affiliates, for the
following functions:
(a) Sale of Fund Shares.
(1) On receipt of an application and payment, wired
instructions and payment, or payment identified as
being for the account of a shareholder, the Transfer
Agent will deposit the payment, prepare and present
the necessary report to the Custodian and record the
purchase of shares in a timely fashion in accordance
with the terms of the respective Fund's prospectus.
All shares shall be held in book entry form and no
certificate shall be issued unless the Fund is
permitted to do so by its prospectus and the
purchaser so requests.
(2) On receipt of notice that payment was dishonored, the
Transfer Agent shall stop redemptions of all shares
owned by the purchaser related to that payment, place
a stop payment on any checks that have been issued to
redeem shares of the purchaser and take such other
action as it deems appropriate.
(b) Redemption of Fund Shares. On receipt of instructions to
redeem shares in accordance with the terms of the Fund's
prospectus, the Transfer Agent will record the redemption of
shares of the Fund, prepare and present the necessary report
to the Custodian and pay the proceeds of the redemption to the
shareholder, an authorized agent or legal representative upon
the receipt of the monies from the Custodian.
(c) Transfer or Other Change Pertaining to Fund Shares. On receipt
of instructions or forms acceptable to the Transfer Agent to
transfer the shares to the name of a new owner, change the
name or address of the present owner or take other legal
action, the Transfer Agent will take such action as is
requested.
(d) Exchange of Fund Shares. On receipt of instructions to
exchange the shares of the Fund for the shares of another fund
in the IDS MUTUAL FUND GROUP or other American Express
Financial Corporation product in accordance with the terms of
the prospectus, the Transfer Agent will process the exchange
in the same manner as a redemption and sale of shares.
(e) Right to Seek Assurance. The Transfer Agent may refuse to transfer,
exchange or redeem shares of a Fund or take any action requested by a
shareholder until it is satisfied that the requested transaction or action
is legally authorized or until it is satisfied there is no basis for any
claims adverse to the transaction or action. It may rely on the provisions
of the Uniform Act for the Simplification of Fiduciary Security Transfers
or the Uniform Commercial Code. The Company shall indemnify the Transfer
Agent for any act done or omitted to be done in reliance on such laws or
for refusing to transfer, exchange or redeem shares or taking any requested
action if it acts on a good faith belief that the transaction or action is
illegal or unauthorized.
<PAGE>
(f) Shareholder Records, Reports and Services.
(1) The Transfer Agent shall maintain all shareholder
accounts, which shall contain all required tax,
legally imposed and regulatory information; shall
provide shareholders, and file with federal and state
agencies, all required tax and other reports
pertaining to shareholder accounts; shall prepare
shareholder mailing lists; shall cause to be printed
and mailed all required prospectuses, annual reports,
semiannual reports, statements of additional
information (upon request), proxies and other
mailings to shareholders; and shall cause proxies to
be tabulated.
(2) The Transfer Agent shall respond to all valid
inquiries related to its duties under this Agreement.
(3) The Transfer Agent shall create and maintain all
records in accordance with all applicable laws, rules
and regulations, including, but not limited to, the
records required by Section 31(a) of the Investment
Company Act of 1940.
(g) Dividends and Distributions. The Transfer Agent shall prepare
and present the necessary report to the Custodian and shall
cause to be prepared and transmitted the payment of income
dividends and capital gains distributions or cause to be
recorded the investment of such dividends and distributions in
additional shares of the Funds or as directed by instructions
or forms acceptable to the Transfer Agent.
(h) Confirmations and Statements. The Transfer Agent shall confirm
each transaction either at the time of the transaction or
through periodic reports as may be legally permitted.
(i) Lost or Stolen Checks. The Transfer Agent will replace lost or
stolen checks issued to shareholders upon receipt of proper
notification and will maintain any stop payment orders against
the lost or stolen checks as it is economically desirable to
do.
(j) Reports to Company. The Transfer Agent will provide reports
pertaining to the services provided under this Agreement as
the Company may request to ascertain the quality and level of
services being provided or as required by law.
(k) Other Duties. The Transfer Agent may perform other duties for
additional compensation if agreed to in writing by the parties
to this Agreement.
6. Ownership and Confidentiality of Records. The Transfer Agent agrees
that all records prepared or maintained by it relating to the services
to be performed by it under the terms of this Agreement are the
property of the Company and may be inspected by the Company or any
person retained by the Company at reasonable times. The Company and
Transfer Agent agree to protect the confidentiality of those records.
<PAGE>
7. Action by Board and Opinion of Counsel. The Transfer Agent may rely on
resolutions of the Board of Directors (the "Board") or the Executive
Committee of the Board and on opinion of counsel for the Company.
8. Duty of Care. It is understood and agreed that, in furnishing the Company
with the services as herein provided, neither the Transfer Agent, nor any
officer, director or agent thereof shall be held liable for any loss
arising out of or in connection with their actions under this Agreement so
long as they act in good faith and with due diligence, and are not
negligent or guilty of any willful misconduct. It is further understood and
agreed that the Transfer Agent may rely upon information furnished to it
reasonably believed to be accurate and reliable. In the event the Transfer
Agent is unable to perform its obligations under the terms of this
Agreement because of an act of God, strike or equipment or transmission
failure reasonably beyond its control, the Transfer Agent shall not be
liable for any damages resulting from such failure.
9. Term and Termination. This Agreement shall become effective on the date
first set forth above (the "Effective Date") and shall continue in effect
from year to year thereafter as the parties may mutually agree; provided
that either party may terminate this Agreement by giving the other party
notice in writing specifying the date of such termination, which shall be
not less than 60 days after the date of receipt of such notice. In the
event such notice is given by the Company, it shall be accompanied by a
vote of the Board, certified by the Secretary, electing to terminate this
Agreement and designating a successor transfer agent or transfer agents.
Upon such termination and at the expense of the Company, the Transfer Agent
will deliver to such successor a certified list of shareholders of the
Funds (with name, address and taxpayer identification or Social Security
number), a historical record of the account of each shareholder and the
status thereof, and all other relevant books, records, correspondence, and
other data established or maintained by the Transfer Agent under this
Agreement in the form reasonably acceptable to the Company, and will
cooperate in the transfer of such duties and responsibilities, including
provisions for assistance from the Transfer Agent's personnel in the
establishment of books, records and other data by such successor or
successors.
10. Amendment. This Agreement may not be amended or modified in any manner
except by a written agreement executed by both parties.
11. Subcontracting. The Company agrees that the Transfer Agent may
subcontract for certain of the services described under this Agreement
with the understanding that there shall be no diminution in the quality
or level of the services and that the Transfer Agent remains fully
responsible for the services. Except for out-of-pocket expenses
identified in Schedule B, the Transfer Agent shall bear the cost of
subcontracting such services, unless otherwise agreed by the parties.
<PAGE>
12. Miscellaneous.
(a) This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable
without the written consent of the other party.
(b) This Agreement shall be governed by the laws of the State of
Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers as of the day and year written above.
IDS MARKET ADVANTAGE SERIES, INC.
IDS Blue Chip Advantage Fund
IDS Small Company Index Fund
By: /s/ Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS CLIENT SERVICE CORPORATION
By: /s/ Barry J. Murphy
Barry J. Murphy
President
<PAGE>
Schedule A
IDS MARKET ADVANTAGE SERIES, INC.
FEE
The annual per account fee for services under this agreement, accrued daily and
payable monthly, is as follows:
Class A Class B Class Y
IDS Blue Chip Advantage Fund $15.00 $16.00 $15.00
IDS Small Company Index Fund $15.00 $16.00 $15.00
Until July 31, 1998, the Transfer Agent has agreed to waive certain fees and to
absorb certain fund expenses under this Agreement. If, at the end of any month,
the fees and expenses of Small Company Index Fund exceed 1.0% the Fund shall not
pay fees and expenses under this Agreement to the extent necessary to keep the
Fund's expense ratio from exceeding the limitation. In any month that the fees
and expenses of Class A shares exceed this limitation all fees and expenses in
excess of that limit will be returned to that Fund. Any fee waiver or
elimination of expenses will apply to each class on a pro rata basis.
<PAGE>
Schedule B
OUT-OF-POCKET EXPENSES
The Company shall reimburse the Transfer Agent monthly for the following
out-of-pocket expenses:
o typesetting, printing, paper, envelopes, postage and return postage
for proxy soliciting material, and proxy tabulation costs
o printing, paper, envelopes and postage for dividend notices, dividend
checks, records of account, purchase confirmations, exchange
confirmations and exchange prospectuses, redemption confirmations,
redemption checks, confirmations on changes of address and any other
communication required to be sent to shareholders
o typesetting, printing, paper, envelopes and postage for prospectuses,
annual and semiannual reports, statements of additional information,
supplements for prospectuses and statements of additional information
and other required mailings to shareholders
o stop orders
o outgoing wire charges
o other expenses incurred at the request or with the consent of the
Company
March 30, 1998
IDS Market Advantage Series, Inc.
IDS Tower 10
Minneapolis, Minnesota 55440-0010
Gentlemen:
I have examined the Articles of Incorporation and the By-Laws of the Company and
all necessary certificates, permits, minute books, documents and records of the
Company, and the applicable statutes of the State of Minnesota, and it is my
opinion:
(a) That the Company is a corporation duly organized and existing under the
laws of the State of Minnesota with an authorized capital stock of
10,000,000,000 shares, all of $.01 par value, that such shares may be
issued as full or fractional shares;
(b) That all such authorized shares are, under the laws of the State of
Minnesota, redeemable as provided in the Articles of Incorporation of
the Company and upon redemption shall have the status of authorized and
unissued shares;
(c) That the Company registered on August 30, 1989 an indefinite number of
shares pursuant to Rule 24f-2; and
(d) That shares which were sold at not less than their par value and in
accordance with applicable federal and state securities laws were
legally issued, fully paid and nonassessable.
I hereby consent that the foregoing opinion may be used in connection with this
Post-Effective Amendment.
Very truly yours,
Leslie L. Ogg
Attorney at Law
901 Marquette Ave. S., Suite 2810
Minneapolis, Minnesota 55402-3268
Independent auditor's consent
The board and shareholders
IDS Market Advantage Series, Inc.
IDS Blue Chip Advantage Fund
IDS Small Company Index Fund
We consent to the use of our reports 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 31, 1998
DIRECTORS/TRUSTEES POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as directors and trustees of the below listed
open-end, diversified investment companies that previously have filed
registration statements and amendments thereto pursuant to the requirements of
the Securities Act of 1933 and the Investment Company Act of 1940 with the
Securities and Exchange Commission:
1933 Act 1940 Act
Reg. Number Reg. Number
IDS Bond Fund, Inc. 2-51586 811-2503
IDS California Tax-Exempt Trust 33-5103 811-4646
IDS Discovery Fund, Inc. 2-72174 811-3178
IDS Equity Select Fund, Inc. 2-13188 811-772
IDS Extra Income Fund, Inc. 2-86637 811-3848
IDS Federal Income Fund, Inc. 2-96512 811-4260
IDS Global Series, Inc. 33-25824 811-5696
IDS Growth Fund, Inc. 2-38355 811-2111
IDS High Yield Tax-Exempt Fund, Inc. 2-63552 811-2901
IDS International Fund, Inc. 2-92309 811-4075
IDS Investment Series, Inc. 2-11328 811-54
IDS Managed Retirement Fund, Inc. 2-93801 811-4133
IDS Market Advantage Series, Inc. 33-30770 811-5897
IDS Money Market Series, Inc. 2-54516 811-2591
IDS New Dimensions Fund, Inc. 2-28529 811-1629
IDS Precious Metals Fund, Inc. 2-93745 811-4132
IDS Progressive Fund, Inc. 2-30059 811-1714
IDS Selective Fund, Inc. 2-10700 811-499
IDS Special Tax-Exempt Series Trust 33-5102 811-4647
IDS Stock Fund, Inc. 2-11358 811-498
IDS Strategy Fund, Inc. 2-89288 811-3956
IDS Tax-Exempt Bond Fund, Inc. 2-57328 811-2686
IDS Tax-Free Money Fund, Inc. 2-66868 811-3003
IDS Utilities Income Fund, Inc. 33-20872 811-5522
hereby constitutes and appoints William R. Pearce and Leslie L. Ogg or either
one of them, as her or his attorney-in-fact and agent, to sign for her or him in
her or his name, place and stead any and all further amendments to said
registration statements filed pursuant to said Acts and any rules and
regulations thereunder, and to file such amendments with all exhibits thereto
and other documents in connection therewith with the Securities and Exchange
Commission, granting to either of them the full power and authority to do and
perform each and every act required and necessary to be done in connection
therewith.
<PAGE>
Dated the 7th day of January, 1998.
/s/ H. Brewster Atwater, Jr. /s/ William R. Pearce
H. Brewster Atwater, Jr. William R. Pearce
/s/ Lynne V. Cheney /s/ Alan K. Simpson
Lynne V. Cheney Alan K. Simpson
/s/ William H. Dudley /s/ Edson W. Spencer
William H. Dudley 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