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IDS Small
Company
Index Fund
1999 ANNUAL REPORT
(PROSPECTUS ENCLOSED)
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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 annual report includes a prospectus that describes in detail the Fund's
objective, investment strategy, risks, sales charges, fees and other matters of
interest. Please read the prospectus carefully before you invest or send money.)
Distributed by American Express Financial Advisors Inc.
AMERICAN EXPRESS Financial Advisors
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Good Things,
Small Packages
When people talk stocks, the conversation often centers on big, household names.
But the fact is that all companies were small once, and, as a group, the small
ones have actually provided a greater investment return than their more-sizable
siblings over the long run. Instead of trying to sort out the most likely
winners from the huge number of contenders, IDS Small Company Index Fund simply
buys a representative sample of stocks from a popular index. Therefore, as the
index performs, so, too, should the Fund.
IDS SMALL COMPANY INDEX FUND (This annual report is not part of the prospectus.)
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Table of Contents
1999 ANNUAL REPORT
The purpose of this annual report is to tell investors how the Fund performed.
From the Chairman 4
From the Portfolio Manager 4
Fund Facts 6
The 10 Largest Holdings 7
Making the Most of the Fund 8
The Fund's Long-term Performance 9
Independent Auditors' Report 10
Financial Statements 11
Notes to Financial Statements 14
Investments in Securities 20
Federal Income Tax Information 40
1999 PROSPECTUS
The prospectus, which is bound into the middle of this annual report, describes
the Fund in detail.
The Fund 3p
Goal 3p
Investment Strategy 3p
Risks 4p
Past Performance 6p
Fees and Expenses 8p
Management 9p
Buying and Selling Shares 9p
Valuing Fund Shares 9p
Investment Options 10p
Purchasing Shares 11p
Sales Charges 14p
Exchanging/Selling Shares 18p
Distributions and Taxes 23p
Personalized Shareholder
Information 25p
About the Company 26p
Quick Telephone Reference 28p
Financial Highlights 29p
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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(picture of) Arne H. Carlson
Arne H. Carlson
Chairman of the board
From the Chairman
It is an honor for me to join the IDS Mutual Fund Group as chairman of the board
and chief executive officer for each of the funds. I have served for the past
eight years as governor of Minnesota and also for the past 20 years as a
constitutional officer responsible for the pension investments made on behalf of
governmental employees. My responsibility in the coming years is to serve your
interests.
By law, half the members of a mutual fund board must be independent of their
investment manager and distributor. I am one of those persons. I am not an
employee of American Express Financial Corporation, nor do I own stock in
American Express Company. Both are fine companies, but the law clearly states
that to fully represent your interests I must be independent.
Having said that, I have a great deal of respect for the capabilities of
American Express Financial Corporation and for the services it provides
investors. Your financial advisor assists you in financial planning, conducts
regular investment reviews, and responds to your questions and needs. This is a
very personal service that makes AEFCa partner in your financial future. I know
that AEFC has an investment focus on the long-term performance of our economy.
AEFC wants you to participate in that growth. Our board is here to serve you and
to represent your interests in a professional manner.
Arne H. Carlson
(picture of) James M. Johnson, Jr.
James M. Johnson, Jr.
Portfolio manager
From the Portfolio Manager
Small stocks experienced substantial price swings during the past fiscal year,
but in the end they finished the period about where they started. For IDS Small
Company Index Fund's Class A shares, the ultimate result was a loss of 1.69% for
the 12 months -- February 1998 through January 1999.
IDS SMALL COMPANY INDEX FUND (This annual report is not part of the prospectus.)
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The period began on an encouraging note. Thanks to dissipating fear regarding
the negative impact of the financial crisis in Asia and a continuation of the
positive investment environment here at home, small stocks rose sharply during
February and March. But, in keeping with the pattern of recent years, the rally
soon petered out as investors began to return to the large, blue-chip stocks
that have most often been at the forefront of the market's advance.
The environment for virtually all stocks changed in mid-summer, though, when the
"Asian flu," the economic malady that first decimated Southeast Asia in the fall
of 1997, resurfaced in Russia and Latin America. Worried that American
companies' profits would suffer as a result of shrinking overseas business,
investors engaged in widespread stock-selling that drove the broad market down
by nearly 20%. Although small stocks are typically thought to be more sheltered
from foreign economic weakness than big stocks, the fear in the stock market
struck small stocks even harder.
RESOUNDING REBOUND
The tide would turn again, however. By September, the market was back on its
feet and beginning to move forward. More important, small stocks were keeping up
with their bigger brethren. The powerful rally lasted through December, by which
time small stocks had made up most of the ground they lost during the late
summer.
The most volatile stock sector during the 12 months was technology, which soared
and sank with the mood of investors regarding potential fallout from the
situation overseas. On the other side of the spectrum were the consumer staples
such as food and drug stocks, whose relatively predictable earnings growth led
to more consistent price performance. Financial services stocks, which include
insurance, banking and brokerage, generally fared well, thanks to a decline in
interest rates. Cyclicals, which include economically sensitive groups such as
autos and retailers, proved to be a mixed bag. Those four categories made up
about three-fourths of the Fund's investments, with roughly equal portions in
each.
Looking toward the new fiscal year, on a profit-growth basis, small stocks as a
whole continue to appear cheap compared with large stocks. Although history
shows that such valuation gaps have eventually been closed, there is no way to
pinpoint when this might happen. Therefore, given the speed at which the stock
market has shifted gears in recent years, I think it's prudent that investors
continue to maintain some exposure to the small-stock sector.
James M. Johnson, Jr.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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Fund Facts
Class A -- 12-month performance
(All figures per share)
Net asset value (NAV)
Jan. 31, 1999 $6.11
Jan. 31, 1998 $6.47
Decrease $0.36
Distributions -- Feb. 1, 1998 - Jan. 31, 1999
From income $0.10
From capital gains $0.14
Total distributions $0.24
Total return* -1.69%**
Class B -- 12-month performance
(All figures per share)
Net asset value (NAV)
Jan. 31, 1999 $6.00
Jan. 31, 1998 $6.40
Decrease $0.40
Distributions -- Feb. 1, 1998 - Jan. 31, 1999
From income $0.10
From capital gains $0.14
Total distributions $0.24
Total return* -2.42%**
Class Y -- 12-month performance
(All figures per share)
Net asset value (NAV)
Jan. 31, 1999 $6.12
Jan. 31, 1998 $6.47
Decrease $0.35
Distributions -- Feb. 1, 1998 - Jan. 31, 1999
From income $0.10
From capital gains $0.14
Total distributions $0.24
Total return* -1.61%**
*The prospectus discusses the effect of sales charges, if any, on the various
classes.
**The total return is a hypothetical investment in the Fund with all
distributions reinvested.
IDS SMALL COMPANY INDEX FUND (This annual report is not part of the prospectus.)
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The 10 Largest Holdings
Percent Value
(of net assets) (as of Jan. 31, 1999)
E*TRADE Group 1.76% $17,049,625
Vitesse Semiconductor 1.10 10,673,468
Sanmina .95 9,160,799
MedImmune .77 7,446,779
Novellus Systems .73 7,033,893
Comair Holdings .69 6,713,812
Express Scripts Cl A .64 6,233,099
Mohawk Inds .64 6,221,599
SEI Investments .60 5,813,813
DeVry .59 5,752,087
For further detail about these holdings, please refer to the section entitled
"Investments in Securities" herein.
(icon of) Pie chart
The 10 holdings listed here
make up 8.47% of net assets
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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Making the Most of the Fund
BUILD YOUR ASSETS SYSTEMATICALLY
One of the best ways to invest in the Fund is by dollar-cost averaging -- a
time-tested strategy that can make market fluctuations work for you. To
dollar-cost average, simply invest a fixed amount of money regularly. You'll
automatically buy more shares when the Fund's share price is low, fewer shares
when it is high. The chart below shows how dollar-cost averaging works. In these
three hypothetical scenarios, you will see six months of share price
fluctuations.
This strategy does not ensure a profit or avoid a loss if the market declines.
But, if you can continue to invest regularly through changing market conditions
even when the price of your shares fall or the market declines, it can be an
effective way to accumulate shares to meet your long-term goals.
How dollar-cost averaging works
Jan Feb Mar Apr May Jun
$15 $16 $18 $20
$10 $10 $12 $14
$ 5
Accumulated shares* Average market Your average
price per share cost per share
42.25 $15 $14.20
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Jan Feb Mar Apr May Jun
$15
$10 $10 $10
$ 5 $8 $5 $5 $8
Accumulated shares* Average market Your average
price per share cost per share
85.0 $7.66 $7.05
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Jan Feb Mar Apr May Jun
$15
$10 $10 $8 $6 $7
$ 5 $4 $4
Accumulated shares* Average market Your average
price per share cost per share
103.5 $6.50 $5.80
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$100 invested per month. Total invested: $600.
*Shares purchased is determined by dividing the amount invested per month by the
current share price.
THREE WAYS TO BENEFIT FROM A MUTUAL FUND:
o your shares increase in value when the Fund's investments do well
o you receive capital gains when the gains on investments sold by the
Fund exceed losses
o you receive income when the Fund's stock dividends, interest and
short-term gains exceed its expenses.
All three make up your total return. You potentially can increase your
investment if, like most investors, you reinvest your dividends and capital gain
distributions to buy additional shares of the Fund or another fund.
IDS SMALL COMPANY INDEX FUND (This annual report is not part of the prospectus.)
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The Fund's Long-term Performance
How $10,000 has grown in IDS Small Company Index Fund
$20,000
X
S&P Small Cap
600 index
X
$12,203
IDS Small Company
Index Fund Class A
$9,500
9/1/96 10/96 1/97 4/97 7/97 10/97 1/98 4/98 7/98 10/98 1/99
Average annual total return (as of Jan. 31, 1999):
1 year Since inception
Class A -6.60% +8.88%
Class B -6.17% +9.28%
Class Y -1.61% +11.28%
Assumes: Holding period from 9/1/96 to 1/31/99. Returns do not reflect taxes
payable on distributions. Reinvestment of all income and capital gain
distributions for the Fund, with a value of $702. Also see "Past Performance" in
the Fund's current prospectus.
On the graph above you can see the Fund's total return compared to an unmanaged
performance index, the S&P SmallCap 600 Index. In comparing IDS Small Company
Index Fund (Class A) to the index, you should take into account the fact that
the Fund's performance reflects the maximum sales charge of 5%, while such
charges are not reflected in the performance of the index.
Your investment and return values fluctuate so that your shares, when redeemed,
may be worth more or less than the original cost. Average annual total return
figures reflect the impact of the applicable sales charge up to a maximum of 5%.
This was a period of widely fluctuating security prices. Past performance is no
guarantee of future results.
The S&P SmallCap 600 Index consists of 600 domestic stocks chosen for market
size, liquidity, and industry group representation. It is a market weighted
index (stock price times shares outstanding), with each stock affecting the
Index in proportion to its market value.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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The financial statements contained in Post-Effective Amendment #19 to
Registration Statement No. 33-30770 filed on or about March 30th, 1999, are
incorporated herein by reference.
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Federal Income Tax Information
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its fiscal
year. The dividends listed below were reported to you on Form 1099-DIV,
Dividends and Distributions. Shareholders should consult a tax advisor on how to
report distributions for state and local purposes.
IDS Small Company Index Fund
Year ended Jan. 31, 1999
Class A
Income distribution taxable as dividend income, 49.11% qualifying for deduction
by corporations.
Payable date Per share
Dec. 23, 1998 $0.09561
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 23, 1998 $0.14376
Total distributions $0.23937
The distribution of $0.23937 per share, payable Dec. 23, 1998, consisted of
$0.09561 from net short-term capital gains and $0.14376 from net long-term
capital gains.
IDS SMALL COMPANY INDEX FUND (This annual report is not part of the prospectus.)
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Class B
Income distribution taxable as dividend income, 49.11% qualifying for deductions
by corporations.
Payable date Per share
Dec. 23, 1998 $0.09561
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 23, 1998 $0.14376
Total distributions $0.23937
The distribution of $0.23937 per share, payable Dec. 23, 1998, consisted of
$0.09561 from net short-term capital gains and $0.14376 from net long-term
capital gains.
Class Y
Income distribution taxable as dividend income, 49.11% qualifying for deduction
by corporations.
Payable date Per share
Dec. 23, 1998 $0.09561
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 23, 1998 $0.14376
Total distributions $0.23937
The distribution of $0.23937 per share, payable Dec. 23, 1998, consisted of
$0.09561 from net short-term capital gains and $0.14376 from net long-term
capital gains.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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IDS Small Company Index Fund
IDS Tower 10
Minneapolis, MN 55440-0010
AMERICAN EXPRESS
Financial Advisors
S-6357 E (3/99)
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STATEMENT OF DIFFERENCES
Difference Description
1) The layout is different 1) Some of the layout in the
throughout the annual report. annual report to
shareholders is in two
columns.
2) Headings. 2) The headings in the
annual report are
placed in a blue strip
at the top of the page.
3) There are pictures, icons 3) Each picture, icon and
and graphs throughout the graph is described in
annual report. parentheses.
4) Footnotes for charts and 4) The footnotes for each
graphs are described at chart or graph are typed
the left margin. below the description of
the chart or graph.
