AXP VARIABLE PORTFOLIO INVESTMENT SERIES INC, 485APOS, 2000-02-11

AXP VARIABLE PORTFOLIO INVESTMENT SERIES INC
485APOS, 2000-02-11

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549-1004

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Post-Effective Amendment No. 41 (File No. 2-73115) [X]
--

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 43 (File No. 811-3218) [X]
--

AXP Variable Portfolio - Investment Series, Inc.
IDS Tower 10
Minneapolis, Minnesota 55440-0010

Leslie L. Ogg - 901 S. Marquette Ave., 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)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[X] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to 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>
AXPsm Variable Portfolio - Emerging Markets Fund
AXPsm Variable Portfolio - S&P 500 Index Fund

Prospectus
April __, 2000

Please note that each 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

Like all mutual funds, the Securities and Exchange Commission has not approved
or disapproved these securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal offense.

<PAGE>

Table of Contents

TAKE A CLOSER LOOK AT:

THE FUNDS

AXP VARIABLE PORTFOLIO - EMERGING MARKETS FUND Goal Investment Strategy Risks
Past Performance Management

AXP VARIABLE PORTFOLIO - S&P 500 INDEX FUND Goal Investment Strategy Risks Past
Performance Management

FEES AND EXPENSES
Shareholder Fees
Annual Fund Operating Expenses

BUYING AND SELLING SHARES
Valuing Fund Shares
Purchasing Shares
Transferring/Selling Shares

DISTRIBUTIONS AND TAXES

Other Information

<PAGE>

THE FUNDS

References to "Fund" throughout this prospectus refer to AXP Variable Portfolio
- - Emerging Markets Fund and AXP Variable Portfolio - S&P 500 Index Fund,
singularly or collectively as the content requires.

Please remember that you may not buy (nor will you own) shares of the Fund
directly. You invest by buying a variable annuity or life insurance policy and
allocating your purchase payments to the variable subaccount or account (the
subaccount) that invests in the Fund.

AXP Variable Portfolio - Emerging Markets Fund

GOAL
The Fund seeks to provide shareholders with long-term capital growth. Because
any investment involves risk, achieving this goal cannot be guaranteed.

INVESTMENT STRATEGY
The Fund's assets primarily are invested in equity securities of companies in
emerging market countries. Emerging markets are countries characterized as
developing or emerging by either the World Bank or the United Nations. Under
normal market conditions, at least 65% of the Fund's total assets will be
invested in companies located in at least three different emerging market
countries. Included within this 65% are the securities of companies that earn
50% or more of their total revenues from goods or services produced in emerging
market countries or from sales made in emerging market countries.

The selection of geographic regions is the primary decision in building the
investment portfolio.

In pursuit of the Fund's goal, AEFC, the Fund's investment adviser, chooses
investments by:

o Considering opportunities and risks within emerging market countries.

o Determining the percentage of assets to invest in a particular country
based upon its economic outlook, political environment, and growth rate
(the Fund may invest a significant portion of its assets in a particular
country or region).

o Identifying companies with:

- effective management,
- financial strength,
- prospects for growth and development, and - high demand for their
products or services.

o Identifying securities with sufficient liquidity in trading volume(however,
AEFC may invest up to 10% of the Fund's net assets in illiquid securities).

o Buying securities of those companies AEFC considers to be industry market
leaders offering the best opportunity for long-term growth.

In evaluating whether to sell a security, AEFC considers, among other factors,
whether:

- the security is overvalued relative to alternative investments, and
- the company or the security continues to meet the standards described above.

<PAGE>

Because the economies of emerging markets can change much more rapidly than that
of the U.S., AEFC will focus on the risks associated with potential currency
devaluations or sharp changes in monetary policy. If AEFC believes economic or
political developments may result in lower share prices, it will attempt to
reduce the investments in that country.

AEFC closely monitors the Fund's exposure to foreign currency fluctuations. From
time to time, AEFC may purchase derivative instruments to hedge against currency
fluctuations. Additionally, the Fund may utilize derivative instruments to
produce incremental earnings and to increase flexibility.

Although not a primary investment strategy, the Fund also may invest in other
instruments such as money market securities and debt securities. During weak or
declining markets, the Fund may invest more of its assets in money market
securities. Although the Fund will invest in these securities primarily to avoid
losses, this type of investing also could prevent the Fund from achieving its
investment objective. During these times, AEFC may make frequent securities
trades that could result in increased fees, expenses and taxes.

For more information on strategies and holdings, see the Fund's Statement of
Additional Information (SAI) and the annual/semiannual reports.

RISKS
This Fund is designed for long-term investors with above-average risk tolerance.
Please remember that with any mutual fund investment you may lose money.
Principal risks associated with an investment in the Fund include:

Market Risk
Foreign/Emerging Markets Risk
Liquidity Risk
Style Risk
Sector/Concentration Risk

Market Risk

The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry, or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.

Foreign/Emerging Markets Risk

The following are all components of foreign/emerging markets risk:

Country risk includes the political, economic, and other conditions of a
country. These conditions include lack of publicly available information, less
government oversight (including lack of accounting, auditing, and financial
reporting standards), the possibility of government-imposed restrictions, and
even the nationalization of assets.

Currency risk results from the constantly changing exchange rate between local
currency and the U.S. dollar. Whenever the Fund holds securities valued in a
foreign currency or holds the currency, changes in the exchange rate add or
subtract from the value of the investment.

Custody risk refers to the process of clearing and settling trades. It also
covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the standard of care of the
local market. Governments or trade groups may compel local agents to hold
securities in designated depositories that are not subject to independent
evaluation. The less developed a country's securities market is, the greater the
likelihood of problems occurring.

<PAGE>

Emerging Markets risk includes the dramatic pace of change (economic, social,
and political) in these countries as well as the other considerations listed
above. These markets are in early stages of development and are extremely
volatile. They can be marked by extreme inflation, devaluation of currencies,
dependence on trade partners, and hostile relations with neighboring countries.

Liquidity Risk

Securities may be difficult or impossible to sell at the time that the Fund
would like. The Fund may have to lower the selling price, sell other
investments, or forego an investment opportunity.

Style Risk

AEFC purchases growth stocks based on the expectation that the companies will
have strong growth in earnings. The price paid often reflects an expected rate
of growth. If that growth fails to occur, the price of the stock may decline
quickly.

Sector/Concentration Risk

Investments that are concentrated in a particular issuer, geographic region, or
industry will be more susceptible to changes in price (the more you diversify,
the more you spread risk).

Past Performance
The Fund is new as of the date of this prospectus and therefore performance
information is not available.

Management
Ian King and Julian A.S. Thompson are primarily responsible for the day-to-day
operations of AXP Variable Portfolio - Emerging Markets Fund.

Ian King joined AEFC in 1995. Besides managing this Fund, he has managed or
co-managed the assets of Emerging Markets Portfolio since November 1996. He also
is a member of the portfolio management team for Total Return Portfolio. Prior
to joining AEFC he was director of Lehman Brothers Global Asset Management Ltd.
from 1992 to 1995.

Julian A.S. Thompson joined AEFC in 1999. Besides managing this Fund, he has
co-managed the assets of Emerging Markets Portfolio since December 1999. Prior
to joining AEFC, from 1993-1999, he was an Investment Manager - Emerging Markets
for Stewart Ivory, a Scottish investment company.

The Fund was patterned after an existing retail fund managed by AEFC, the Fund's
investment adviser. The Fund has substantially the same investment policies,
goals and objectives as the retail fund. In addition, the Fund will be managed
by the same portfolio manager and will have substantially similar investment
strategies, techniques and characteristics as the retail fund. However, the Fund
is not the same as the retail fund. The Fund will have its own portfolio
holdings and its own fees and operating expenses. Therefore, the performance of
the Fund may be greater or less than the performance of the retail fund.

<PAGE>

AXP Variable Portfolio - S&P 500 Index Fund

GOAL
The Fund seeks to provide shareholders with long-term capital appreciation.
Because any investment involves risk, achieving this goal cannot be guaranteed.

INVESTMENT STRATEGY
The Fund seeks to provide investment results that correspond to the total return
(the combination of appreciation and income) of large-capitalization stocks of
U.S. companies. In pursuit of this objective, the Fund invests primarily in
securities that are expected to provide investment results that correspond to
the performance of the Standard & Poor's 500 Composite Price Index* (S&P 500).
The S&P 500 is made up primarily of large-capitalization companies that
represent a broad spectrum of the U.S. economy. The S&P 500 is an unmanaged
group of securities whose overall performance is frequently used as a standard
to measure investment performance. The Fund is not managed according to
traditional methods of "active" investment management. Instead, it follows a
passive or indexing investment approach in an attempt to mirror the performance
of the S&P 500. Keep in mind that an index fund has operating expenses and
transaction costs, while an index does not. This means that, while an index fund
may track its index closely, it is typically unable to match the performance of
the index exactly. While there is not guarantee, the investment adviser expects
the correlation between the Fund and its respective index to be at least .95. A
correlation of 1.00 means the return of the Fund can be completely explained by
the return of the index.

The Fund normally will invest in all stocks in the S&P 500 in roughly the same
proportions as their weightings in the index. For example, if 5% of the S&P 500
is made up of a stock of a particular company, the Fund normally will invest
approximately 5% of its assets in that company. This strategy is known as "full
replication." Although the Fund attempts to replicate the S&P 500, there may be
times when the Fund and the index do not match exactly. AEFC, the Fund's
investment adviser, may purchase stocks not included in the S&P 500 when it
believes it would be a cost efficient way of approximating the S&P 500's
performance to do so, for example, in anticipation of a stock being added to the
index.

AEFC may use various techniques, such as buying and selling options and futures
contracts, to increase or decrease the Fund's exposure to changing security
prices or other factors that affect security values. The Fund normally will
invest at least 80% of its total assets in securities that are contained in the
S&P 500. AEFC will monitor the performance of the Fund against the index and
will adjust the Fund's holdings, as necessary, to minimize tracking error. In
the event a correlation of .95 or better is not achieved, the Fund's board will
consider alternative arrangements.

The Fund may change its target index for a different index if the current index
is discontinued or if the Fund's board believes a different index would better
enable the Fund to match the performance of the market segment represented by
the current index. The substitute index will measure the same general segment of
the market as the current index.

The Fund may hold cash or its equivalent or invest in investment grade
short-term fixed income securities. Although index funds, by their nature, tend
to be tax-efficient investments, the Fund generally is managed without regard to
tax efficiency.

In evaluating whether to sell a security, AEFC considers, among other factors,
whether:

o The security continues to be included in the S&P 500,

o Corporate actions have affected the company's security (such as corporate
reorganizations, mergers or acquisitions),

o A company's market weighting otherwise changes with respect to the S&P 500,
and

<PAGE>

o Timing of cash flows in and out of the Fund require AEFC to sell a
security.

For more information on investment strategies, holdings and the S&P 500, please
refer to the SAI and the annual/semiannual reports.

* "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", and "Standard & Poor's 500(R)"
are trademarks of The McGraw-Hill Companies, Inc. These trademarks have been
licensed for use by American Express Financial Corporation. The Fund is not
sponsored, endorsed, sold or promoted by Standard & Poor's or any of its
subsidiaries or affiliates (the "Licensors") and the Licensors make no
representation regarding the advisability of investing in the Fund.

RISKS
Please remember that with any mutual fund investment you may lose money.
Principal risks associated with an investment in the Fund include:

Market Risk
Tracking Error Risk
Sector/Concentration Risk

Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry, or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.

Tracking Error Risk
The Fund may not track the S&P 500 perfectly because differences between the S&P
500 and the Fund's portfolio can cause differences in performance. The
investment adviser purchases securities and other instruments in an attempt to
replicate the performance of the S&P 500. However, the tools that the investment
adviser uses to replicate the S&P 500 are not perfect and the Fund's performance
is 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 in and out of the Fund and changes in the S&P 500.

In addition, the returns from a specific type of security (for example,
large-cap stocks) may trail returns from other asset classes or the overall
market. Each type of security will go through cycles of doing better or worse
than stocks or bonds in general. These periods may last for several years.

Sector/Concentration Risk
The Fund is non-diversified. A non-diversified fund may invest more of its
assets in fewer companies than if it were a diversified fund. Because each
investment has a greater effect on the Fund's performance, it may be more
susceptible to a single economic, political or regulatory occurrence than a
diversified fund. In addition, in tracking the S&P 500, the Fund may have a
considerable portion of its assets invested in one or more sectors of the
market. This may lead to a greater market fluctuation than would occur with a
fund invested in a wider spectrum of industries. The Fund will invest more than
25% of its total assets in a particular industry only if necessary to track the
S&P 500.

<PAGE>

Past Performance
The Fund is new as of the date of this prospectus and therefore performance
information is not available.

The following chart shows the performance of the S&P 500 for the ten years
ending in December 1998. How the S&P 500 performed in the past does not indicate
how it will perform in the future. The past performance of the index should not
be viewed as representative of the Fund's future performance.

--------------- --------------
S&P 500
--------------- --------------
--------------- --------------
1998 +28.58%
--------------- --------------
--------------- --------------
1997 +33.36
--------------- --------------
--------------- --------------
1996 +22.96
--------------- --------------
--------------- --------------
1995 +37.58
--------------- --------------
--------------- --------------
1994 +1.32
--------------- --------------
--------------- --------------
1993 +10.08
--------------- --------------
--------------- --------------
1992 +7.62
--------------- --------------
--------------- --------------
1991 +30.47
--------------- --------------
--------------- --------------
1990 -3.10
--------------- --------------
--------------- --------------
1989 +31.69
--------------- --------------

Management
James Johnson manages the day-to-day operations of AXP Variable Portfolio - S&P
500 Index Fund.

James Johnson joined AEFC in 1994 as an equity quantitative analyst. He began
managing portfolios for American Express Asset Management Group in 1996. He
became portfolio manager of the Fund in 2000. He also manages or co-manages AXP
Mid Cap Index Fund, AXP Nasdaq 100 Index Fund, AXP S&P 500 Index Fund, AXP Small
Company Index Fund, AXP Total Stock Market Index Fund, Total Return Portfolio,
AXP Blue Chip Advantage Fund, Aggressive Growth Portfolio and AXP Variable
Portfolio - Blue Chip Advantage Fund.

FEES AND EXPENSES

Fund investors pay various expenses. The summary below describes the fees and
expenses that you would pay if you buy a variable annuity or life insurance
policy and allocate your purchase payments to the subaccount that invests in the
Fund.

Shareholder Fees (fees paid directly from your investment)
Because the Fund is the underlying investment vehicle for a variable annuity or
life insurance policy, there is no sales charge for the purchase or sale of Fund
shares. However, there may be charges associated with your annuity contract or
life insurance policy, including those that may be associated with surrender or
withdrawal. Any charges that apply to the subaccount and your contract or policy
are described in the annuity or life insurance policy prospectus.

<PAGE>

Annual Fund Operating Expenses (expenses that are deducted from Fund assets)

o Management Fees
The Fund pays IDS Life Insurance Company (IDS Life) a fee for managing its
assets. The fee schedule for each Fund is:

- ------------------------------------- -----------------------------------
AXP Variable Portfolio - AXP Variable Portfolio -
Emerging Markets Fund AXP S&P 500
Assets Annual rate at Assets Annual rate at
(billions) each asset level (billions) Each asset level
First $0.25 1.170% First $1.00 0.29%
Next 0.25 1.155 Next 1.00 0.28
Next 0.25 1.140 Next 3.00 0.27
Next 0.25 1.125 Over 5.00 0.26
Next 1.00 1.110
Over 2.00 1.095
- ------------------- ----------------- ----------------- -----------------

o Distribution (12b-1) Fees
The Fund has adopted a plan under Rule 12b-1 of the Investment Company
Act of 1940. The Fund pays IDS Life an annual fee of up to 0.125% of
average daily net assets as payment for distributing its shares and
providing shareholder services. Because this fee is paid out of the
Fund's assets on an on-going basis, over time this fee will increase
the cost of your investment and may cost you more than paying other
types of sales charges.

o Other Expenses
The Fund pays taxes, brokerage commissions and other nonadvisory
expenses including administrative and accounting services.

o Expense Limitation Through April 30, 2001, IDS Life and AEFC have
agreed to waive certain fees and reimburse expenses to the extent that
total expenses exceed the following percentage of Fund average daily
net assets:

AXP Variable Portfolio - Emerging Markets Fund 1.75%
AXP Variable Portfolio - S&P 500 Index Fund 0.495

BUYING AND SELLING SHARES

Valuing Fund Shares
The net asset value (NAV) is the value of a single Fund share. The NAV usually
changes daily, and is calculated at the close of business of the New York Stock
Exchange, normally 3 p.m. Central Standard Time (CST), each business day (any
day the New York Stock Exchange is open).

The Fund's investments are valued based on market quotations, or where market
quotations are not readily available, based on methods selected in good faith by
the board. If the Fund's investment policies permit it to invest in securities
that are listed on foreign stock exchanges that trade on weekends or other days
when the Fund does not price its shares, the value of the Fund's underlying
investments may change on days when you could not buy or sell shares of the
Fund. Please see the SAI for further information.

Purchasing Shares
You may not buy (nor will you own) shares of the Fund directly. You invest by
buying a variable annuity or life insurance policy and allocating your purchase
payments to the subaccount that invests in the Fund. Your purchase price will be
the next NAV calculated after your request is received by the Fund or an
authorized insurance company.

For further information concerning minimum and maximum payments and submission
and acceptance of your application, see your annuity or life insurance policy
prospectus.

<PAGE>

Transferring/Selling Shares
There is no sales charge for the sale of Fund shares, but there may be charges
associated with the surrender or withdrawal of your annuity contract or life
insurance policy. Any charges that apply to the subaccount and your contract or
policy are described in your annuity or life insurance policy prospectus. You
may transfer all or part of your value in a subaccount investing in shares of
the Fund to one or more of the other subaccounts investing in shares of other
funds with different investment objectives.

You may provide instructions to sell any shares you have allocated to the
subaccounts. IDS Life or an authorized agent will mail your payment within seven
days after accepting your surrender or withdrawal request. The amount you
receive may be more or less than the amount you invested. Your sale price will
be the next NAV calculated after your request is received by the Fund or an
authorized insurance company.

Please refer to your annuity or life insurance policy prospectus for more
information about transfers among subaccounts as well as surrenders and
withdrawals.

Distributions and Taxes

The Fund distributes to shareholders (subaccounts) dividends and capital gains
to qualify as a regulated investment company and to avoid paying corporate
income and excise taxes.

Dividends and Capital Gain Distributions
The Fund's net investment income is distributed to the shareholders
(subaccounts) as dividends. Capital gains are realized when a security is sold
for a higher price than was paid for it. Each realized capital gain or loss is
either long-term or short-term depending on the length of time the Fund held the
security. Realized capital gains or losses offset each other. The Fund offsets
any net realized capital gains by any available capital loss carryovers. Net
short-term capital gains are included in net investment income. Net realized
long-term capital gains, if any, are distributed by the end of the calendar year
as capital gain distributions.

Reinvestment
Since the distributions are automatically reinvested in additional Fund shares,
the total value of your holdings will not change. The reinvestment price is the
next calculated NAV after the distribution is paid.

Taxes
The Fund intends to comply with the regulations relating to the diversification
requirements under section 817(h) of the Internal Revenue Code.

Important: This information is a brief and selective summary of some of the tax
rules that apply to this Fund. Because tax matters are highly individual and
complex, you should consult a qualified tax advisor.

Federal income taxation of subaccounts, life insurance companies and annuities
or life insurance policies is discussed in your annuity or life insurance policy
prospectus.

Other Information

About IDS Life and AEFC
IDS Life is a stock life insurance company organized in 1957 under the laws of
the State of Minnesota and located at IDS Tower 10, Minneapolis, MN 55440-0010.
IDS Life conducts a conventional life insurance business in the District of
Columbia and all states except New York.

IDS Life is a wholly-owned subsidiary of AEFC, located at IDS Tower 10,
Minneapolis, MN 55440-0010. The AEFC family of companies offers not only
insurance and annuities, but also mutual funds, investment certificates and a
broad range of financial management services. AEFC has been a provider of
financial services since 1894 and as of _________ manages more than $___ billion
in assets.

<PAGE>

AEFC is a wholly-owned subsidiary of American Express Company, a financial
services company with headquarters at American Express Tower, World Financial
Center, New York, NY 10285.

Year 2000
The Fund could be adversely affected if the computer systems used by AEFC and
the Fund's other service providers do not properly process and calculate
date-related information from and after Jan. 1, 2000. While Year 2000-related
computer problems could have a negative effect on the Fund, AEFC is working to
avoid such problems and to obtain assurances from service providers that they
are taking similar steps.

The companies, governments or international markets in which the Fund invests
also may be adversely affected by Year 2000 issues. To the extent a portfolio
holding is adversely affected by a Year 2000 processing issue, the Fund's return
could be adversely affected.

<PAGE>

Additional information about the Fund is available in the Fund's Statement of
Additional Information (SAI), annual and semiannual reports to shareholders. The
SAI is incorporated by reference in this prospectus. For a free copy of the SAI,
or to make inquiries about the Fund, contact American Express(R) Variable
Portfolio Funds.

American Express Variable Portfolio Funds
IDS Tower 10
Minneapolis, MN 55440-0010
800-437-0602
TTY: 800-285-8846

You may review and copy information about the Fund, including the SAI, at the
Securities and Exchange Commission's (Commission) Public Reference Room in
Washington, D.C. (for information about the public reference room call
1-800-SEC-0330). Reports and other information about the Fund are available on
the Commission's Internet site at http://www.sec.gov. Copies of this information
may be obtained by writing and paying a duplicating fee to the Public Reference
Section of the Commission, Washington, D.C. 20549-6009.

Investment Company Act File #s:

AXP Variable Portfolio - Emerging Markets Fund 811-3218
AXP Variable Portfolio - S&P 500 Index Fund 811-3218

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

FOR

AXPSM Variable Portfolio - Investment Series, Inc.
AXPSM Variable Portfolio - Emerging Markets Fund
AXPSM Variable Portfolio - S&P 500 Index Fund

(singularly and collectively, where the context requires, referred to as the
Fund)

April __, 2000

This Statement of Additional Information (SAI) is not a prospectus. It should be
read together with the prospectus that may be obtained from your financial
advisor or by writing to American Express(R) Variable Portfolio Funds, IDS Tower
10, Minneapolis, MN 55440-0010 or by calling 800-437-0602. The prospectus, dated
the same date as this SAI, is incorporated in this SAI by reference.

<PAGE>

American Express Variable Portfolio Funds
34
Sec-spec/life/retann/oostmt.rtf
TABLE OF CONTENTS

Fundamental Investment Policies.............................................p.

Investment Strategies and Types of Investments..............................p.

Information Regarding Risks and Investment Strategies.......................p.

Security Transactions.......................................................p.

Brokerage Commissions Paid to Brokers Affiliated with IDS Life..............p.

Performance Information.....................................................p.

Valuing Fund Shares.........................................................p.

Selling Shares..............................................................p.

Taxes.......................................................................p.

Agreements..................................................................p.

Organizational Information..................................................p.

Board Members and Officers..................................................p.

Independent Auditors........................................................p.

Appendix A: Description of Ratings.........................................p.

Appendix B: Additional Information about the Index.........................p.

<PAGE>

FUNDAMENTAL INVESTMENT POLICIES
- --------------------------------------------------------------------------------

Fundamental investment policies adopted by the Fund cannot be changed without
the approval of a majority of the outstanding voting securities of the Fund as
defined in the Investment Company Act of 1940, as amended (the 1940 Act).

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.

The policies below are fundamental policies that apply to 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:

AXP Variable Portfolio - Emerging Markets Fund

o 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.

o 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.

o Make cash loans if the total commitment amount exceeds 5% of the Fund's total
assets.

o 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.

o Purchase more than 10% of the outstanding voting securities of an issuer.

o 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.

o 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.

o 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.

o 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.

o Lend Fund securities in excess of 30% of its net assets.

o Issue senior securities, except as permitted under the 1940 Act.

<PAGE>

AXP Variable Portfolio - S&P 500 Index Fund

o Make cash loans if the total commitment amount exceeds 5% of the Fund's total
assets.

o Concentrate in any one industry, unless that industry represents more than
25% of the index tracked by the Fund. For all other industries, in
accordance with the current interpretation by the SEC, 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.

o Make a loan of any part of its assets to AEFC, to the board members and
officers of AEFC or to its own board members and officers.

o Lend Fund securities in excess of 30% of its net assets.

o Issue senior securities, except as permitted under the 1940 Act.

Except for the fundamental investment policies listed above, the other
investment policies described in the prospectus and in this SAI are not
fundamental and may be changed by the board at any time.

<PAGE>

INVESTMENT STRATEGIES AND TYPES OF INVESTMENTS
- --------------------------------------------------------------------------------

This table shows various investment strategies and investments that many funds
are allowed to engage in and purchase. It is intended to show the breadth of
investments that the investment manager may make on behalf of the Fund. For a
description of principal risks, please see the prospectus. Notwithstanding the
Fund's ability to utilize these strategies and techniques, the investment
manager is not obligated to use them at any particular time. For example, even
though the investment manager is authorized to adopt temporary defensive
positions and is authorized to attempt to hedge against certain types of risk,
these practices are left to the investment manager's sole discretion.

- ----------------------------------------------- ---------------------------
Investment strategies & types of investments: Allowable for
the Fund?

- ----------------------------------------------- ---------------------------
- ----------------------------------------------- ------------- -------------

AXP
Variable AXP
Portfolio - Variable
Emerging Portfolio -
Markets Fund S&P 500
Index Fund
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Agency and Government Securities Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Borrowing Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Cash/Money Market Instruments Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Collateralized Bond Obligations Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Commercial Paper Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Common Stock Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Convertible Securities Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Corporate Bonds Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Debt Obligations Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Depositary Receipts Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Derivative Instruments Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Foreign Currency Transactions Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Foreign Securities Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
High-Yield (High-Risk) Securities (Junk Yes No
Bonds)
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Illiquid and Restricted Securities Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Indexed Securities Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Inverse Floaters No No
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Investment Companies Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Lending of Portfolio Securities Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Loan Participations Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Mortgage- and Asset-Backed Securities Yes No
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Mortgage Dollar Rolls No No
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Municipal Obligations Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Preferred Stock Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Real Estate Investment Trusts Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Repurchase Agreements Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Reverse Repurchase Agreements Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Short Sales No Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Sovereign Debt Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Structured Products Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Variable- or Floating-Rate Securities Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Warrants Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
When-Issued Securities Yes Yes
- ----------------------------------------------- ------------- -------------
- ----------------------------------------------- ------------- -------------
Zero-Coupon, Step-Coupon, and Pay-in-Kind Yes Yes
Securities

- ----------------------------------------------- ------------- -------------

<PAGE>

The following are guidelines that may be changed by the board at any time:

AXP Variable Portfolio - Emerging Markets Fund

o Under normal market conditions, at least 65% of the Fund's total assets
will be invested in emerging market equity securities of at least three
different countries.

o The Fund may invest up to 20% of its net assets in bonds.

o The Fund may invest up to 10% of its net assets in bonds rated below
investment grade, including Brady bonds.

o 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.

o No more than 10% of the Fund's net assets will be held in securities and
other instruments that are
illiquid.

o Ordinarily, less than 25% of the Fund's total assets are invested in money
market instruments.

o The Fund will not buy on margin or sell short, except the Fund may make
margin payments in connection with transactions in derivative instruments.

o The Fund will not invest more than 10% of its total assets in securities of
investment companies.

o The Fund will not invest in a company to control or manage it.

AXP Variable Portfolio - S&P 500 Index Fund

o 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.

o No more than 10% of the Fund's net assets will be held in securities and
other instruments that are illiquid.

o The Fund will not buy on margin, except the Fund may make margin payments
in connection with transactions in futures contracts.

For additional information about the Index, see Appendix B.

<PAGE>

INFORMATION REGARDING RISKS AND INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------

RISKS

The following is a summary of common risk characteristics. Following this
summary is a description of certain investments and investment strategies and
the risks most commonly associated with them (including certain risks not
described below and, in some cases, a more comprehensive discussion of how the
risks apply to a particular investment or investment strategy). Please remember
that a mutual fund's risk profile is largely defined by the fund's primary
securities and investment strategies. However, most mutual funds are allowed to
use certain other strategies and investments that may have different risk
characteristics. Accordingly, one or more of the following types of risk will be
associated with the Fund at any time (for a description of principal risks,
please see the prospectus):

Call/Prepayment Risk

The risk that a bond or other security might be called (or otherwise converted,
prepaid, or redeemed) before maturity. This type of risk is closely related to
"reinvestment risk."

Correlation Risk

The risk that a given transaction may fail to achieve its objectives due to an
imperfect relationship between markets. Certain investments may react more
negatively than others in response to changing market conditions.

Credit Risk

The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise become unable to honor a financial obligation (such as
payments due on a bond or a note). The price of junk bonds may react more to the
ability of the issuing company to pay interest and principal when due than to
changes in interest rates. Junk bonds have greater price fluctuations and are
more likely to experience a default than investment grade bonds.

Event Risk

Occasionally, the value of a security may be seriously and unexpectedly changed
by a natural or industrial accident or occurrence.

Foreign/Emerging Markets Risk

The following are all components of foreign/emerging markets risk:

Country risk includes the political, economic, and other conditions of
a country. These conditions include lack of publicly available information, less
government oversight (including lack of accounting, auditing, and financial
reporting standards), the possibility of government-imposed restrictions, and
even the nationalization of assets.

Currency risk results from the constantly changing exchange rate
between local currency and the U.S. dollar. Whenever the Fund holds securities
valued in a foreign currency or holds the currency, changes in the exchange rate
add or subtract from the value of the investment.

Custody risk refers to the process of clearing and settling trades. It
also covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the standard of care of the
local market. Governments or trade groups may compel local agents to hold
securities in designated depositories that are not subject to independent
evaluation. The less developed a country's securities market is, the greater the
likelihood of problems occurring.

<PAGE>

Emerging markets risk includes the dramatic pace of change (economic,
social, and political) in emerging market countries as well as the other
considerations listed above. These markets are in early stages of development
and are extremely volatile. They can be marked by extreme inflation, devaluation
of currencies, dependence on trade partners, and hostile relations with
neighboring countries.

Inflation Risk

Also known as purchasing power risk, inflation risk measures the effects of
continually rising prices on investments. If an investment's yield is lower than
the rate of inflation, your money will have less purchasing power as time goes
on.

Interest Rate Risk

The risk of losses attributable to changes in interest rates. This term is
generally associated with bond prices (when interest rates rise, bond prices
fall). In general, the longer the maturity of a bond, the higher its yield and
the greater its sensitivity to changes in interest rates.

Issuer Risk

The risk that an issuer, or the value of its stocks or bonds, will perform
poorly. Poor performance may be caused by poor management decisions, competitive
pressures, breakthroughs in technology, reliance on suppliers, labor problems or
shortages, corporate restructurings, fraudulent disclosures, or other factors.

Legal/Legislative Risk

Congress and other governmental units have the power to change existing laws
affecting securities. A change in law might affect an investment adversely.

Leverage Risk

Some derivative investments (such as options, futures, or options on futures)
require little or no initial payment and base their price on a security, a
currency, or an index. A small change in the value of the underlying security,
currency, or index may cause a sizable gain or loss in the price of the
instrument.

Liquidity Risk

Securities may be difficult or impossible to sell at the time that the Fund
would like. The Fund may have to lower the selling price, sell other
investments, or forego an investment opportunity.

Management Risk

The risk that a strategy or selection method utilized by the investment manager
may fail to produce the intended result. When all other factors have been
accounted for and the investment manager chooses an investment, there is always
the possibility that the choice will be a poor one.

Market Risk

Reinvestment Risk

The risk that an investor will not be able to reinvest income or principal at
the same rate it currently is earning.

<PAGE>

Sector/Concentration Risk

Investments that are concentrated in a particular issuer, geographic region, or
industry will be more susceptible to changes in price (the more you diversify,
the more you spread risk).

Small Company Risk

Investments in small and medium companies often involve greater risks than
investments in larger, more established companies because small and medium
companies may lack the management experience, financial resources, product
diversification, and competitive strengths of larger companies. In addition, in
many instances the securities of small and medium companies are traded only
over-the-counter or on regional securities exchanges and the frequency and
volume of their trading is substantially less than is typical of larger
companies.

<PAGE>

INVESTMENT STRATEGIES

The following information supplements the discussion of the Fund's investment
objectives, policies, and strategies that are described in the prospectus and in
this SAI. The following describes many strategies that many mutual funds use and
types of securities that they purchase. Please refer to the section entitled
Investment Strategies and Types of Investments to see which are applicable to
the Fund.

Agency and Government Securities

The U.S. government and its agencies issue many different types of securities.
U.S. Treasury bonds, notes, and bills and securities including mortgage pass
through certificates of the Government National Mortgage Association (GNMA) are
guaranteed by the U.S. government. Other U.S. government securities are issued
or guaranteed by federal agencies or government-sponsored enterprises but are
not guaranteed by the U.S. government. This may increase the credit risk
associated with these investments.

Government-sponsored entities issuing securities include privately owned,
publicly chartered entities created to reduce borrowing costs for certain
sectors of the economy, such as farmers, homeowners, and students. They include
the Federal Farm Credit Bank System, Farm Credit Financial Assistance
Corporation, Federal Home Loan Bank, FHLMC, FNMA, Student Loan Marketing
Association (SLMA), and Resolution Trust Corporation (RTC). Government-sponsored
entities may issue discount notes (with maturities ranging from overnight to 360
days) and bonds. Agency and government securities are subject to the same
concerns as other debt obligations. (See also Debt Obligations and Mortgage- and
Asset-Backed Securities.)

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with agency and government securities include:
Call/Prepayment Risk, Inflation Risk, Interest Rate Risk, Management Risk, and
Reinvestment Risk.

Borrowing

The Fund may borrow money from banks for temporary or emergency purposes and
make other investments or engage in other transactions permissible under the
1940 Act that may be considered a borrowing (such as derivative instruments).
Borrowings are subject to costs (in addition to any interest that may be paid)
and typically reduce the Fund's total return. Except as qualified above,
however, the Fund will not buy securities on margin.

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with borrowing include: Inflation Risk and Management
Risk.

Cash/Money Market Instruments

The Fund may maintain a portion of its assets in cash and cash-equivalent
investments. Cash-equivalent investments include 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. The Fund also may purchase short-term
notes and obligations of U.S. and foreign banks and corporations and may use
repurchase agreements with broker-dealers registered under the Securities
Exchange Act of 1934 and with commercial banks. (See also Commercial Paper, Debt
Obligations, Repurchase Agreements, and Variable- or Floating-Rate Securities.)
These types of instruments generally offer low rates of return and subject the
Fund to certain costs and expenses.

See the appendix for a discussion of securities ratings.

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with cash/money market instruments include: Credit
Risk, Inflation Risk, and Management Risk.

<PAGE>

Collateralized Bond Obligations

Collateralized bond obligations (CBOs) are investment grade bonds backed by a
pool of junk bonds. CBOs are similar in concept to collateralized mortgage
obligations (CMOs), but differ in that CBOs represent different degrees of
credit quality rather than different maturities. (See also Mortgage- and
Asset-Backed Securities.) Underwriters of CBOs package a large and diversified
pool of high-risk, high-yield junk bonds, which is then separated into "tiers."
Typically, the first tier represents the higher quality collateral and pays the
lowest interest rate; the second tier is backed by riskier bonds and pays a
higher rate; the third tier represents the lowest credit quality and instead of
receiving a fixed interest rate receives the residual interest payments--money
that is left over after the higher tiers have been paid. CBOs, like CMOs, are
substantially overcollateralized and this, plus the diversification of the pool
backing them, earns them investment-grade bond ratings. Holders of third-tier
CBOs stand to earn high yields or less money depending on the rate of defaults
in the collateral pool. (See also High-Yield (High-Risk) Securities.)

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with CBOs include: Call/Prepayment Risk, Credit Risk,
Interest Rate Risk, and Management Risk.

Commercial Paper

Commercial paper is a short-term debt obligation with a maturity ranging from 2
to 270 days issued by banks, corporations, and other borrowers. It is sold to
investors with temporary idle cash as a way to increase returns on a short-term
basis. These instruments are generally unsecured, which increases the credit
risk associated with this type of investment. (See also Debt Obligations and
Illiquid and Restricted Securities.)

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with commercial paper include: Credit Risk, Liquidity
Risk, and Management Risk.

Common Stock

Common stock represents units of ownership in a corporation. Owners typically
are entitled to vote on the selection of directors and other important matters
as well as to receive dividends on their holdings. In the event that a
corporation is liquidated, the claims of secured and unsecured creditors and
owners of bonds and preferred stock take precedence over the claims of those who
own common stock.

The price of common stock is generally determined by corporate earnings, type of
products or services offered, projected growth rates, experience of management,
liquidity, and general market conditions for the markets on which the stock
trades.

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with common stock include: Issuer Risk, Management
Risk, Market Risk, and Small Company Risk.

Convertible Securities

Convertible securities are bonds, debentures, notes, preferred stocks, or other
securities that may be converted into common stock of the same or a different
issuer within a particular period of time at a specified price. Some convertible
securities, such as preferred equity-redemption cumulative stock (PERCs), have
mandatory conversion features. Others are voluntary. A convertible security
entitles the holder to receive interest normally paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted, or exchanged. Convertible securities have unique investment
characteristics in that they generally (i) have higher yields than common stocks
but lower yields than comparable non-convertible securities, (ii) are less
subject to fluctuation in value than the underlying stock since they have fixed
income characteristics, and (iii) provide the potential for capital appreciation
if the market price of the underlying common stock increases.

The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The

<PAGE>

investment value of a convertible security is influenced by changes in interest
rates, with investment value declining as interest rates increase and increasing
as interest rates decline. The credit standing of the issuer and other factors
also may have an effect on the convertible security's investment value. The
conversion value of a convertible security is determined by the market price of
the underlying common stock. If the conversion value is low relative to the
investment value, the price of the convertible security is governed principally
by its investment value. Generally, the conversion value decreases as the
convertible security approaches maturity. To the extent the market price of the
underlying common stock approaches or exceeds the conversion price, the price of
the convertible security will be increasingly influenced by its conversion
value. A convertible security generally will sell at a premium over its
conversion value by the extent to which investors place value on the right to
acquire the underlying common stock while holding a fixed income security.

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with convertible securities include: Call/Prepayment
Risk, Interest Rate Risk, Issuer Risk, Management Risk, Market Risk, and
Reinvestment Risk.

Corporate Bonds

Corporate bonds are debt obligations issued by private corporations, as distinct
from bonds issued by a government agency or a municipality. Corporate bonds
typically have four distinguishing features: (1) they are taxable; (2) they have
a par value of $1,000; (3) they have a term maturity, which means they come due
all at once; and (4) many are traded on major exchanges. Corporate bonds are
subject to the same concerns as other debt obligations. (See also Debt
Obligations and High-Yield (High-Risk) Securities.)

Corporate bonds may be either secured or unsecured. Unsecured corporate bonds
are generally referred to as "debentures." See the appendix for a discussion of
securities ratings.

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with corporate bonds include: Call/Prepayment Risk,
Credit Risk, Interest Rate Risk, Issuer Risk, Management Risk, and Reinvestment
Risk.

Debt Obligations

Many different types of debt obligations exist (for example, bills, bonds, or
notes). Issuers of debt obligations have a contractual obligation to pay
interest at a specified rate on specified dates and to repay principal on a
specified maturity date. Certain debt obligations (usually intermediate- and
long-term bonds) have provisions that allow the issuer to redeem or "call" a
bond before its maturity. Issuers are most likely to call these securities
during periods of falling interest rates. When this happens, an investor may
have to replace these securities with lower yielding securities, which could
result in a lower return.

The market value of debt obligations is affected primarily by changes in
prevailing interest rates and the issuers perceived ability to repay the debt.
The market value of a debt obligation generally reacts inversely to interest
rate changes. When prevailing interest rates decline, the price usually rises,
and when prevailing interest rates rise, the price usually declines.

In general, the longer the maturity of a debt obligation, the higher its yield
and the greater the sensitivity to changes in interest rates. Conversely, the
shorter the maturity, the lower the yield but the greater the price stability.

As noted, the values of debt obligations also may be affected by changes in the
credit rating or financial condition of their issuers. Generally, the lower the
quality rating of a security, the higher the degree of risk as to the payment of
interest and return of principal. To compensate investors for taking on such
increased risk, those issuers deemed to be less creditworthy generally must
offer their investors higher interest rates than do issuers with better credit
ratings. (See also Agency and Government Securities, Corporate Bonds, and
High-Yield (High-Risk) Securities.)

All ratings limitations are applied at the time of purchase. Subsequent to
purchase, a debt security may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Fund. Neither event will require

<PAGE>

the sale of such a security, but it will be a factor in considering whether to
continue to hold the security. To the extent that ratings change as a result of
changes in a rating organization or their rating systems, the Fund will attempt
to use comparable ratings as standards for selecting investments.

See the appendix for a discussion of securities ratings.

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with debt obligations include: Call/Prepayment Risk,
Credit Risk, Interest Rate Risk, Issuer Risk, Management Risk, and Reinvestment
Risk.

Depositary Receipts

Some foreign securities 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. 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 involve the risks of other investments in foreign
securities. In addition, ADR holders may not have all the legal rights of
shareholders and may experience difficulty in receiving shareholder
communications. (See also Common Stock and Foreign Securities.)

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with depositary receipts include: Foreign/Emerging
Markets Risk, Issuer Risk, Management Risk, and Market Risk.

Derivative Instruments

Derivative instruments are commonly defined to include securities or contracts
whose values depend, in whole or in part, on (or "derive" from) the value of one
or more other assets, such as securities, currencies, or commodities.

A derivative instrument generally consists of, is based upon, or exhibits
characteristics similar to options or 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. Their
value changes daily based on a security, a currency, a group of securities or
currencies, or an index. A small change in the value of the underlying security,
currency, or index can cause a sizable percentage gain or loss in the price of
the derivative instrument.

Options and forward contracts are considered to be the basic "building blocks"
of derivatives. For example, forward-based derivatives include forward
contracts, swap contracts, and exchange-traded futures. Forward-based
derivatives are sometimes referred to generically as "futures contracts."
Option-based derivatives include privately negotiated, over-the-counter (OTC)
options (including caps, floors, collars, and options on futures) and
exchange-traded options on futures. Diverse types of derivatives may be created
by combining options or futures in different ways, and by applying these
structures to a wide range of underlying assets.

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 for the length of the contract 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 during the length of the contract, 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.

<PAGE>

The price paid by the buyer for an option is called a premium. In addition to
the premium, the buyer generally pays a broker a commission. The writer receives
a premium, less another commission, at the time the option is written. The
premium received by the writer is retained 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.

When an option is purchased, the buyer 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 sale of the underlying security is the combination of the exercise price,
the premium, and both commissions.

One of the risks an investor assumes when it buys an option is the loss of the
premium. To be beneficial to the investor, 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.

Options on many securities are listed on options exchanges. If the Fund writes
listed options, it will follow the rules of the options exchange. 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
ask prices.

Options on certain securities are not actively traded on any exchange, but may
be entered into directly with a dealer. These options may be more difficult to
close. If an investor is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security until the call written by the
investor expires or is exercised.

Futures Contracts. A futures contract is a sales contract between a
buyer (holding the "long" position) and a seller (holding the "short" position)
for an asset with delivery deferred until a future date. The buyer agrees to pay
a fixed price at the agreed future date and the seller agrees to deliver the
asset. The seller hopes that the market price on the delivery date is less than
the agreed upon price, while the buyer hopes for the contrary. Many futures
contracts trade in a manner similar to the way a stock trades on a stock
exchange and the commodity exchanges.

Generally, a futures contract is terminated by entering into an offsetting
transaction. An offsetting transaction is effected by an investor taking an
opposite position. At the time a futures contract is made, a good faith deposit
called initial margin is set up. Daily thereafter, the futures contract is
valued and the payment of variation margin is required so that each day a buyer
would pay out cash in an amount equal to any decline in the contract's value or
receive cash equal to any increase. At the time a futures contract is closed
out, a nominal commission is paid, which is generally lower than the commission
on a comparable transaction in the cash market.

Futures contracts may be based on various securities, securities indices (such
as the S&P 500 Index), foreign currencies and other financial instruments and
indices.

Options on Futures Contracts. Options on futures contracts give the
holder a right to buy or sell futures contracts in the future. Unlike a futures
contract, which requires the parties to the contract to buy and sell a security
on a set date (some futures are settled in cash), an option on a futures
contract merely entitles its holder to decide on or before a future date (within
nine months of the date of issue) whether to enter into a contract. If the
holder decides not to enter into the contract, all that is lost is the amount
(premium) paid for the option. Further, because the value of the option is fixed
at the point of sale, there are no daily payments of cash to reflect the change
in the value of the underlying contract. However, since an option gives the
buyer the right to enter into a contract at a set price for a fixed period of
time, its value does change daily.

One of the risks in buying an option on a futures contract is the loss of the
premium paid for the option. The risk involved in writing options on futures
contracts an investor owns, or on securities held in its portfolio, is that
there could be an increase in the market value of these contracts or securities.
If that occurred, the option would be

<PAGE>

exercised and the asset sold at a lower price than the cash market price. To
some extent, the risk of not realizing a gain could be reduced by entering into
a closing transaction. An investor could enter into a closing transaction by
purchasing an option with the same terms as the one previously sold. The cost to
close the option and terminate the investor's obligation, however, might still
result in a loss. Further, the investor might not be able to close the option
because of insufficient activity in the options market. Purchasing options also
limits the use of monies that might otherwise be available for long-term
investments.

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.

Tax Treatment. As permitted under federal income tax laws and to the
extent the Fund is allowed to invest in futures contacts, 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.
If the Fund is using futures contracts for hedging purposes, such an election
may result in the Fund being required to defer recognizing losses incurred on
futures contracts and on underlying securities identified as hedged positions
and require recognition of unrealized gain.

Federal income tax treatment of gains or losses from transactions in options on
futures contracts and indexes will depend on whether the 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.

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.

Other Risks of Derivatives.

The primary risk of derivatives is the same as the risk of the underlying asset,
namely that the value of the underlying asset may go up or down. Adverse
movements in the value of an underlying asset can expose an investor to losses.
Derivative instruments may include elements of leverage and, accordingly, the
fluctuation of the value of the derivative instrument in relation to the
underlying asset may be magnified. The successful use of derivative instruments
depends upon a variety of factors, particularly the investment manager's ability
to predict movements of the securities, currencies, and commodity markets, which
requires different skills than predicting changes in the prices of individual
securities.
There can be no assurance that any particular strategy will succeed.

Another risk is the risk that a loss may be sustained as a result of the failure
of a counterparty to comply with the terms of a derivative instrument. The
counterparty risk for exchange-traded derivative instruments is generally less
than for privately-negotiated or OTC derivative instruments, since generally a
clearing agency, which is the issuer or counterparty to each exchange-traded
instrument, provides a guarantee of performance. For privately-negotiated
instruments, there is no similar clearing agency guarantee. In all transactions,
an investor will bear the risk that the counterparty will default, and this
could result in a loss of the expected benefit of the derivative transaction and
possibly other losses.

When a derivative transaction is used to completely hedge another position,
changes in the market value of the combined position (the derivative instrument
plus the position being hedged) result from an imperfect correlation

<PAGE>

between the price movements of the two instruments. With a perfect hedge, the
value of the combined position remains unchanged for any change in the price of
the underlying asset. With an imperfect hedge, the values of the derivative
instrument and its hedge are not perfectly correlated. For example, if the value
of a derivative instrument used in a short hedge (such as writing a call option,
buying a put option, or selling a futures contract) increased by less than the
decline in value of the hedged investment, the hedge would not be perfectly
correlated. Such a lack of correlation might occur due to factors unrelated to
the value of the investments being hedged, such as speculative or other
pressures on the markets in which these instruments are traded.

Derivatives also are subject to the risk that they cannot be sold, closed out,
or replaced quickly at or very close to their fundamental value. Generally,
exchange contracts are very liquid because the exchange clearinghouse is the
counterparty of every contract. OTC transactions are less liquid than
exchange-traded derivatives since they often can only be closed out with the
other party to the transaction.

Another risk is caused by the legal unenforcibility of a party's obligations
under the derivative. A counterparty that has lost money in a derivative
transaction may try to avoid payment by exploiting various legal uncertainties
about certain derivative products.

(See also Foreign Currency Transactions.)

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with derivative instruments include: Leverage Risk,
Liquidity Risk, and Management Risk.

Foreign Currency Transactions

Since investments in foreign countries usually involve currencies of foreign
countries, the value of the Fund's assets as measured in U.S. dollars may be
affected favorably or unfavorably by changes in currency exchange rates and
exchange control regulations. Also, the Fund may incur costs in connection with
conversions between various currencies. Currency exchange rates may fluctuate
significantly over short periods of time causing the Fund's NAV to fluctuate.
Currency exchange rates are generally determined by the forces of supply and
demand in the foreign exchange markets, actual or anticipated changes in
interest rates, and other complex factors. Currency exchange rates also can be
affected by the intervention of U.S. or foreign governments or central banks, or
the failure to intervene, or by currency controls or political developments.

Spot Rates and Derivative Instruments. The Fund conducts its foreign currency
exchange transactions either at the spot (cash) rate prevailing in the foreign
currency exchange market or by entering into forward currency exchange contracts
(forward contracts) as a hedge against fluctuations in future foreign exchange
rates. (See also Derivative Instruments). These contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. Because foreign currency transactions
occurring in the interbank market might involve substantially larger amounts
than those involved in the use of such derivative instruments, the Fund could be
disadvantaged by having to deal in the odd lot market for the underlying foreign
currencies at prices that are less favorable than for round lots.

The Fund may enter into forward contracts to settle a security transaction or
handle dividend and interest collection. When the Fund enters into a contract
for the purchase or sale of a security denominated in a foreign currency or has
been notified of a dividend or interest payment, it may desire to lock in the
price of the security or the amount of the payment in dollars. By entering into
a forward contract, the Fund will be able to protect itself against a possible
loss resulting from an adverse change in the relationship between different
currencies from the date the security is purchased or sold to the date on which
payment is made or received or when the dividend or interest is actually
received.

The Fund also may enter into forward contracts when management of the Fund
believes the currency of a particular foreign country may change in relationship
to another currency. The precise matching of forward contract amounts and the
value of securities involved generally will not be possible since the future
value of securities in foreign currencies more than likely will change between
the date the forward contract is entered into and the date it matures.

<PAGE>

The projection of short-term currency market movements is extremely difficult
and successful execution of a short-term hedging strategy is highly uncertain.
The Fund will not enter into such forward contracts or maintain a net exposure
to such contracts when consummating the contracts would obligate the Fund to
deliver an amount of foreign currency in excess of the value of the Fund's
securities or other assets denominated in that currency.

The Fund will designate cash or securities in an amount equal to the value of
the Fund's total assets committed to consummating forward contracts entered into
under the second circumstance set forth above. If the value of the securities
declines, additional cash or securities will be designated on a daily basis so
that the value of the cash or securities will equal the amount of the Fund's
commitments on such contracts.

At maturity of a forward contract, the Fund may either sell the security and
make delivery of the foreign currency or retain the security and terminate its
contractual obligation to deliver the foreign currency by purchasing an
offsetting contract with the same currency trader obligating it to buy, on the
same maturity date, the same amount of foreign currency.

If the Fund retains the security and engages in an offsetting transaction, the
Fund will incur a gain or loss (as described below) to the extent there has been
movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
foreign currency. Should forward prices decline between the date the Fund enters
into a forward contract for selling foreign currency and the date it enters into
an offsetting contract for purchasing the foreign currency, the Fund will
realize a gain to the extent that the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to buy. Should forward
prices increase, the Fund will suffer a loss to the extent the price of the
currency it has agreed to buy exceeds the price of the currency it has agreed to
sell.

It is impossible to forecast what the market value of securities will be at the
expiration of a contract. Accordingly, it may be necessary for the Fund to buy
additional foreign currency on the spot market (and bear the expense of that
purchase) if the market value of the security is less than the amount of foreign
currency the Fund is obligated to deliver and a decision is made to sell the
security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received on
the sale of the portfolio security if its market value exceeds the amount of
foreign currency the Fund is obligated to deliver.

The Fund's dealing in forward contracts will be limited to the transactions
described above. This method of protecting the value of the Fund's securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange that can be achieved at some point in time. Although forward contracts
tend to minimize the risk of loss due to a decline in value of hedged currency,
they tend to limit any potential gain that might result should the value of such
currency increase.

Although the Fund values its assets each business day in terms of U.S. dollars,
it does not intend to convert its foreign currencies into U.S. dollars on a
daily basis. It will do so from time to time, and shareholders should be aware
of currency conversion costs. Although foreign exchange dealers do not charge a
fee for conversion, they do realize a profit based on the difference (spread)
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.

Options on Foreign Currencies. The Fund may buy options on foreign currencies
for hedging purposes. For example, a decline in the dollar value of a foreign
currency in which securities are denominated will reduce the dollar value of
such securities, even if their value in the foreign currency remains constant.
In order to protect against the diminutions in the value of securities, the Fund
may buy options on the foreign currency. If the value of the currency does
decline, the Fund will have the right to sell the currency for a fixed amount in
dollars and will offset, in whole or in part, the adverse effect on its
portfolio that otherwise would have resulted.

As in the case of other types of options, however, the benefit to the Fund
derived from purchases of foreign currency options will be reduced by the amount
of the premium and related transaction costs. In addition, where currency
exchange rates do not move in the direction or to the extent anticipated, the
Fund could sustain losses on transactions

<PAGE>

in foreign currency options that would require it to forego a portion or all of
the benefits of advantageous changes in rates.

The Fund may write options on foreign currencies for the same types of hedging
purposes. For example, when the Fund anticipates a decline in the dollar value
of foreign-denominated securities due to adverse fluctuations in exchange rates
it could, instead of purchasing a put option, write a call option on the
relevant currency. If the expected decline occurs, the option will most likely
not be exercised and the diminution in value of securities will be fully or
partially offset by the amount of the premium received.

As in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of the
premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Fund would be required to buy or sell
the underlying currency at a loss that may not be offset by the amount of the
premium. Through the writing of options on foreign currencies, the Fund also may
be required to forego all or a portion of the benefits that might otherwise have
been obtained from favorable movements on exchange rates.

All options written on foreign currencies will be covered. An option written on
foreign currencies is covered if the Fund holds currency sufficient to cover the
option or has an absolute and immediate right to acquire that currency without
additional cash consideration upon conversion of assets denominated in that
currency or exchange of other currency held in its portfolio. An option writer
could lose amounts substantially in excess of its initial investments, due to
the margin and collateral requirements associated with such positions.

Options on foreign currencies are traded through financial institutions acting
as market-makers, although foreign currency options also are traded on certain
national securities exchanges, such as the Philadelphia Stock Exchange and the
Chicago Board Options Exchange, subject to SEC regulation. In an
over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchaser of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost.

Foreign currency option positions entered into on a national securities exchange
are cleared and guaranteed by the Options Clearing Corporation (OCC), thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting the Fund to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.

The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in certain foreign countries
for that purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on OCC or
its clearing member, impose special procedures on exercise and settlement, such
as technical changes in the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions on exercise.

Foreign Currency Futures and Related Options. The Fund may enter into currency
futures contracts to sell currencies. It also may buy put options and write
covered call options on currency futures. Currency futures contracts are similar
to currency forward contracts, except that they are traded on exchanges (and
have margin requirements) and are standardized as to contract size and delivery
date. Most currency futures call for payment of delivery in U.S. dollars. The
Fund may use currency futures for the same purposes as currency forward
contracts, subject to Commodity Futures Trading Commission (CFTC) limitations.

<PAGE>

Currency futures and options on futures values can be expected to correlate with
exchange rates, but will not reflect other factors that may affect the value of
the Fund's investments. A currency hedge, for example, should protect a
Yen-denominated bond against a decline in the Yen, but will not protect the Fund
against price decline if the issuer's creditworthiness deteriorates. Because the
value of the Fund's investments denominated in foreign currency will change in
response to many factors other than exchange rates, it may not be possible to
match the amount of a forward contract to the value of the Fund's investments
denominated in that currency over time.

The Fund will hold securities or other options or futures positions whose values
are expected to offset its obligations. The Fund will not enter into an option
or futures position that exposes the Fund to an obligation to another party
unless it owns either (i) an offsetting position in securities or (ii) cash,
receivables and short-term debt securities with a value sufficient to cover its
potential obligations.

(See also Derivative Instruments and Foreign Securities.)

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with foreign currency transactions include: Correlation
Risk, Interest Rate Risk, Leverage Risk, Liquidity Risk, and Management Risk.

Foreign Securities

Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations involve special risks, including those set
forth below, which are not typically associated with investing in U.S.
securities. Foreign companies are not generally subject to uniform accounting,
auditing, and financial reporting standards comparable to those applicable to
domestic companies. Additionally, many foreign stock markets, while growing in
volume of trading activity, have substantially less volume than the New York
Stock Exchange, and securities of some foreign companies are less liquid and
more volatile than securities of domestic companies. Similarly, volume and
liquidity in most foreign bond markets are less than the volume and liquidity in
the U.S. and, at times, volatility of price can be greater than in the U.S.
Further, foreign markets have different clearance, settlement, registration, and
communication procedures and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in such
procedures could result in temporary periods when assets are uninvested and no
return is earned on them. The inability of an investor to make intended security
purchases due to such problems could cause the investor to miss attractive
investment opportunities. Payment for securities without delivery may be
required in certain foreign markets and, when participating in new issues, some
foreign countries require payment to be made in advance of issuance (at the time
of issuance, the market value of the security may be more or less than the
purchase price). Some foreign markets also have compulsory depositories (i.e.,
an investor does not have a choice as to where the securities are held). Fixed
commissions on some foreign stock exchanges are generally higher than negotiated
commissions on U.S. exchanges. Further, an investor may encounter difficulties
or be unable to pursue legal remedies and obtain judgments in foreign courts.
There is generally less government supervision and regulation of business and
industry practices, stock exchanges, brokers, and listed companies than in the
U.S. It may be more difficult for an investor's agents to keep currently
informed about corporate actions such as stock dividends or other matters that
may affect the prices of portfolio securities. Communications between the U.S.
and foreign countries may be less reliable than within the U.S., thus increasing
the risk of delays or loss of certificates for portfolio securities. In
addition, with respect to certain foreign countries, there is the possibility of
nationalization, expropriation, the imposition of additional withholding or
confiscatory taxes, political, social, or economic instability, diplomatic
developments that could affect investments in those countries, or other
unforeseen actions by regulatory bodies (such as changes to settlement or
custody procedures).

The risks of foreign investing may be magnified for investments in emerging
markets, which may have relatively unstable governments, economies based on only
a few industries, and securities markets that trade a small number of
securities.

The introduction of a single currency, the euro, on January 1, 1999 for
participating European nations in the Economic and Monetary Union ("EU")
presents unique uncertainties, including whether the payment and operational
systems of banks and other financial institutions will be ready by the scheduled
launch date; the creation of suitable

<PAGE>

clearing and settlement payment systems for the new currency; the legal
treatment of certain outstanding financial contracts after January 1, 1999 that
refer to existing currencies rather than the euro; the establishment and
maintenance of exchange rates; the fluctuation of the euro relative to non-euro
currencies during the transition period from January 1, 1999 to December 31,
2000 and beyond; whether the interest rate, tax or labor regimes of European
countries participating in the euro will converge over time; and whether the
conversion of the currencies of other EU countries such as the United Kingdom,
Denmark, and Greece into the euro and the admission of other non-EU countries
such as Poland, Latvia, and Lithuania as members of the EU may have an impact on
the euro.

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with foreign securities include: Foreign/Emerging
Markets Risk, Issuer Risk, and Management Risk.

High-Yield (High-Risk) Securities (Junk Bonds)

High yield (high-risk) securities are sometimes referred to as "junk bonds."
They are non-investment grade (lower quality) securities that have speculative
characteristics. Lower quality securities, while generally offering higher
yields than investment grade securities with similar maturities, involve greater
risks, including the possibility of default or bankruptcy. They are regarded as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. The special risk considerations in connection with
investments in these securities are discussed below.

See the appendix for a discussion of securities ratings. (See also Debt
Obligations.)

The lower-quality and comparable unrated security market is relatively new and
its growth has paralleled a long economic expansion. As a result, it is not
clear how this market may withstand a prolonged recession or economic downturn.
Such conditions could severely disrupt the market for and adversely affect the
value of such securities.

All interest-bearing securities typically experience appreciation when interest
rates decline and depreciation when interest rates rise. The market values of
lower-quality and comparable unrated securities tend to reflect individual
corporate developments to a greater extent than do higher rated securities,
which react primarily to fluctuations in the general level of interest rates.
Lower-quality and comparable unrated securities also tend to be more sensitive
to economic conditions than are higher-rated securities. As a result, they
generally involve more credit risks than securities in the higher-rated
categories. During an economic downturn or a sustained period of rising interest
rates, highly leveraged issuers of lower-quality securities may experience
financial stress and may not have sufficient revenues to meet their payment
obligations. The issuer's ability to service its debt obligations also may be
adversely affected by specific corporate developments, the issuer's inability to
meet specific projected business forecast, or the unavailability of additional
financing. The risk of loss due to default by an issuer of these securities is
significantly greater than issuers of higher-rated securities because such
securities are generally unsecured and are often subordinated to other
creditors. Further, if the issuer of a lower quality security defaulted, an
investor might incur additional expenses to seek recovery.

Credit ratings issued by credit rating agencies are designed to evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of lower-quality securities and,
therefore, may not fully reflect the true risks of an investment. In addition,
credit rating agencies may or may not make timely changes in a rating to reflect
changes in the economy or in the condition of the issuer that affect the market
value of the securities. Consequently, credit ratings are used only as a
preliminary indicator of investment quality.

An investor may have difficulty disposing of certain lower-quality and
comparable unrated securities because there may be a thin trading market for
such securities. Because not all dealers maintain markets in all lower quality
and comparable unrated securities, there is no established retail secondary
market for many of these securities. To the extent a secondary trading market
does exist, it is generally not as liquid as the secondary market for
higher-rated securities. The lack of a liquid secondary market may have an
adverse impact on the market price of the security. The lack of a liquid
secondary market for certain securities also may make it more difficult for an
investor to obtain accurate market quotations. Market quotations are generally
available on many lower-quality and comparable unrated issues only from a
limited number of dealers and may not necessarily represent firm bids of such
dealers or prices for actual sales.

<PAGE>

Legislation may be adopted from time to time designed to limit the use of
certain lower quality and comparable unrated securities by certain issuers.

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with high-yield (high-risk) securities include:
Call/Prepayment Risk, Credit Risk, Currency Risk, Interest Rate Risk, and
Management Risk.

Illiquid and Restricted Securities

The Fund may invest in illiquid securities (i.e., securities that are not
readily marketable). These securities may include, but are not limited to,
certain securities that are subject to legal or contractual restrictions on
resale, certain repurchase agreements, and derivative instruments.

To the extent the Fund invests in illiquid or restricted securities, it may
encounter difficulty in determining a market value for such securities.
Disposing of illiquid or restricted securities may involve time- consuming
negotiations and legal expense, and it may be difficult or impossible for the
Fund to sell such an investment promptly and at an acceptable price.

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with illiquid and restricted securities include:
Liquidity Risk and Management Risk.

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 and they may be less liquid than the securities
represented by the index. (See also Derivative Instruments.)

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with indexed securities include: Liquidity Risk,
Management Risk, and Market Risk.

Inverse Floaters

Inverse floaters are created by underwriters using the interest payment on
securities. A portion of the interest received is paid to holders of instruments
based on current interest rates for short-term securities. The remainder, minus
a servicing fee, is paid to holders of inverse floaters. As interest rates go
down, the holders of the inverse floaters receive more income and an increase in
the price for the inverse floaters. As interest rates go up, the holders of the
inverse floaters receive less income and a decrease in the price for the inverse
floaters. (See also Derivative Instruments.)

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with inverse floaters include: Interest Rate Risk and
Management Risk.

Investment Companies

The Fund may invest in securities issued by registered and unregistered
investment companies. These investments may involve the duplication of advisory
fees and certain other expenses.

Although one or more of the other risks described in this SAI may apply, the
largest risk associated with the securities of other investment companies
includes: Management Risk and Market Risk.

<PAGE>

Lending of Portfolio Securities

The Fund may lend certain of its portfolio securities to broker-dealers. 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. The Fund may
pay reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or money market
instruments held as collateral to the borrower or placing broker. The Fund will
receive reasonable interest on the loan or a flat fee from the borrower and
amounts equivalent to any dividends, interest, or other distributions on the
securities loaned.

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with the lending of portfolio securities include:
Credit Risk and Management Risk.

Loan Participations

Loans, loan participations, and interests in securitized loan pools are
interests in amounts owed by a corporate, governmental, or other borrower to a
lender or consortium of lenders (typically banks, insurance companies,
investment banks, government agencies, or international agencies). Loans involve
a risk of loss in case of default or insolvency of the borrower and may offer
less legal protection to an investor in the event of fraud or misrepresentation.

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with loan participations include: Credit Risk and
Management Risk.

Mortgage- and Asset-Backed Securities

Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property, and
include single- and multi-class pass-through securities and Collateralized
Mortgage Obligations (CMOs). These securities may be issued or guaranteed by
U.S. government agencies or instrumentalities (see also Agency and Government
Securities), or by private issuers, generally originators and investors in
mortgage loans, including savings associations, mortgage bankers, commercial
banks, investment bankers, and special purpose entities. Mortgage-backed
securities issued by private lenders may be supported by pools of mortgage loans
or other mortgage-backed securities that are guaranteed, directly or indirectly,
by the U.S. government or one of its agencies or instrumentalities, or they may
be issued without any governmental guarantee of the underlying mortgage assets
but with some form of non-governmental credit enhancement.

Stripped mortgage-backed securities are a type of mortgage-backed security that
receive differing proportions of the interest and principal payments from the
underlying assets. Generally, there are two classes of stripped mortgage-backed
securities: Interest Only (IO) and Principal Only (PO). IOs entitle the holder
to receive distributions consisting of all or a portion of the interest on the
underlying pool of mortgage loans or mortgage-backed securities. POs entitle the
holder to receive distributions consisting of all or a portion of the principal
of the underlying pool of mortgage loans or mortgage-backed securities. The cash
flows and yields on IOs and POs are extremely sensitive to the rate of principal
payments (including prepayments) on the underlying mortgage loans or
mortgage-backed securities. A rapid rate of principal payments may adversely
affect the yield to maturity of IOs. A slow rate of principal payments may
adversely affect the yield to maturity of POs. If prepayments of principal are
greater than anticipated, an investor in IOs may incur substantial losses. If
prepayments of principal are slower than anticipated, the yield on a PO will be
affected more severely than would be the case with a traditional mortgage-backed
security.

CMOs are hybrid mortgage-related instruments secured by pools of mortgage loans
or other mortgage-related securities, such as mortgage pass through securities
or stripped mortgage-backed securities. CMOs may be structured

<PAGE>

into multiple classes, often referred to as "tranches," with each class bearing
a different stated maturity and entitled to a different schedule for payments of
principal and interest, including prepayments. Principal prepayments on
collateral underlying a CMO may cause it to be retired substantially earlier
than its stated maturity.

The yield characteristics of mortgage-backed securities differ from those of
other debt securities. Among the differences are that interest and principal
payments are made more frequently on mortgage-backed securities, usually
monthly, and principal may be repaid at any time. These factors may reduce the
expected yield.

Asset-backed securities have structural characteristics similar to
mortgage-backed securities. Asset-backed debt obligations represent direct or
indirect participation in, or secured by and payable from, assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans, leases of various types of property, and receivables from credit
card or other revolving credit arrangements. The credit quality of most
asset-backed securities depends primarily on the credit quality of the assets
underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement of the
securities. Payments or distributions of principal and interest on asset-backed
debt obligations may be supported by non-governmental credit enhancements
including letters of credit, reserve funds, overcollateralization, and
guarantees by third parties. The market for privately issued asset-backed debt
obligations is smaller and less liquid than the market for government sponsored
mortgage-backed securities. (See also Derivative Instruments.)

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with mortgage- and asset-backed securities include:
Call/Prepayment Risk, Credit Risk, Interest Rate Risk, Liquidity Risk, and
Management Risk.

Mortgage Dollar Rolls

Mortgage dollar rolls are investments whereby an investor would sell
mortgage-backed securities for delivery in the current month and simultaneously
contract to purchase substantially similar securities on a specified future
date. While an investor would forego principal and interest paid on the
mortgage-backed securities during the roll period, the investor would be
compensated by the difference between the current sales price and the lower
price for the future purchase as well as by any interest earned on the proceeds
of the initial sale. The investor also could be compensated through the receipt
of fee income equivalent to a lower forward price.

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with mortgage dollar rolls include: Credit Risk,
Interest Rate Risk, and Management Risk.

Municipal Obligations

Municipal obligations include debt obligations issued by or on behalf of states,
territories, possessions, or sovereign nations within the territorial boundaries
of the United States (including the District of Columbia and Puerto Rico). The
interest on these obligations is generally exempt from federal income tax.
Municipal obligations are generally classified as either "general obligations"
or "revenue obligations."

General obligation bonds are secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of interest and principal. Revenue
bonds are payable only from the revenues derived from a project or facility or
from the proceeds of a specified revenue source. Industrial development bonds
are generally revenue bonds secured by payments from and the credit of private
users. Municipal notes are issued to meet the short-term funding requirements of
state, regional, and local governments. Municipal notes include tax anticipation
notes, bond anticipation notes, revenue anticipation notes, tax and revenue
anticipation notes, construction loan notes, short-term discount notes,
tax-exempt commercial paper, demand notes, and similar instruments.

Municipal lease obligations may take the form of a lease, an installment
purchase, or a conditional sales contract. They are issued by state and local
governments and authorities to acquire land, equipment, and facilities. An
investor may purchase these obligations directly, or it may purchase
participation interests in such obligations. Municipal leases may be subject to
greater risks than general obligation or revenue bonds. State constitutions and
statutes set

<PAGE>

forth requirements that states or municipalities must meet in order to issue
municipal obligations. Municipal leases may contain a covenant by the state or
municipality to budget for and make payments due under the obligation. Certain
municipal leases may, however, provide that the issuer is not obligated to make
payments on the obligation in future years unless funds have been appropriated
for this purpose each year.

Yields on municipal bonds and notes depend on a variety of factors, including
money market conditions, municipal bond market conditions, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. The municipal bond market has a large number of different issuers, many
having smaller sized bond issues, and a wide choice of different maturities
within each issue. For these reasons, most municipal bonds do not trade on a
daily basis and many trade only rarely. Because many of these bonds trade
infrequently, the spread between the bid and offer may be wider and the time
needed to develop a bid or an offer may be longer than other security markets.
See the appendix for a discussion of securities ratings. (See also Debt
Obligations.)

Taxable Municipal Obligations. There is another type of municipal obligation
that is subject to federal income tax for a variety of reasons. These municipal
obligations do not qualify for the federal income exemption because (a) they did
not receive necessary authorization for tax-exempt treatment from state or local
government authorities, (b) they exceed certain regulatory limitations on the
cost of issuance for tax-exempt financing or (c) they finance public or private
activities that do not qualify for the federal income tax exemption. These
non-qualifying activities might include, for example, certain types of
multi-family housing, certain professional and local sports facilities,
refinancing of certain municipal debt, and borrowing to replenish a
municipality's underfunded pension plan.

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with municipal obligations include: Credit Risk, Event
Risk, Inflation Risk, Interest Rate Risk, Legal/Legislative Risk, and Market
Risk.

Preferred Stock

Preferred stock is a type of stock that pays dividends at a specified rate and
that has preference over common stock in the payment of dividends and the
liquidation of assets. Preferred stock does not ordinarily carry voting rights.

The price of a preferred stock is generally determined by earnings, type of
products or services, projected growth rates, experience of management,
liquidity, and general market conditions of the markets on which the stock
trades.

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with preferred stock include: Issuer Risk, Management
Risk, and Market Risk.

Real Estate Investment Trusts

Real estate investment trusts (REITs) are entities that manage a portfolio of
real estate to earn profits for their shareholders. REITs can make investments
in real estate such as shopping centers, nursing homes, office buildings,
apartment complexes, and hotels. REITs can be subject to extreme volatility due
to fluctuations in the demand for real estate, changes in interest rates, and
adverse economic conditions. Additionally, the failure of a REIT to continue to
qualify as a REIT for tax purposes can materially affect its value.

Although one or more of the other risks described in this SAI may apply, the
largest associated with REITs include: Issuer Risk, Management Risk, and Market
Risk.

Repurchase Agreements

The Fund may enter into repurchase agreements with certain banks or non-bank
dealers. In a repurchase agreement, the Fund buys a security at one price, and
at the time of sale, the seller agrees to repurchase the obligation at a
mutually agreed upon time and price (usually within seven days). The repurchase
agreement thereby determines the yield during the purchaser's holding period,
while the seller's obligation to repurchase is secured by the value of the
underlying security. Repurchase agreements could involve certain risks in the
event of a default or insolvency of the

<PAGE>

other party to the agreement, including possible delays or restrictions upon the
Fund's ability to dispose of the underlying securities.

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with repurchase agreements include: Credit Risk and
Management Risk.

Reverse Repurchase Agreements

In a reverse repurchase agreement, the investor would sell a security and enter
into an agreement to repurchase the security at a specified future date and
price. The investor generally retains the right to interest and principal
payments on the security. Since the investor receives cash upon entering into a
reverse repurchase agreement, it may be considered a borrowing. (See also
Derivative Instruments.)

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with reverse repurchase agreements include: Credit
Risk, Interest Rate Risk, and Management Risk.

Short Sales

With short sales, an investor sells a security that it does not own in
anticipation of a decline in the market value of the security. To complete the
transaction, the investor must borrow the security to make delivery to the
buyer. The investor is obligated to replace the security that was borrowed by
purchasing it at the market price at the time of replacement. The price at such
time may be more or less than the price at which the investor sold the security.
A fund that is allowed to utilize short sales will designate cash or liquid
securities to cover its open short positions. Those funds also may engage in
"short sales against the box," a form of short-selling that involves selling a
security that an investor owns (or has an unconditioned right to purchase) for
delivery at a specified date in the future. This technique allows an investor to
hedge protectively against anticipated declines in the market of its securities.
If the value of the securities sold short increased between the date of the
short sale and the date on which the borrowed security is replaced, the investor
loses the opportunity to participate in the gain. A "short sale against the box"
will result in a constructive sale of appreciated securities thereby generating
capital gains to the Fund.

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with short sales include: Management Risk and Market
Risk.

Sovereign Debt

A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by a variety of factors, including its cash
flow situation, the extent of its reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
international lenders, and the political constraints to which a sovereign debtor
may be subject. (See also Foreign Securities.)

With respect to sovereign debt of emerging market issuers, investors should be
aware that certain emerging market countries are among the largest debtors to
commercial banks and foreign governments. At times, certain emerging market
countries have declared moratoria on the payment of principal and interest on
external debt.

Certain emerging market countries have experienced difficulty in servicing their
sovereign debt on a timely basis that led to defaults and the restructuring of
certain indebtedness.

Sovereign debt includes Brady Bonds, which are securities issued under the
framework of the Brady Plan, an initiative announced by former U.S. Treasury
Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to
restructure their outstanding external commercial bank indebtedness.

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with sovereign debt include: Credit Risk,
Foreign/Emerging Markets Risk, and Management Risk.

<PAGE>

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. (See
also Derivative Instruments.)

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with structured products include: Credit Risk,
Liquidity Risk, and Management Risk.

Variable- or Floating-Rate Securities

The Fund may invest in securities that offer a variable- or floating-rate of
interest. Variable-rate securities provide for automatic establishment of a new
interest rate at fixed intervals (e.g., daily, monthly, semi-annually, etc.).
Floating-rate securities generally provide for automatic adjustment of the
interest rate whenever some specified interest rate index changes.

Variable- or floating-rate securities frequently include a demand feature
enabling the holder to sell the securities to the issuer at par. In many cases,
the demand feature can be exercised at any time. Some securities that do not
have variable or floating interest rates may be accompanied by puts producing
similar results and price characteristics.

Variable-rate demand notes include master demand notes that are obligations that
permit the Fund to invest fluctuating amounts, which may change daily without
penalty, pursuant to direct arrangements between the Fund as lender, and the
borrower. The interest rates on these notes fluctuate from time to time. The
issuer of such obligations normally has a corresponding right, after a given
period, to prepay in its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified number of days' notice to the
holders of such obligations. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that such
instruments generally will be traded. There generally is not an established
secondary market for these obligations. Accordingly, where these obligations are
not secured by letters of credit or other credit support arrangements, the
Fund's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Such obligations frequently are not rated by
credit rating agencies and may involve heightened risk of default by the issuer.

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with variable- or floating-rate securities include:
Credit Risk and Management Risk.

Warrants

Warrants are securities giving the holder the right, but not the obligation, to
buy the stock of an issuer at a given price (generally higher than the value of
the stock at the time of issuance) during a specified period or perpetually.
Warrants may be acquired separately or in connection with the acquisition of
securities. Warrants do not carry with them the right to dividends or voting
rights and they do not represent any rights in the assets of the issuer.
Warrants may be considered to have more speculative characteristics than certain
other types of investments. In addition, the value of a warrant does not
necessarily change with the value of the underlying securities, and a warrant
ceases to have value if it is not exercised prior to its expiration date.

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with warrants include: Management Risk and Market Risk.

When-Issued Securities

These instruments are contracts to purchase securities for a fixed price at a
future date beyond normal settlement time (when-issued securities or forward
commitments). The price of debt obligations purchased on a when-issued basis,
which may be expressed in yield terms, generally is fixed at the time the
commitment to purchase is made, but

<PAGE>

delivery and payment for the securities take place at a later date. Normally,
the settlement date occurs within 45 days of the purchase although in some cases
settlement may take longer. The investor does not pay for the securities or
receive dividends or interest on them until the contractual settlement date.
Such instruments involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in value of the investor's other assets. In addition, when
the Fund engages in forward commitment and when- issued transactions, it relies
on the counterparty to consummate the transaction. The failure of the
counterparty to consummate the transaction may result in the Fund losing the
opportunity to obtain a price and yield considered to be advantageous.

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with when-issued securities include: Credit Risk and
Management Risk.

Zero-Coupon, Step-Coupon, and Pay-in-Kind Securities

These securities are debt obligations that do not make regular cash interest
payments (see also Debt Obligations). Zero-coupon and step-coupon securities are
sold at a deep discount to their face value because they do not pay interest
until maturity. Pay-in-kind securities pay interest through the issuance of
additional securities. Because these securities do not pay current cash income,
the price of these securities can be extremely volatile when interest rates
fluctuate. See the appendix for a discussion of securities ratings.

Although one or more of the other risks described in this SAI may apply, the
largest risks associated with zero-coupon, step-coupon, and pay-in-kind
securities include: Credit Risk, Interest Rate Risk, and Management Risk.

<PAGE>

SECURITY TRANSACTIONS
- --------------------------------------------------------------------------------

Subject to policies set by the board, IDS Life Insurance Company (IDS Life) 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, IDS Life 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. IDS Life intends to
direct American Express Financial Corporation (AEFC) to execute trades and
negotiate commissions on its behalf. 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. These services are covered by the Investment Advisory
Agreement between IDS Life and AEFC. When AEFC acts on IDS Life's behalf, for
the Fund, it follows the guidelines stated below.

The Fund, AEFC and IDS Life each have a strict Code of Ethics that prohibits
affiliated personnel from engaging in personal investment activities that
compete with or attempt to take advantage of planned portfolio transactions for
the Fund.

The Fund's securities may be traded on a principal rather than an agency basis.
In other words, AEFC will trade directly with the issuer or with a dealer who
buys or sells for its own account, rather than acting on behalf of another
client. AEFC does not pay the dealer commissions. Instead, the dealer's profit,
if any, is the difference, or spread, between the dealer's purchase and sale
price for the security.

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 IDS Life to do so to the extent
authorized by law, if IDS Life 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 IDS Life's or AEFC's overall responsibilities with respect to the Fund and
the other funds for which they act as investment managers.

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, IDS Life must follow
procedures authorized by the board. To date, three procedures have been
authorized. One procedure permits IDS Life 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 IDS Life, 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 IDS Life, 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. IDS Life has advised the Fund
that it is necessary to do business with a number of brokerage firms on a
continuing basis to obtain such

<PAGE>

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 IDS Life believes it may obtain better
overall execution. IDS Life 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 will 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 IDS Life and AEFC in providing advice to
all the funds and accounts advised by IDS Life and AEFC even though it is not
possible to relate the benefits to any particular fund.

Each investment decision made for the Fund is made independently from any
decision made for another portfolio, fund, or other account advised by IDS Life,
AEFC or any of its subsidiaries. When the Fund buys or sells the same security
as another portfolio, 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.

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's portfolio turnover rate indicates changes in its portfolio of
securities and will vary from year to year. The Fund may experience relatively
higher portfolio turnover than normal during a period of rapid asset growth if
smaller positions acquired in connection with portfolio diversification
requirements are replaced by larger positions. High portfolio turnover could
result in increased transaction costs and taxes.

BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH IDS LIFE
- --------------------------------------------------------------------------------

Affiliates of American Express Company (of which IDS Life is a wholly-owned
indirect subsidiary) may engage in brokerage and other securities transactions
on behalf of the Fund according to procedures adopted by the board and to the
extent consistent with applicable provisions of the federal securities laws. IDS
Life will use an American Express affiliate only if (i) IDS Life 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.

PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------

The Fund may quote various performance figures to illustrate past performance.
Average annual total return and current yield quotations, if applicable, used by
the Fund are based on standardized methods of computing performance as required
by the SEC. An explanation of the methods used by the Fund to compute
performance follows below.

<PAGE>

Average annual total return

The Fund may calculate average annual total return 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)

Aggregate total return

The Fund may calculate aggregate total return for certain periods representing
the cumulative change in the value of an investment in a 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, CDA Technologies, Donoghue's Money Market Fund
Report, Financial Services Week, Financial Times, Financial World, Forbes,
Fortune, Global Investor, Institutional Investor, Investor's Business Daily,
Kiplinger's Personal Finance, Lipper Analytical Services, Money, Morningstar,
Mutual Fund Forecaster, Newsweek, The New York Times, Personal Investor,
Shearson Lehman Aggregate Bond Index, Stanger Report, Sylvia Porter's Personal
Finance, USA Today, U.S. News and World Report, The Wall Street Journal, and
Wiesenberger Investment Companies Service. The Fund also may compare its
performance to a wide variety of indexes or averages. There are similarities and
differences between the investments that the Fund may purchase and the
investments measured by the indexes or averages and the composition of the
indexes or averages will differ from that of the Fund.

VALUING FUND SHARES
- --------------------------------------------------------------------------------

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):

o 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.

o 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 exists, to the
over-the-counter market.

o Securities included in the NASDAQ National Market System are valued at the
last-quoted sales price in this market.

<PAGE>

o 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.

o Futures and options traded on major exchanges are valued at the last-quoted
sales price on their primary exchange.

o 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.

o 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.

o 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.

SELLING SHARES
- --------------------------------------------------------------------------------

The Fund will sell any shares presented by the shareholders (variable accounts
or subaccounts) for sale. The policies on when or whether to buy or sell Fund
shares are described in your annuity or life insurance policy 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:

o The Exchange closes for reasons other than the usual weekend and holiday
closings or trading on the Exchange is restricted, or

o 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

o The SEC, under the provisions of 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 contract owners.

REJECTION OF BUSINESS

The Fund reserves the right to reject any business, in its sole discretion.

<PAGE>

TAXES
- --------------------------------------------------------------------------------

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 50% or more
of the average value of its assets consists of assets that produce or could
produce passive income.

AGREEMENTS
- --------------------------------------------------------------------------------

Investment Management Services Agreement

IDS Life, a wholly-owned subsidiary of AEFC, is the investment manager for the
Fund. Under the Investment Management Services Agreement, IDS Life, subject to
the policies set by the board, provides investment management services.

For its services, IDS Life is paid a fee monthly based on the following
schedule. 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.

For AXP Variable Portfolio - Emerging Markets Fund, before the fee based on the
asset charge is paid, it is adjusted for investment performance. The adjustment,
determined monthly, will be calculated using the percentage point difference
between the change in the net asset value of one share of the Fund and the
change in the Lipper Emerging Markets Fund Index (Index). The performance of one
share of the Fund is measured by computing the percentage difference between the
opening and closing net asset value of one share of the Fund, as of the last
business day of the period selected for comparison, adjusted for dividend or
capital gain distributions which are treated as reinvested at the end of the
month during which the distribution was made. The performance of the Index for
the same period is established by measuring the percentage difference between
the beginning and ending Index for the comparison period. The performance is
adjusted for dividend or capital gain distributions (on the securities which
comprise the Index), which are treated as reinvested at the end of the month
during which the distribution was made. One percentage point will be subtracted
from the calculation to help assure that incentive adjustments are attributable
to AEFC's management abilities rather than random fluctuations and the result
multiplied by 0.01%. That number will be multiplied times the Fund's average net
assets for the comparison period and then divided by the number of months in the
comparison period to determine the monthly adjustment.

Where the Fund's share performance exceeds that of the Index, the base fee will
be increased. Where the performance of the Index exceeds the performance of the
Fund's shares, the base fee will be decreased. The maximum monthly increase or
decrease will be 0.12% of the Fund's average net assets on an annual basis.

The 12 month comparison period will roll over with each succeeding month, so
that it always equals 12 months, ending with the month for which the performance
adjustment is being computed.

Under the Agreement, the Fund also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees and expenses, audit expenses,
cost of items sent to contract owners, postage, fees and expenses paid to board
members who are not officers or employees of IDS Life or AEFC, fees and expenses
of attorneys, costs of fidelity and surety bonds, SEC registration fees,
expenses of preparing prospectuses and of printing and distributing

<PAGE>

prospectuses to existing contract owners, losses due to theft or other wrong
doing or due to liabilities not covered by bond or agreement, expenses incurred
in connection with lending securities and expenses properly payable by the Fund,
approved by the board. All other expenses are borne by IDS Life.

Investment Advisory Agreement

IDS Life and AEFC have an Investment Advisory Agreement under which AEFC
executes purchases and sales and negotiates brokerage as directed by IDS Life.
For its services, IDS Life pays AEFC an annual fee. This fee is 0.25% of average
daily net assets for AXP Variable Portfolio - S&P 500 Index Fund and 0.35% of
average daily net assets for AXP Variable Portfolio - Emerging Markets Fund.

Sub-Investment Adviser:

American Express Asset Management International Inc. (Sub Adviser), a wholly -
owned subsidiary of AEFC located at IDS Tower 10, Minneapolis, MN 55440-0010
sub-advises the assets of AXP Variable Portfolio Emerging Markets Fund.
Sub-adviser, subject to the supervision and approval of AEFC, provides
investment advisory assistance and day-to-day management of the Fund's
portfolio, as well as investment research and statistical information, under an
Investment Advisory Agreement with AEFC.

Administrative Services Agreement

The Fund has an Administrative Services Agreement with AEFC. Under this
agreement, the Fund pays AEFC a fee for providing administration and accounting
services. The fee, based on the following schedule, 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.

- ------------------------------------- -----------------------------------
AXP Variable Portfolio - AXP Variable Portfolio -
Emerging Markets Fund S&P 500 Index Fund
Assets Annual rate at Assets Annual rate at
(billions) each asset level (billions) Each asset level
First $0.25 0.10% First $1.00 0.080%
Next 0.25 0.09 Next 1.00 0.075
Next 0.25 0.08 Next 3.00 0.070
Next 0.25 0.07 Over 5.00 0.065
Next 1.00 0.06
Over 2.00 0.05
- ------------------- ----------------- ----------------- -----------------

PLAN AND AGREEMENT OF DISTRIBUTION

To help defray the cost of distribution and servicing, the Fund and IDS Life
entered into a Plan and Agreement of Distribution (Plan) pursuant to Rule 12b-1
under the 1940 Act. Under the Plan, IDS Life is paid a fee up to actual expenses
incurred at an annual rate of up to 0.125% of the Fund's average daily net
assets.

Expenses covered under this Plan include sales commissions; business, employee
and financial advisor expenses charged to distribution of shares; and overhead
appropriately allocated to the sale of shares. These expenses also include costs
of providing personal service to shareholders. A substantial portion of the
costs are not specifically identified to any one of the American Express
Variable Portfolio Funds.

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 or by IDS Life. The Plan (or any

<PAGE>

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. The fee is not allocated to any one service (such as advertising,
payments to underwriters or other uses). However, a significant portion of the
fee is generally used for sales and promotional expenses.

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.

The custodian has entered into a sub-custodian agreement with Bank of New York,
90 Washington Street, New York, NY 10286. As part of this arrangement,
securities purchased outside the United Stated are maintained in the custody of
various foreign branches of Bank of New York or in other financial institutions
as permitted by law and by the Fund's sub-custodian agreement.

- --------------------------------------------------------------------------------
ORGANIZATIONAL INFORMATION

The Fund is an open-end management investment company. The Fund headquarters are
at IDS Tower 10, Minneapolis, MN 55440-0010.

The Fund is owned by the subaccounts, its shareholders. The shares of the Fund
represent an interest in that fund's assets only (and profits or losses), and,
in the event of liquidation, each share of the Fund would have the same rights
to dividends and assets as every other share of that Fund.

VOTING RIGHTS

For a discussion of the rights of contract owners concerning the voting of
shares held by the subaccounts, please see your annuity or life insurance policy
prospectus. All shares have voting rights over the Fund's management and
fundamental policies. Each share is entitled to one vote for each share owned.
Each class, if applicable, has exclusive voting rights with respect to matters
for which separate class voting is appropriate under applicable law. All shares
have cumulative voting rights with respect to the election of board members.
This means that shareholders have as many votes as the number of shares owned,
including fractional shares, multiplied by the number of members to be elected.

Dividend Rights

Dividends paid by the Fund, if any, with respect to each class of shares, if
applicable, will be calculated in the same manner, at the same time, on the same
day, and will be in the same amount, except for differences resulting from
differences in fee structures.

<PAGE>

FUND HISTORY TABLE FOR FUNDS MANAGED BY IDS LIFE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Date of Form of State of Fiscal Diversified
Organization Organization Organization Year End
- ----------------------------------- ------------- ------------ ------------- ------------- -------------
IDS Life Series Fund, Inc. 5/8/85 Corporation MN 4/30
Equity Portfolio Yes
Equity Income Portfolio Yes
Government Securities Yes
Portfolio
Income Portfolio Yes
International Equity Portfolio Yes
Managed Portfolio Yes
Money Market Portfolio Yes
- ----------------------------------- ------------- ------------ ------------- ------------- -------------
AXP Variable Portfolio - Income 4/27/81, Corporation NV/MN 8/31
Series, Inc. 6/13/86*
AXP Variable Portfolio - Bond Yes
Fund
AXP Variable Portfolio - Extra Yes
Income Fund
AXP Variable Portfolio - Yes
Federal Income Fund
AXP Variable Portfolio - No
Global Bond Fund
- ----------------------------------- ------------- ------------ ------------- ------------- -------------
AXP Variable Portfolio - 4/27/81, Corporation NV/MN 8/31
Investment Series, Inc. 6/13/86*
AXP Variable Portfolio - Blue Yes
Chip Advantage Fund
AXP Variable Portfolio - Yes
Capital Resource Fund
AXP Variable Portfolio - Yes
Emerging Markets Fund
AXP Variable Portfolio - Yes
Growth Fund
AXP Variable Portfolio - S&P No
500 Index Fund
AXP Variable Portfolio Yes
-International Fund
AXP Variable Portfolio - New Yes
Dimensions Fund
AXP Variable Portfolio - Small Yes
Cap Advantage Fund
AXP Variable Portfolio - Yes
Strategy Aggressive Fund
- ----------------------------------- ------------- ------------ ------------- ------------- -------------
AXP Variable Portfolio - Managed 3/5/85 Corporation MN 8/31
Series, Inc.
AXP Variable Portfolio - Yes
Diversified Equity Income Fund
AXP Variable Portfolio - Yes
Managed Fund
- ----------------------------------- ------------- ------------ ------------- ------------- -------------
AXP Variable Portfolio - Money 4/27/81, Corporation NV/MN 8/31
Market Series, Inc. 6/13/86*
AXP Variable Portfolio - Cash Yes
Management Fund
- ----------------------------------- ------------- ------------ ------------- ------------- -------------

* Date merged into a Minnesota corporation.
</TABLE>

<PAGE>

BOARD MEMBERS AND OFFICERS
- --------------------------------------------------------------------------------

Shareholders elect a board that oversees the Fund's operations. The board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the board.

The following is a list of the Fund's board members. They serve 15 Master Trust
portfolios and 60 American Express mutual funds.

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.

Arne H. Carlson+'*
Born in 1934
901 S. Marquette Ave.
Minneapolis, MN

Chairman and chief executive officer of the Fund. Chairman, Board Services
Corporation (provides administrative services to boards). Former Governor of
Minnesota.

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 adviser to the chief executive officer of AEFC.

David R. Hubers**
Born in 1943
2900 IDS Tower
Minneapolis, MN

President, chief executive officer and director of AEFC.

Heinz F. Hutter'
Born in 1929
P.O. Box 2187
Minneapolis, MN

Retired president and chief operating officer, Cargill, Incorporated (commodity
merchants and processors).

<PAGE>

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. (electronics), C-Cor
Electronics, Inc., and Amnex, Inc. (communications).

William R. Pearce+'
Born in 1927
2050 One Financial Plaza
Minneapolis, MN

RII Weyerhaeuser World Timberfund, L.P. (develops timber resources) - management
committee. Retired vice chairman of the board, Cargill, Incorporated (commodity
merchants and processors). Former chairman, American Express Funds.

Alan K. Simpson
Born in 1931
1201 Sunshine Ave.
Cody, WY

Visiting lecturer and Director of The Institute of Politics, Harvard University.
Former three-term United States Senator for Wyoming. Former Assistant Republican
Leader, U.S. Senate. Director, Biogen (bio-pharmaceuticals).

John R. Thomas+'**
Born in 1937
2900 IDS Tower
Minneapolis, MN

Senior vice president of AEFC.

C. Angus Wurtele'
Born in 1934
Valspar Corporation
Suite 1700
Foshay Tower
Minneapolis, MN

Retired chairman of the board and chief executive officer, The Valspar
Corporation (paints). Director, Valspar, Bemis Corporation (packaging) and
General Mills, Inc. (consumer foods).

+ Member of executive committee.
' Member of investment review 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.

<PAGE>

The board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. In addition to Mr. Carlson, 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 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. Vice president - fixed
income investments for the Fund.

John M. Knight
Born in 1952
IDS Tower 10
Minneapolis, MN

Vice president - investment accounting of AEFC. Treasurer for the Fund.

INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------

The financial statements contained in the Annual Report were audited by
independent auditors, KPMG 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>

APPENDIX A

DESCRIPTION OF RATINGS

Standard & Poor's Debt Ratings
A Standard & Poor's corporate or municipal debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.

The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.

The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of such information or based on other
circumstances.

The ratings are based, in varying degrees, on the following considerations:

o Likelihood of default capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation.

o Nature of and provisions of the obligation.

o Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization, or other arrangement
under the laws of bankruptcy and other laws affecting creditors'
rights.

Investment Grade

Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.

Debt rated AA has a very strong capacity to pay interest and repay principal and
differs from the highest rated issues only in a small degree.

Debt rated A has a strong capacity to pay interest and repay principal, although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.

Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher-rated categories.

Speculative grade

Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.

Debt rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainies or exposure to adverse
business, financial, or economic conditions that could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
also is used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.

Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category also is used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.

Debt rated CCC has a currently identifiable vulnerability to default and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category also is
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.

Debt rated CC typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating.

Debt rated C typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued.

The rating CI is reserved for income bonds on which no interest is being paid.

Debt rated D is in payment default. The D rating category is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.

Moody's Long-Term Debt Ratings

Aaa - Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.

Aa - Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risk appear somewhat larger than in Aaa securities.

A - Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment some time in the future.

Baa - Bonds that are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba - Bonds that are rated Ba are judged to have speculative elements--their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B - Bonds that are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or maintenance of other
terms of the contract over any long period of time may be small.

Caa - Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca - Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C - Bonds that are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

SHORT-TERM RATINGS

Standard & Poor's Commercial Paper Ratings

A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.

Ratings are graded into several categories, ranging from A-1 for the highest
quality obligations to D for the lowest. These categories are as follows:

A-1 This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics are denoted
with a plus sign (+) designation.

A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as
high as for issues designated A-1.

A-3 Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.

B Issues are regarded as having only speculative capacity for timely
payment.

C This rating is assigned to short-term debt obligations with
doubtful capacity for payment.

D Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made
on the date due, even if the applicable grace period has not
expired, unless S&P believes that such payments will be made
during such grace period.

<PAGE>

Standard & Poor's Note Ratings

An S&P note rating reflects the liquidity factors and market-access risks unique
to notes. Notes maturing in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating.

Note rating symbols and definitions are as follows:

SP-1 Strong capacity to pay principal and interest. Issues
determined to possess very strong characteristics are given a
plus (+) designation.

SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over
the term of the notes.

SP-3 Speculative capacity to pay principal and interest.

Moody's Short-Term Ratings

Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted.

Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:

Issuers rated Prime-l (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-l
repayment ability will often be evidenced by many of the following
characteristics: (i) leading market positions in well-established
industries, (ii) high rates of return on funds employed, (iii)
conservative capitalization structure with moderate reliance on debt
and ample asset protection, (iv) broad margins in earnings coverage of
fixed financial charges and high internal cash generation, and (v) well
established access to a range of financial markets and assured sources
of alternate liquidity.

Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above, but
to a lesser degree. Earnings trends and coverage ratios, while sound,
may be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.

Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage.
Adequate alternate liquidity is maintained.

Issuers rated Not Prime do not fall within any of the Prime rating
categories.

<PAGE>

Moody's & S&P's
Short-Term Muni Bonds and Notes

Short-term municipal bonds and notes are rated by Moody's and by S&P. The
ratings reflect the liquidity concerns and market access risks unique to notes.

Moody's MIG 1/VMIG 1 indicates the best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.

Moody's MIG 2/VMIG 2 indicates high quality. Margins of protection are ample
although not so large as in the preceding group.

Moody's MIG 3/VMIG 3 indicates favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.

Moody' s MIG 4/VMIG 4 indicates adequate quality. Protection commonly regarded
as required of an investment security is present and although not distinctly or
predominantly speculative, there is specific risk.

Standard & Poor's rating SP-1 indicates very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.

Standard & Poor's rating SP-2 indicates satisfactory capacity to pay principal
and interest.

Standard & Poor's rating SP-3 indicates speculative capacity to pay principal
and interest.

<PAGE>

APPENDIX B

ADDITIONAL INFORMATION ABOUT THE INDEX

AXP S&P 500 Index Fund is not sponsored, endorsed, sold or promoted by S&P. S&P
makes no representation or warranty, express or implied, to the shareholders of
S&P 500 Index Fund or any member of the public regarding the advisability of
investing in securities generally or in S&P 500 Index Fund particularly or the
ability of the S&P Indexes to track general stock market performance. S&P's only
relationship to S&P 500 Index Fund is the licensing of certain trademarks and
trade names of S&P and of the S&P Indexes, which are determined, composed and
calculated by S&P without regard to S&P 500 Index Fund. S&P has no obligation to
take the needs of S&P 500 Index Fund or its shareholders into consideration in
determining, composing or calculating the S&P Indexes. S&P is not responsible
for and has not participated in the determination of the prices and amount of
S&P 500 Index Fund or the timing of the issuance or sale of the fund or in the
determination or calculation of the equation by which the fund's shares are to
be converted into cash. S&P has no obligation or liability in connection with
the administration, marketing or trading of S&P 500 Index Fund shares.

S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX
OR ANY DATA INCLUDED THEREIN (THE S&P INDEX) 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, ITS SHAREHOLDERS OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 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 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>

PART C. OTHER INFORMATION

Item 23. Exhibits

(a) Articles of Incorporation as amended Nov. 10, 1994, filed
electronically as Exhibit 1 to Registrant's Post-Effective Amendment
No. 34 to Registration Statement No. 2-73115, are incorporated by
reference.

(b) By-Laws as amended Jan. 12, 1989, filed electronically as Exhibit No.
2 to Registrant's Post-Effective Amendment No. 25 to Registration
Statement No. 2-73115, are incorporated by reference.

(d)(1) Investment Management Services Agreement between Registrant, on behalf
of IDS Life Aggressive Growth Fund, IDS Life Capital Resource Fund and
IDS Life International Equity Fund, and IDS Life Insurance Company
dated March 20, 1995, filed electronically as Exhibit No. 5(a) to
Registrant's Post-Effective Amendment No. 30, is incorporated by
reference.

(d)(2) Investment Management Services Agreement between Registrant, on behalf
of IDS Life Growth Dimensions Fund and IDS Life Insurance Company
dated April 11, 1996, filed electronically as Exhibit 5(b) to
Registrant's Post-Effective Amendment No. 33, is incorporated by
reference.

(d)(3) Investment Management Services Agreement dated Sept. 13, 1999, between
Registrant, on behalf of AXP Variable Portfolio Blue Chip Advantage
Fund, AXP Variable Portfolio - Growth Fund and AXP Variable Portfolio
- Small Cap Advantage Fund and IDS Life Insurance Company, filed
electronically as Exhibit (d)(3) to Registrant's Post-Effective
Amendment No. 40 filed on or about Oct. 29, 1999, is incorporated by
reference.

(d)(4) Form of Investment Management Services Agreement dated April __, 2000,
between Registrant, on behalf of AXP Variable Portfolio - Emerging
Markets Fund and AXP Variable Portfolio - S&P 500 Index Fund and IDS
Life Insurance Company is filed electronically herewith.

(d)(5) Investment Advisory Agreement between IDS Life Insurance Company and
American Express Financial Corporation dated Oct. 14, 1998, filed
electronically as Exhibit 5(c) to Registrant's Post-Effective
Amendment No. 36 filed on or about Oct. 30, 1998, is incorporated by
reference.

(d)(6) Form of Addendum to Investment Advisory Agreement dated April__,
2000 between IDS Life Insurance Company and American Express Financial
Corporation is filed electronically herewith.

(d)(7) Investment Advisory Agreement between American Express Financial
Corporation and American Express Asset Management International Inc.
for IDS Life International Equity Fund dated February 11, 1999, filed
electronically as Exhibit (d)(7) to Registrant's Post-Effective
Amendment No. 37 filed on or about May 28, 1999, is incorporated by
reference.

(d)(8) Form of Addendum to Investment Advisory Agreement dated April __,
2000, between American Express Financial Corporation and American
Express Asset Management International Inc. for AXP Variable Portfolio
- Emerging Markets Fund is filed electronically herewith.

(d)(9) Investment Subadvisory Agreement between American Express Financial
Corporation and American Express Asset Management Group Inc. on behalf
of AXP Variable Portfolio-Strategy Aggressive Fund dated July 9, 1999,
filed electronically as Exhibit (d)(8) to Registrant's Post-Effective
Amendment No. 40 filed on or about Oct. 29, 1999, is incorporated by
reference.

<PAGE>

(d)(10) Subadvisory Agreement between American Express Financial Corporation
and Kenwood Capital Management LLC on behalf of AXP Variable Portfolio
- Small Cap Advantage Fund dated Sept. 13, 1999, filed electronically
as Exhibit (d)(9) to Registrant's Post-Effective Amendment No. 40
filed on or about Oct. 29, 1999, is incorporated by reference.

(d)(11) Administrative Services Agreement, dated March 20, 1995, between IDS
Life Investment Series, Inc., on behalf of IDS Life Aggressive Growth
Fund, IDS Life Capital Resource Fund and IDS Life International Equity
Fund, and American Express Financial Corporation, filed electronically
as Exhibit No. 5(d) to Registrant's Post-Effective Amendment No. 30,
is incorporated by reference.

(d)(12) Administrative Services Agreement, dated April 11, 1996, between IDS
Life Investment Series, Inc. on behalf of IDS Life Growth Dimensions
Fund and American Express Financial Corporation, filed electronically
as Exhibit 5(f) to Registrant's Post-Effective Amendment No. 34, is
incorporated by reference.

(d)(13) Administrative Services Agreement dated Sept. 13, 1999, between AXP
Variable Portfolio Investment Series, Inc. on behalf of AXP Variable
Portfolio - Blue Chip Advantage Fund, AXP Variable Portfolio - Growth
Fund and AXP Variable Portfolio - Small Cap Advantage Fund and
American Express Financial Corporation filed electronically as Exhibit
(d)(12) to Registrant's Post-Effective Amendment No. 40 filed on or
about May 28, 1999, is incorporated by reference.

(d)(14) Form of Administrative Services Agreement dated April __, 2000,
between AXP Variable Portfolio - Investment Series, Inc. on behalf of
AXP Variable Portfolio - Emerging Markets Fund and AXP Variable
Portfolio - S&P 500 Index Fund and American Express Financial
Corporation is filed electronically herewith.

(e) Underwriting contracts: Not Applicable.

(f) 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.

(g)(1) Custodian Agreement dated March 20, 1995, between IDS Life Investment
Series, Inc., on behalf of IDS Life Aggressive Growth Fund, IDS Life
Capital Resource Fund and IDS Life International Equity Fund, and
American Express Trust Company, filed electronically as Exhibit No.
8(a) to Registrant's Post-Effective Amendment No. 30, is incorporated
by reference.

(g)(2) Custodian Agreement dated April 11, 1996, between IDS Life Investment
Series, Inc. on behalf of IDS Life Growth Dimensions Fund and American
Express Trust Company, filed electronically as Exhibit 8(b) to
Registrant's Post-Effective Amendment No. 34, is incorporated by
reference.

(g)(3) Custodian Agreement dated Sept. 13, 1999, between AXP Variable
Portfolio - Investment Series, Inc. on behalf of AXP Variable
Portfolio - Blue Chip Advantage Fund, AXP Variable Portfolio - Growth
Fund and AXP Variable Portfolio - Small Cap Advantage Fund and
American Express Trust Company filed electronically as Exhibit (g)(3)
to Registrant's Post-Effective Amendment No. 40 filed on or about
Oct. 29, 1999, is incorporated by reference.

(g)(4) Form of Custodian Agreement dated April __, 2000, between AXP Variable
Portfolio - Investment Series, Inc. on behalf of AXP Variable
Portfolio - Emerging Markets Fund and AXP Variable Portfolio - S&P 500
Index Fund and American Express Trust Company is filed electronically
herewith.

<PAGE>

(g)(5) Custodian Agreement dated May 13, 1999 between American Express Trust
Company and The Bank of New York filed electronically as Exhibit
(g)(3) to IDS Precious Metal Fund, Inc. Post-Effective Amendment No.
33 to Registration Statement No. 2-93745 filed on or about May 24,
1999, is incorporated by reference.

(h)(1) Plan and Agreement of Merger between IDS Life Capital Resource
Minnesota, Inc. and IDS Life Capital Resource Fund, Inc. dated April
10, 1986, filed electronically as Exhibit No. 9(a) to Registrant's
Post-Effective Amendment No. 25 to Registration Statement No. 2-73115,
is incorporated by reference.

(h)(2) License Agreement between Registrant and IDS Financial Corporation,
dated Jan. 25, 1988, filed electronically as Exhibit No. 9(b) to
Registrant's Post-Effective Amendment No. 25 to Registration Statement
No. 2-73115, is incorporated by reference.

(h)(3) License Agreement dated June 17, 1999 between the American Express
Funds and American Express Company, filed electronically on or about
Sept. 23, 1999 as Exhibit (h)(4) to AXP Stock Fund, Inc.
Post-Effective Amendment No. 98 to Registration Statement No. 2-11358,
is incorporated by reference.

(i) Opinion and consent of counsel as to the legality of the securities
being registered is filed electronically herewith.

(j) Independent Auditors' Consent: Not Applicable.

(k) Omitted Financial Statements: Not Applicable.

(l) Investment Letter of IDS Life Insurance Company dated Oct. 13, 1981,
filed electronically as Exhibit 13 to Registrant's Post-Effective
Amendment No. 25, is incorporated by reference.

(m)(1) Plan and Agreement of Distribution dated Sept. 13, 1999, between
Registrant on behalf of AXP Variable Portfolio - Blue Chip Advantage
Fund, AXP Variable Portfolio - Growth Fund and AXP Variable Portfolio
- Small Cap Advantage Fund and IDS Life Insurance Company, filed
electronically as Exhibit (m) to Registrant's Post-Effective Amendment
No. 40 filed on or about Oct. 29, 1999, is incorporated by reference

(m)(2) Form of Plan and Agreement of Distribution dated April __, 2000,
between Registrant on behalf of AXP Variable Portfolio Emerging
Markets Fund and AXP Variable Portfolio - S&P 500 Index Fund and IDS
Life Insurance Company is filed electronically herewith.

(n) Financial Data Schedules: Not Applicable.

(o) Rule 18f-3 Plan: Not Applicable.

(p)(1) Directors' Power of Attorney to sign Amendments to this Registration
Statement dated Jan. 13, 2000 is filed electronically herewith.

(p)(2) Officers' Power of Attorney to sign Amendments to this Registration
Statement, dated Jan. 13, 2000 is filed electronically herewith.

Item 24. Persons Controlled by or under Common Control with Registrant

IDS Life and its subsidiaries are the record holders of all outstanding shares
of AXP Variable Portfolio - Investment Series, Inc., AXP Variable Portfolio -
Income Series, Inc., AXP Variable Portfolio - Money Market Series, Inc. and AXP
Variable Portfolio - Managed Series, Inc. All of such shares were purchased

<PAGE>

and are held by IDS Life and its subsidiaries pursuant to instructions from
owners of variable annuity contracts issued by IDS Life and its subsidiaries.
Accordingly, IDS Life disclaims beneficial ownership of all shares of each fund.

Item 25. Indemnification

The Articles of Incorporation of the registrant provide that the Fund shall
indemnify any person who was or is a party or is threatened to be made a party,
by reason of the fact that she or he is or was a director, officer, employee or
agent of the Fund, or is or was serving at the request of the Fund as a
director, officer, employee or agent of another company, partnership, joint
venture, trust or other enterprise, to any threatened, pending or completed
action, suit or proceeding, wherever brought, and the Fund may purchase
liability insurance and advance legal expenses, all to the fullest extent
permitted by the laws of the State of Minnesota, as now existing or hereafter
amended. The By-laws of the registrant provide that present or former directors
or officers of the Fund made or threatened to be made a party to or involved
(including as a witness) in an actual or threatened action, suit or proceeding
shall be indemnified by the Fund to the full extent authorized by the Minnesota
Business Corporation Act, all as more fully set forth in the By-laws filed as an
exhibit to this registration statement.

Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

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.

Item 26. Business and Other Connections of Investment Advisor (IDS Life
Insurance Company).

Directors and officers of IDS Life Insurance Company who are directors and/or
officers of one or more other companies:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

Name and Title Other company(s) Address Title within other
company(s)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

Timothy V. Bechtold, American Centurion Life IDS Tower 10 Director and President
Executive Vice President Assurance Company Minneapolis, MN 55440

American Express Financial Vice President
Advisors Inc.

American Express Financial Vice President
Corporation

IDS Life Insurance Company P.O. Box 5144 Director and President
of New York Albany, NY 12205
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

Mark W. Carter, American Express Financial IDS Tower 10 Senior Vice President and
Executive Vice President Advisors Inc. Minneapolis, MN 55440 Chief Marketing Officer

American Express Financial Director, Senior Vice
Corporation President and Chief
Marketing Officer
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

Robert M. Elconin, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440

American Express Financial Vice President
Corporation
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

Lorraine R. Hart, AMEX Assurance Company IDS Tower 10 Vice President
Vice President Minneapolis, MN 55440

American Centurion Life Vice President
Assurance Company

American Enterprise Life Vice President
Insurance Company

American Express Financial Vice President
Advisors Inc.

American Express Financial Vice President
Corporation

American Partners Life Director and Vice
Insurance Company President

IDS Certificate Company Vice President

IDS Life Series Fund, Inc. Vice President

IDS Life Variable Annuity Vice President
Funds A and B

Investors Syndicate Director and Vice
Development Corp. President
</TABLE>

<PAGE>

Item 26. Business and Other Connections of Investment Advisor (IDS Life
Insurance Company). (Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

Name and Title Other company(s) Address Title within other
company(s)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

IDS Life Insurance Company P.O. Box 5144 Vice President
of New York Albany, NY 12205

IDS Property Casualty 1 WEG Blvd. Vice President
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

Jeffrey S. Horton, AMEX Assurance Company IDS Tower 10 Vice President, Treasurer
Vice President Minneapolis, MN 55440 and Assistant Secretary

American Centurion Life Vice President and
Assurance Company Treasurer

American Enterprise Vice President and
Investment Services Inc. Treasurer

American Enterprise Life Vice President and
Insurance Company Treasurer

American Express Asset Vice President and
Management Group Inc. Treasurer

American Express Asset Vice President and
Management International Treasurer
Inc.

American Express Client Vice President and
Service Corporation Treasurer

American Express Vice President and
Corporation Treasurer

American Express Financial Vice President and
Advisors Inc. Treasurer

American Express Financial Vice President and
Corporation Corporate Treasurer

American Express Insurance Vice President and
Agency of Arizona Inc. Treasurer

American Express Insurance Vice President and
Agency of Idaho Inc. Treasurer

American Express Insurance Vice President and
Agency of Nevada Inc. Treasurer

American Express Insurance Vice President and
Agency of Oregon Inc. Treasurer

American Express Minnesota Vice President and
Foundation Treasurer

American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Kentucky Inc.
</TABLE>

<PAGE>

Item 26. Business and Other Connections of Investment Advisor (IDS Life
Insurance Company).
(Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

Name and Title Other company(s) Address Title within other
company(s)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Maryland Inc.

American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Pennsylvania Inc.

American Partners Life Vice President and
Insurance Company Treasurer

IDS Cable Corporation Director, Vice President
and Treasurer

IDS Cable II Corporation Director, 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 Vice President and
Alabama Inc. Treasurer

IDS Insurance Agency of Vice President and
Arkansas Inc. Treasurer

IDS Insurance Agency of Vice President and
Massachusetts Inc. Treasurer

IDS Insurance Agency of Vice President and
New Mexico Inc. Treasurer

IDS Insurance Agency of Vice President and
North Carolina Inc. Treasurer

IDS Insurance Agency of Vice President and
Ohio Inc. Treasurer

IDS Insurance Agency of Vice President and
Wyoming Inc. Treasurer

IDS Life Insurance Company P.O. Box 5144 Vice President and
of New York Albany, NY 12205 Treasurer

IDS Life Series Fund Inc. Vice President and
Treasurer

IDS Life Variable Annuity Vice President and
Funds A & B Treasurer

IDS Management Corporation Director, Vice President
and Treasurer
</TABLE>

<PAGE>

Item 26. Business and Other Connections of Investment Advisor (IDS Life
Insurance Company).
(Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

Name and Title Other company(s) Address Title within other
company(s)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

IDS Partnership Services Vice President and
Corporation Treasurer

IDS Plan Services of Vice President and
California, Inc. Treasurer

IDS Real Estate Services, Vice President and
Inc. Treasurer

IDS Realty Corporation Vice President and
Treasurer

IDS Sales Support Inc. Vice President and
Treasurer

American Express Financial Vice President and
Advisors Japan Inc. Treasurer

Investors Syndicate Vice President and
Development Corp. Treasurer

IDS Property Casualty 1 WEG Blvd. Vice President, Treasurer
Insurance Company DePere, WI 54115 and Assistant Secretary

Public Employee Payment Vice President and
Company Treasurer
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

David R. Hubers, AMEX Assurance Company IDS Tower 10 Director
Director Minneapolis, MN 55440

American Express Financial Chairman, President and
Advisors Inc. Chief Executive Officer

American Express Financial Director, President and
Corporation Chief Executive Officer

American Express Service Director and President
Corporation

IDS Certificate Company Director

IDS Plan Services of Director and President
California, Inc.

IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

James M. Jensen, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440

American Express Financial Vice President
Corporation

IDS Life Series Fund, Inc. Director
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

Richard W. Kling, AMEX Assurance Company IDS Tower 10 Director
Director and President Minneapolis, MN 55440
</TABLE>

<PAGE>

Item 26. Business and Other Connections of Investment Advisor (IDS Life
Insurance Company).
(Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

Name and Title Other company(s) Address Title within other
company(s)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

American Centurion Life Director and Chairman of
Assurance Company the Board

American Enterprise Life Director and Chairman of
Insurance Company the Board

American Express Director and President
Corporation

American Express Financial Senior Vice President
Advisors Inc.

American Express Financial Director and Senior Vice
Corporation President

American Express Insurance Director and President
Agency of Arizona Inc.

American Express Insurance Director and President
Agency of Idaho Inc.

American Express Insurance Director and President
Agency of Nevada Inc.

American Express Insurance Director and President
Agency of Oregon Inc.

American Express Property Director and President
Casualty Insurance Agency
of Kentucky Inc.

American Express Property Director and President
Casualty Insurance Agency
of Maryland Inc.

American Express Property Director and President
Casualty Insurance Agency
of Pennsylvania Inc.

American Express Service Vice President
Corporation

American Partners Life Director and Chairman of
Insurance Company the Board

IDS Certificate Company Director and Chairman of
the Board

IDS Insurance Agency of Director and President
Alabama Inc.

IDS Insurance Agency of Director and President
Arkansas Inc.

IDS Insurance Agency of Director and President
Massachusetts Inc.
</TABLE>

<PAGE>

Item 26. Business and Other Connections of Investment Advisor (IDS Life
Insurance Company).
(Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

Name and Title Other company(s) Address Title within other
company(s)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

IDS Insurance Agency of Director and President
New Mexico Inc.

IDS Insurance Agency of Director and President
North Carolina Inc.

IDS Insurance Agency of Director and President
Ohio Inc.

IDS Insurance Agency of Director and President
Wyoming Inc.

IDS Life Series Fund, Inc. Director and President

IDS Life Variable Annuity Manager, Chairman of the
Funds A and B Board and President

IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115

IDS Life Insurance Company P.O. Box 5144 Director and Chairman of
of New York Albany, NY 12205 the Board
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

Paul F. Kolkman, American Express Financial IDS Tower 10 Vice President
Director and Executive Vice Advisors Inc. Minneapolis, MN 55440
President

American Express Financial Vice President
Corporation

IDS Life Series Fund, Inc. Vice President and Chief
Actuary

IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

Paula R. Meyer, American Enterprise Life IDS Tower 10 Vice President
Director and Executive Vice Insurance Company Minneapolis, MN 55440
President

American Express Director
Corporation

American Express Financial Vice President
Advisors Inc.

American Partners Life Director and President
Insurance Company

IDS Certificate Company Director and President

American Express Financial Vice President
Corporation

Investors Syndicate Director, Chairman of the
Development Corporation Board and President
</TABLE>

<PAGE>

Item 26. Business and Other Connections of Investment Advisor (IDS Life
Insurance Company).
(Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

Name and Title Other company(s) Address Title within other
company(s)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

Pamela J. Moret, American Express Financial IDS Tower 10 Vice President
Executive Vice President Advisors Inc. Minneapolis, MN 55440

American Express Financial Vice President
Corporation

American Express Trust Vice President
Company
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

Barry J. Murphy, American Express Client IDS Tower 10 Director and President
Director and Executive Vice Service Corporation Minneapolis, MN 55440
President

American Express Financial Senior Vice President
Advisors Inc.

American Express Financial Director and Senior Vice
Corporation President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

James R. Palmer, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440

American Express Financial Vice President
Corporation
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

Stuart A. Sedlacek, AMEX Assurance Company IDS Tower 10 Director
Director and Executive Vice Minneapolis, MN 55440
President

American Enterprise Life Executive Vice President
Insurance Company

American Express Financial Senior Vice President and
Advisors Inc. Chief Financial Officer

American Express Financial Senior Vice President and
Corporation Chief Financial Officer

American Express Trust Director
Company

American Partners Life Director and Vice President
Insurance Agency

IDS Certificate Company Director and President

IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

F. Dale Simmons, AMEX Assurance Company IDS Tower 10 Vice President
Vice President Minneapolis, MN 55440

American Centurion Life Vice President
Assurance Company
</TABLE>

<PAGE>

Item 26. Business and Other Connections of Investment Advisor (IDS Life
Insurance Company).
(Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

Name and Title Other company(s) Address Title within other
company(s)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

American Enterprise Life Vice President
Insurance

American Express Financial Vice President
Advisors Inc.

American Express Financial Vice President
Corporation

American Partners Life Vice President
Insurance Company

IDS Certificate Company Vice President

IDS Partnership Services Director and Vice President
Corporation

IDS Real Estate Services Director and Vice President
Inc.

IDS Realty Corporation Director and Vice President

IDS Life Insurance Company P.O. Box 5144 Vice President
of New York Albany, NY 12205
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

William A. Stoltzmann, American Enterprise Life IDS Tower 10 Director, Vice President,
Vice President, General Insurance Company Minneapolis, MN 55440 General Counsel and
Counsel and Secretary Secretary

American Express Director, Vice President
Corporation and Secretary

American Express Financial Vice President and
Advisors Inc. Assistant General Counsel

American Express Financial Vice President and
Corporation Assistant General Counsel

American Partners Life Director, Vice President,
Insurance Company General Counsel and
Secretary

IDS Life Insurance Company Vice President, General
Counsel and Secretary

IDS Life Series Fund Inc. General Counsel and
Assistant Secretary

IDS Life Variable Annuity General Counsel and
Funds A & B Assistant Secretary
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

Philip C. Wentzel, American Centurion Life IDS Tower 10 Vice President and
Vice President and Controller Assurance Company Minneapolis, MN 55440 Controller, Risk Management

American Enterprise Life Vice President and
Insurance Company Controller

</TABLE>

<PAGE>

Item 26. Business and Other Connections of Investment Advisor (IDS Life
Insurance Company).
(Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

Name and Title Other company(s) Address Title within other
company(s)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

IDS Life Insurance Company P.O. Box 5144 Vice President and
of New York Albany, NY 12205 Controller, Risk Management

Item 27. Principal Underwriters

The Fund has no principal underwriter.

Item 28. Location of Accounts and Records

American Express Financial Corporation
IDS Tower 10
Minneapolis, MN 55440-0010

Item 29. Management Services

Not Applicable.

Item 30. Undertakings

Not Applicable.
</TABLE>

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act and the Investment Company
Act, the Registrant, AXP Variable Portfolio Investment Series, Inc has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, duly authorized, in the City of Minneapolis and State of
Minnesota on the 11th day of February, 2000.

AXP VARIABLE PORTFOLIO - INVESTMENT SERIES, INC.

By /s/ Arne H. Carlson**
Arne H. Carlson, Chief Executive Officer

By /s/ Steve Turbenson
Steve Turbenson, Assistant Treasurer

Pursuant to the requirements of the Securities Act, this Amendment to its
Registration Statement has been signed below by the following persons in the
capacities indicated on the 11th day of February, 2000.

Signature Capacity

/s/ H. Brewster Atwater, Jr.* Director
H. Brewster Atwater, Jr.

/s/ Arne H. Carlson* Chairman of the Board
Arne H. Carlson

/s/ Lynne V. Cheney* Director
Lynne V. Cheney

________________________________ 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/ William R. Pearce* Director
William R. Pearce

/s/ Alan K. Simpson* Director
Alan K. Simpson

/s/ John R. Thomas* Director
John R. Thomas

<PAGE>

/s/ C. Angus Wurtele* Director
C. Angus Wurtele

*Signed pursuant to Directors' Power of Attorney dated Jan. 13, 2000, filed
electronically herewith as Exhibit (p)(1), by:

/s/ Leslie L. Ogg
Leslie L. Ogg

**Signed pursuant to Officers' Power of Attorney dated Jan. 13, 2000, filed
electronically herewith as Exhibit (p)(2) , by:

/s/ Leslie L. Ogg
Leslie L. Ogg

<PAGE>

CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 41
TO REGISTRATION STATEMENT NO. 2-73115

This post-effective amendment contains the following papers and documents:

The facing sheet.

Part A.

The prospectus.

Part B.

Statement of Additional Information.

Part C.

Other information.

The signatures.

<PAGE>

Exhibit Index

(d)(4) Investment Management Services Agreement.

(d)(6) Addendum to IA Agreement (w/AEFC).

(d)(8) Addendum to IA Agreement (w/Int'l).

(d)(14) Administrative Services Agreement.

(g)(4) Custodian Agreement.

(i) Opinion and consent of counsel.

(m)(2) Plan and Agreement of Distribution.

(p)(1) Directors Power of Attorney.

(p)(2) Officers Power of Attorney.

INVESTMENT MANAGEMENT SERVICES AGREEMENT

AGREEMENT made the __th day of April, 2000, by and between AXP Variable
Portfolio - Investment Series, Inc. (the "Corporation"), a Minnesota
corporation, on behalf of its underlying series funds: AXP Variable Portfolio -
Emerging Markets Fund and AXP Variable Portfolio - S&P 500 Index Fund
(individually a "Fund" and collectively the "Funds"), and IDS Life Insurance
Company ("IDS Life") a Minnesota corporation.

Part One: INVESTMENT MANAGEMENT AND OTHER SERVICES

(1) The Corporation hereby retains IDS Life, and IDS Life hereby agrees,
for the period of this Agreement and under the terms and conditions
hereinafter set forth, to furnish the Corporation continuously with
suggested investment planning; to determine, consistent with the Funds'
investment objectives and policies, which securities in IDS Life's
discretion shall be purchased, held or sold and to execute or cause the
execution of purchase or sell orders; to prepare and make available to
the Funds all necessary research and statistical data in connection
therewith; to furnish all services of whatever nature required in
connection with the management of the Fund including transfer agent and
dividend- disbursing agent services; to furnish or pay for all
supplies, printed material, office equipment, furniture and office
space as the Funds may require; and to pay or reimburse such expenses
of the Fund as may be provided for in Part Three; subject always to the
direction and control of the Board of Directors (the "Board"), the
Executive Committee and the authorized officers of the Corporation and
its underlying Fund. IDS Life agrees to maintain (directly or through
the contract described in paragraph (7) of this Part One) an adequate
organization of competent persons to provide the services and to
perform the functions herein mentioned. IDS Life agrees to meet with
any persons at such times as the Board deems appropriate for the
purpose of reviewing IDS Life's performance under this Agreement.

(2) IDS Life agrees that the investment planning and investment decisions
will be in accordance with general investment policies of the Fund as
disclosed to IDS Life from time to time by the Funds and as set forth
in its prospectuses and registration statements filed with the United
States Securities and Exchange Commission (the "SEC").

(3) IDS Life agrees that it will maintain all required records, memoranda,
instructions or authorizations relating to the acquisition or
disposition of securities for the Funds.

(4) The Fund agrees that it will furnish to IDS Life any information that
the latter may reasonably request with respect to the services
performed or to be performed by IDS Life under this Agreement.

(5) IDS Life is authorized to select the brokers or dealers that will
execute the purchases and sales of portfolio securities for the Fund
and is directed to use its best efforts to obtain the best available
price and most favorable execution, except as prescribed herein.
Subject to prior authorization by the Board of appropriate policies and
procedures, and subject to termination at any time by the Board, IDS
Life may also be authorized to effect individual securities
transactions at commission rates in excess of the minimum commission
rates available, to the extent authorized by law, if IDS Life
determines in good faith that such amount of commission was reasonable
in relation to the value of the brokerage and research services
provided by such broker or dealer, viewed in terms of either that
particular transaction or American Express Financial Corporation's
("AEFC") or IDS Life's overall responsibilities with respect to the
Funds and other funds for which they act as investment adviser.

<PAGE>

(6) It is understood and agreed that in furnishing the Funds with the
services as herein provided, neither IDS Life, nor any officer,
director or agent thereof shall be held liable to a Funds or its
creditors or shareholders for errors of judgment or for anything except
willful misfeasance, bad faith, or gross negligence in the performance
of its duties, or reckless disregard of its obligations and duties
under the terms of this Agreement. It is further understood and agreed
that IDS Life may rely upon information furnished to it reasonably
believed to be accurate and reliable.

(7) The existence of an investment advisory agreement between IDS Life and
AEFC is specifically acknowledged and approved.

Part Two: COMPENSATION TO INVESTMENT MANAGER

(1) The Corporation agrees to pay to IDS Life, and IDS Life covenants and
agrees to accept from the Corporation in full payment for the services
furnished, a fee composed of an asset charge for AXP Variable Portfolio
- Emerging Markets Fund and AXP Variable Portfolio - S&P 500 Index Fund
and a performance incentive adjustment for AXP Variable Portfolio -
Emerging Markets Fund.

(a) The asset charge

(i) The asset charge for each calendar day of each year
shall be equal to the total of 1/365th (1/366th in
each leap year) of the amount computed in accordance
with paragraph (ii) below. The computation shall be
made for each day on the basis of net assets as of
the close of business of the full business day two
(2) business days prior to the day for which the
computation is being made. In the case of the
suspension of the computation of net asset value, the
asset charge for each day during such suspension
shall be computed as of the close of business on the
last full business day on which the net assets were
computed. Net assets as of the close of a full
business day shall include all transactions in shares
of the Funds recorded on the books of the Funds for
that day.

(ii) The asset charge shall be based on the net assets of
each Fund as set forth in the following table.

- ------------------------------------- -----------------------------------
AXP Variable Portfolio - AXP Variable Portfolio -
Emerging Markets Fund AXP S&P 500
Assets Annual rate at Assets Annual rate at
(billions) each asset level (billions) each asset level
First $0.25 1.170% First $1.00 0.29%
Next 0.25 1.155 Next 1.00 0.28
Next 0.25 1.140 Next 3.00 0.27
Next 0.25 1.125 Over 5.00 0.26
Next 1.00 1.110
Over 2.00 1.095
- ------------------- ----------------- ----------------- -----------------

(b) The performance incentive adjustment for AXP Variable
Portfolio - Emerging Markets Fund.

(i)

The performance incentive adjustment, determined
monthly, shall be computed by measuring the
percentage point difference between the performance
of one share of the Fund and the performance of an
Index (the "Index"). The Index for AXP Variable
Portfolio - Emerging Markets Fund is the Lipper
Emerging Markets Fund Index. The performance of one
share of the Fund shall be measured by computing
the percentage difference, carried to two decimal
places, between the opening net asset value of one
share of the Fund and the closing net asset value
of such share as of the last business day of the
period

<PAGE>

selected for comparison, adjusted for dividends or
capital gain distributions treated as reinvested at
the end of the month during which the distribution
was made but without adjustment for expenses related
to a particular class of shares. The performance of
the Index will then be established by measuring the
percentage difference, carried to two decimal places,
between the beginning and ending Index for the
comparison period, with dividends or capital gain
distributions on the securities which comprise the
Index being treated as reinvested at the end of the
month during which the distribution was made.

(ii) In computing the adjustment, one percentage point
shall be deducted from the difference, as determined
in (b)(i) above. The result shall be converted to a
decimal value (e.g., 2.38% to 0.0238), multiplied by
.01 and then multiplied by the Fund's average net
assets for the comparison period. This product next
shall be divided by 12 to put the adjustment on a
monthly basis. Where the performance of the Fund
exceeds the Index, the amount so determined shall be
an increase in fees as computed under paragraph (a).
Where Fund performance is exceeded by the Index, the
amount so determined shall be a decrease in such
fees. The percentage point difference between the
performance of the Fund and that of the Index, as
determined above, is limited to a maximum of 0.0012
per year.

(iii) The 12 month comparison period will roll over with
each succeeding month, so that it always equals 12
months, ending with the month for which the
performance adjustment is being computed.

(iv) If the Index ceases to be published for a period of
more than 90 days, changes in any material respect or
otherwise becomes impracticable to use for purposes
of the adjustment, no adjustment will be made under
this paragraph (b) until such time as the Board
approves a substitute index.

(2) The fee shall be paid on a monthly basis and, in the event of the
termination of this Agreement, the fee accrued shall be prorated on the
basis of the number of days that this Agreement is in effect during the
month with respect to which such payment is made.

(3) The fee provided for hereunder shall be paid in cash by the Funds to
IDS Life within five business days after the last day of each month.

Part Three: ALLOCATION OF EXPENSES

(1) The Corporation agrees to pay:

(a) Fees payable to IDS Life for the latter's services under the terms
of this Agreement.

(b) All fees, costs, expenses and allowances payable to any
person, firm or corporation for services under any agreement
entered into by the Fund covering the offering for sale, sale
and distribution of the Fund's shares.

(d) All brokerage commissions and charges in the purchase and sale of
assets.

(2) The Corporation agrees to reimburse IDS Life or its affiliates for the
aggregate cost of the services listed below incurred by IDS Life in its
operation of the Fund.

<PAGE>

(a) All custodian or trustee fees, costs and expenses.

(b) Costs and expenses in connection with the auditing and
certification of the records and accounts of the Fund by
independent certified public accountants.

(c) Costs of obtaining and printing of dividend checks, reports to
shareholders, notices, proxies, proxy statements and tax
notices to shareholders, and also the cost of envelopes in
which such are to be mailed.

(d) Postage on all communications, notices and statements to
brokers, dealers, and the Fund's shareholders.

(e) All fees and expenses paid to directors of the Funds; however,
IDS Life will pay fees to directors who are officers or
employees of IDS Life or its affiliated companies.

(f) Costs of fidelity and surety bonds covering officers,
directors and employees of the Fund.

(g) All fees and expenses of attorneys who are not officers or
employees of IDS Life or any of its affiliates.

(h) All fees paid for the qualification and registration for
public sales of the securities of the Fund under the laws of
the United States and of the several states of the United
States in which the securities of the Fund shall be offered
for sale.

(i) Cost of printing prospectuses, statements of additional
information and application forms for existing shareholders,
and any supplements thereto.

(j) Any losses due to theft and defalcation of the assets of the
Funds, or due to judgments or adjustments not covered by
surety or fidelity bonds, and not covered by agreement or
obligation.

(k) Expenses incurred in connection with lending portfolio
securities of the Funds.

(l) Expenses properly payable by the Funds, approved by the Board.

Part Four: MISCELLANEOUS

(1) IDS Life shall be deemed to be an independent contractor and, except as
expressly provided or authorized in this Agreement, shall have no
authority to act for or represent the Fund.

(2) A "full business day" shall be as defined in the By-laws.

(3) Each Fund recognizes that AEFC and IDS Life now render and may continue
to render investment advice and other services to other investment
companies and persons which may or may not have investment policies and
investments similar to those of the Funds and that AEFC and IDS Life
manage their own investments and/or those of their subsidiaries. AEFC
and IDS Life shall be free to render such investment advice and other
services and each Fund hereby consents thereto.

<PAGE>

or may be interested in the Funds as directors, officers, shareholders,
or otherwise; or that AEFC or IDS Life or any successor or assignee, is
or may be interested in the Funds as shareholder or otherwise,
provided, however, that neither AEFC or IDS Life, nor any officer,
director or employee thereof or of the Funds, shall sell to or buy from
the Funds any property or security other than shares issued by the
Funds, except in accordance with applicable regulations or orders of
the SEC.

(5) Any notice under this Agreement shall be given in writing, addressed,
and delivered, or mailed postpaid, to the party to this Agreement
entitled to receive such, at such party's principal place of business
in Minneapolis, Minnesota, or to such other address as either party may
designate in writing mailed to the other.

(6) IDS Life agrees that no officer, director or employee of IDS Life will
deal for or on behalf of the Funds with himself as principal or agent,
or with any corporation or partnership in which he may have a financial
interest, except that this shall not prohibit:

(a) Officers, directors or employees of IDS Life from having a
financial interest in the Funds or in IDS Life.

(b) The purchase of securities for the Funds, or the sale of
securities owned by the Funds, through a security broker or
dealer, one or more of whose partners, officers, directors or
employees is an officer, director or employee of IDS Life,
provided such transactions are handled in the capacity of
broker only and provided commissions charged do not exceed
customary brokerage charges for such services.

(c) Transactions with the Funds by a broker-dealer affiliate of
IDS Life as may be allowed by rule or order of the SEC, and if
made pursuant to procedures adopted by the Board.

(7) IDS Life agrees that, except as herein otherwise expressly provided or
as may be permitted consistent with the use of a broker-dealer
affiliate of IDS Life under applicable provisions of the federal
securities laws, neither it nor any of its officers, directors or
employees shall at any time during the period of this Agreement, make,
accept or receive, directly or indirectly, any fees, profits or
emoluments of any character in connection with the purchase or sale of
securities (except shares issued by the Funds) or other assets by or
for the Funds.

Part Five: RENEWAL AND TERMINATION

(1) This Agreement shall continue in effect for two years from the date of
this Agreement, or until a new agreement is approved by a vote of the
majority of the outstanding shares of each Fund and by vote of the
Board, including the vote required by (b) of this paragraph, and if no
new agreement is so approved, this Agreement shall continue from year
to year thereafter unless and until terminated by either party as
hereinafter provided, except that such continuance shall be
specifically approved at least annually (a) by the Board or by a vote
of the majority of the outstanding shares of the Funds and (b) by the
vote of a majority of the directors who are not parties to this
Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval. As used in
this paragraph, the term "interested person" shall have the same
meaning as set forth in the Investment Company Act of 1940, as amended
(the "1940 Act").

(2) This Agreement may be terminated by either a Fund or IDS Life at any
time by giving the other party 60 days' written notice of such
intention to terminate, provided that any termination shall be made
without the payment of any penalty, and provided further that
termination may be effected either by the Board or by a vote of the
majority of the outstanding voting shares of the Fund. The

<PAGE>

vote of the majority of the outstanding voting shares of the Fund for
the purpose of this Part Five shall be the vote at a shareholders'
regular meeting, or a special meeting duly called for the purpose, of
67% or more of the Fund's shares present at such meeting if the holders
of more than 50% of the outstanding voting shares are present or
represented by proxy, or more than 50% of the outstanding voting shares
of the Fund, whichever is less.

(3) This Agreement shall terminate in the event of its assignment, the term
"assignment" for this purpose having the same meaning as set forth in
the 1940 Act.

IN WITNESS THEREOF, the parties hereto have executed the foregoing
Agreement as of the day and year first above written.

AXP VARIABLE PORTFOLIO - INVESTMENT SERIES, INC.
AXP Variable Portfolio - Emerging Markets Fund
AXP Variable Portfolio - S&P 500 Index Fund

By_______________________________________
Leslie L. Ogg
Vice President

IDS LIFE INSURANCE COMPANY

By______________________________________
Pamela J. Moret
Executive Vice President, Variable Assets

ADDENDUM TO INVESTMENT ADVISORY AGREEMENT

Schedule A of the Investment Advisory Agreement between IDS Life Insurance
Company (IDS Life) and American Express Financial Corporation (AEFC) dated
October, 14, 1998 is hereby amended to add 2 new investment portfolios, AXP
Variable Portfolio - Emerging Markets Fund and AXP Variable Portfolio - S&P 500
Index Fund. All other provisions of the Investment Advisory Agreement remain in
full force and effect.

IN WITNESS WHEREOF, the parties hereto have executed this Addendum as on the
__th day of April, 2000.

<TABLE>
<CAPTION>
<S> <C>
IDS LIFE INSURANCE COMPANY ATTEST:

By:________________________________________________ By:_________________________________________

Name: Pamela J. Moret Name: Chris A. Ingvalson
- --------------------------------------------------- --------------------------------------------
Title: Executive Vice President - Variable Assets Title: Assistant Secretary
- --------------------------------------------------- --------------------------------------------

AMERICAN EXPRESS FINANCIAL CORPORATION ATTEST:

By:_________________________________________________ By:_________________________________________

Name: Peter J. Anderson Name: Chris A. Ingvalson
- ---------------------------------------------------- --------------------------------------------
Title: Senior Vice President - Investment Operations Title: Assistant Secretary
- ---------------------------------------------------- --------------------------------------------

</TABLE>

<PAGE>

SCHEDULE A

- --------------------------------------------------------------------------------

FUND PERCENTAGE OF
NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

AXP Variable Portfolio - Income Series, Inc.
o AXP Variable Portfolio - Bond Fund 0.25%
o AXP Variable Portfolio - Extra Income Fund 0.25%
o AXP Variable Portfolio - Federal Income Fund 0.25%
o AXP Variable Portfolio - Global Bond Fund 0.25%

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

AXP Variable Portfolio - Investment Series, Inc.
o AXP Variable Portfolio - Blue Chip Advantage 0.25%
o AXP Variable Portfolio - Capital Resource Fund 0.25%
o AXP Variable Portfolio - Emerging Markets Fund 0.35%
o AXP Variable Portfolio - Growth Fund 0.25%
o AXP Variable Portfolio - International Fund 0.35%
o AXP Variable Portfolio - New Dimensions Fund 0.25%
o AXP Variable Portfolio - S&P 500 Index Fund 0.25%
o AXP Variable Portfolio - Small Cap Advantage Fund 0.25%
o AXP Variable Portfolio - Strategy Aggressive Fund 0.25%

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

AXP Variable Portfolio - Managed Series, Inc.
o AXP Variable Portfolio - Diversified Equity Income Fund 0.25%
o AXP Variable Portfolio - Managed Fund 0.25%

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

AXP Variable Portfolio - Money Market Series, Inc.
o AXP Variable Portfolio - Cash Management Fund 0.25%

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

IDS Life Series Fund, Inc.
o Equity Portfolio 0.25%
o Equity Income Portfolio 0.25%
o Income Portfolio 0.25%
o Money Market Portfolio 0.25%
o Managed Portfolio 0.25%
o Government Securities Portfolio 0.25%
o International Equity Portfolio 0.35%

- --------------------------------------------------------------------------------

ADDENDUM TO INVESTMENT ADVISORY AGREEMENT

Exhibit A of the Investment Advisory Agreement between American Express
Financial Corporation (AEFC) and American Express Asset Management International
Inc. (International) dated February 11, 1999 is hereby amended to add 1 new
investment portfolio, AXP Variable Portfolio - Emerging Markets Fund. All other
provisions of the Investment Advisory Agreement remain in full force and effect.

IN WITNESS WHEREOF, the parties hereto have executed this Addendum as on the
__th day of April, 2000.

AMERICAN EXPRESS FINANCIAL CORPORATION

Attest: _________________________ BY: __________________________
Secretary Senior Vice President -
Investment Operations

AMERICAN EXPRESS ASSET MANAGEMENT
INTERNATIONAL INC.

Attest: ________________________ BY: _________________________
Secretary President and Chief Executive
Officer

<PAGE>

EXHIBIT A

American Express Financial Corporation shall pay American Express Asset
Management International Inc. a fee equal on an annual basis as follows:

Fund Fee

Emerging Markets Portfolio 0.50% of daily net assets

World Growth Portfolio 0.35% of daily net assets

AXP Global Balanced Fund 0.35% of daily net assets

AXP International Fund 0.35% of daily net assets

AXP Variable Portfolio - Emerging Markets Fund 0.35% of daily net assets

AXP Variable Portfolio - International Equity Fund 0.35% of daily net assets

IDS Life Series Fund - International Equity Portfolio 0.35% of daily net assets

American Express Financial Corporation shall pay this compensation to American
Express Asset Management International Inc. in arrears on a monthly basis.

<PAGE>

To: American Express Asset Management International Inc. (International)

On behalf of the Funds listed below, I hereby acknowledge receipt of the
Attachment (drafted to comply with the United Kingdom's Investment Management
Regulatory Organisation) to the Investment Advisory Agreement presently
effective between International and American Express Financial Corporation. o
Emerging Markets Portfolio o World Growth Portfolio o AXP Global Balanced Fund o
AXP International Fund o AXP Variable Portfolio - Emerging Markets Fund o AXP
Variable Portfolio - International Equity Fund

Signed: ____________________________
Leslie L. Ogg
Title: Vice President

Date: _____________________________

ADMINISTRATIVE SERVICES AGREEMENT

AGREEMENT made the __th day of April, 2000, by and between AXP Variable
Portfolio - Investment Series, Inc. (the "Corporation"), a Minnesota
corporation, on behalf of its underlying series funds: AXP Variable Portfolio -
Emerging Markets Fund and AXP Variable Portfolio - S&P 500 Index Fund
(individually a "Fund" and collectively the "Funds"), and American Express
Financial Corporation, a Delaware corporation.

Part One: SERVICES

(1) The Corporation hereby retains American Express Financial Corporation,
and American Express Financial Corporation hereby agrees, for the
period of this Agreement and under the terms and conditions hereinafter
set forth, to furnish the Corporation continuously with all
administrative, accounting, clerical, statistical, correspondence,
corporate and all other services of whatever nature required in
connection with the administration of the Corporation as provided under
this Agreement; and to pay such expenses as may be provided for in Part
Three hereof; subject always to the direction and control of the Board
of Directors, the Executive Committee and the authorized officers of
the Corporation. American Express Financial Corporation agrees to
maintain an adequate organization of competent persons to provide the
services and to perform the functions herein mentioned. American
Express Financial Corporation agrees to meet with any persons at such
times as the Board of Directors deems appropriate for the purpose of
reviewing American Express Financial Corporation's performance under
this Agreement.

(2) The Corporation agrees that it will furnish to American Express
Financial Corporation any information that the latter may reasonably
request with respect to the services performed or to be performed by
American Express Financial Corporation under this Agreement.

(3) It is understood and agreed that in furnishing the Corporation with the
services as herein provided, neither American Express Financial
Corporation, nor any officer, director or agent thereof shall be held
liable to the Corporation or its creditors or shareholders for errors
of judgment or for anything except willful misfeasance, bad faith, or
gross negligence in the performance of its duties, or reckless
disregard of its obligations and duties under the terms of this
Agreement. It is further understood and agreed that American Express
Financial Corporation may rely upon information furnished to it
reasonably believed to be accurate and reliable.

Part Two: COMPENSATION FOR SERVICES

(1) The Corporation agrees to pay to American Express Financial
Corporation, and American Express Financial Corporation covenants and
agrees to accept from the Corporation in full payment for the services
furnished, based on the net assets of the Corporation as set forth in
the following table:

- -------------------------------------
AXP Variable Portfolio -
Emerging Markets Fund
Assets Annual rate at
(billions) each asset level
First $0.25 0.10%
Next 0.25 0.09
Next 0.25 0.08
Next 0.25 0.07
Next 1.00 0.06
Over 2.00 0.05
- ------------------- -----------------

<PAGE>

- -------------------------------------
AXP Variable Portfolio -
S&P 500 Index Fund
Assets Annual rate at
(billions) each asset level
First $1.00 0.080%
Next 1.00 0.075
Next 3.00 0.070
Over 5.00 0.065
- ------------------- -----------------

The administrative fee for each calendar day of each year shall be equal to
1/365th (1/366th in each leap year) of the total amount computed. The
computation shall be made for each such day on the basis of net assets as of the
close of business of the full business day two (2) business days prior to the
day for which the computation is being made. In the case of the suspension of
the computation of net asset value, the administrative fee for each day during
such suspension shall be computed as of the close of business on the last full
business day on which the net assets were computed. As used herein, "net assets"
as of the close of a full business day shall include all transactions in shares
of the Corporation recorded on the books of the Corporation for that day.

(2) The administrative fee shall be paid on a monthly basis and, in the
event of the termination of this Agreement, the administrative fee
accrued shall be prorated on the basis of the number of days that this
Agreement is in effect during the month with respect to which such
payment is made.

(3) The administrative fee provided for hereunder shall be paid in cash by
the Corporation to American Express Financial Corporation within five
(5) business days after the last day of each month.

Part Three: ALLOCATION OF EXPENSES

(1) The Corporation agrees to pay:

(a) Administrative fees payable to American Express Financial
Corporation for its services under the terms of this
Agreement.

(b) Taxes.

(d) Fees and expenses of attorneys (i) it employs in matters not
involving the assertion of a claim by a third party against
the Corporation, its directors and officers, (ii)it employs in
conjunction with a claim asserted by the Board of Directors
against American Express Financial Corporation, except that
American Express Financial Corporation shall reimburse the
Corporation for such fees and expenses if it is ultimately
determined by a court of competent jurisdiction, or American
Express Financial Corporation agrees, that it is liable in
whole or in part to the Corporation, and (iii) it employs to
assert a claim against a third party.

(e) Fees paid for the qualification and registration for public
sale of the securities of the Corporation under the laws of
the United States and of the several states in which such
securities shall be offered for sale.

<PAGE>

(f) Office expenses which shall include a charge for occupancy,
insurance on the premises, furniture and equipment, telephone,
telegraph, electronic information services, books,
periodicals, published services, and office supplies used by
the Corporation, equal to the cost of such incurred by
American Express Financial Corporation.

(g) Fees of consultants employed by the Corporation.

(h) Directors, officers and employees expenses which shall include
fees, salaries, memberships, dues, travel, seminars, pension,
profit sharing, and all other benefits paid to or provided for
directors, officers and employees, directors and officers
liability insurance, errors and omissions liability insurance,
worker's compensation insurance and other expenses applicable
to the directors, officers and employees, except the
Corporation will not pay any fees or expenses of any person
who is an officer or employee of American Express Financial
Corporation or its affiliates.

(i) Filing fees and charges incurred by the Corporation in
connection with filing any amendment to its articles of
incorporation, or incurred in filing any other document with
the State of Minnesota or its political subdivisions.

(j) Organizational expenses of the Corporation.

(k) One-half of the Investment Company Institute membership dues
charged jointly to the American Express(R) Funds and American
Express Financial Corporation.

(l) Expenses properly payable by the Corporation, approved by the
Board of Directors.

(2) American Express Financial Corporation agrees to pay all expenses
associated with the services it provides under the terms of this
Agreement. Further, American Express Financial Corporation agrees that
if, at the end of any month, the expenses of the Corporation under this
Agreement and any other agreement between the Corporation and American
Express Financial Corporation, but excluding those expenses set forth
in (1)(b) of this Part Three, exceed the most restrictive applicable
state expenses limitation, the Corporation shall not pay those expenses
set forth in (1)(a) and (c) through (m) of this Part Three to the
extent necessary to keep the Corporation's expenses from exceeding the
limitation, it being understood that American Express Financial
Corporation will assume all unpaid expenses and bill the Corporation
for them in subsequent months but in no event can the accumulation of
unpaid expenses or billing be carried past the end of the Corporation's
fiscal year.

Part Four: MISCELLANEOUS

(1) American Express Financial Corporation shall be deemed to be an
independent contractor and, except as expressly provided or authorized
in this Agreement, shall have no authority to act for or represent the
Corporation.

(2) A "full business day" shall be as defined in the By-laws.

(3) The Corporation recognizes that American Express Financial Corporation
now renders and may continue to render investment advice and other
services to other investment companies and persons which may or may not
have investment policies and investments similar to those of the
Corporation and that American Express Financial Corporation manages its
own investments and/or those of its subsidiaries. American Express
Financial Corporation shall be free to render such investment advice
and other services and the Corporation hereby consents thereto.

<PAGE>

(4) Neither this Agreement nor any transaction had pursuant hereto shall be
invalidated or in anyway affected by the fact that directors, officers,
agents and/or shareholders of the Corporation are or may be interested
in American Express Financial Corporation or any successor or assignee
thereof, as directors, officers, stockholders or otherwise; that
directors, officers, stockholders or agents of American Express
Financial Corporation are or may be interested in the Corporation as
directors, officers, shareholders, or otherwise; or that American
Express Financial Corporation or any successor or assignee, is or may
be interested in the Corporation as shareholder or otherwise, provided,
however, that neither American Express Financial Corporation, nor any
officer, director or employee thereof or of the Corporation, shall sell
to or buy from the Corporation any property or security other than
shares issued by the Corporation, except in accordance with applicable
regulations or orders of the United States Securities and Exchange
Commission.

(6) American Express Financial Corporation agrees that no officer, director
or employee of American Express Financial Corporation will deal for or
on behalf of the Corporation with himself as principal or agent, or
with any corporation or partnership in which he may have a financial
interest, except that this shall not prohibit officers, directors or
employees of American Express Financial Corporation from having a
financial interest in the Corporation or in American Express Financial
Corporation.

(7) The Corporation agrees that American Express Financial Corporation 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 American Express Financial
Corporation remains fully responsible for the services.

(8) 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. This Agreement shall be governed by the laws of the
State of Minnesota.

<PAGE>

Part Five: RENEWAL AND TERMINATION

(1) 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.

(2) This Agreement may not be amended or modified in any manner except by a
written agreement executed by both parties.

IN WITNESS THEREOF, the parties hereto have executed the foregoing Agreement as
of the day and year first above written.

AXP VARIABLE PORTFOLIO - INVESTMENT SERIES, INC.
AXP Variable Portfolio - Emerging Markets Fund
AXP Variable Portfolio - S&P 500 Index Fund

By:________________________________
Leslie L. Ogg
Vice President

AMERICAN EXPRESS FINANCIAL CORPORATION

By:________________________________
Pamela J. Moret
Senior Vice President - Investment Products

CUSTODIAN AGREEMENT

THIS CUSTODIAN AGREEMENT dated April __, 2000, between AXP Variable Portfolio -
Investment Series, Inc., a Minnesota corporation, (the "Corporation"), on behalf
of its underlying series funds: AXP Variable Portfolio - Emerging Markets Fund
and AXP Variable Portfolio - S&P 500 Index Fund and American Express Trust
Company, a corporation organized under the laws of the State of Minnesota with
its principal place of business at Minneapolis, Minnesota (the "Custodian").

WHEREAS, the Corporation desires that its securities and cash be hereafter held
and administered by Custodian pursuant to the terms of this Agreement.

NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Corporation and the Custodian agree as follows:

Section 1. Definitions

The word "securities" as used herein shall be construed to include, without
being limited to, shares, stocks, treasury stocks, including any stocks of this
Corporation, notes, bonds, debentures, evidences of indebtedness, options to buy
or sell stocks or stock indexes, certificates of interest or participation in
any profit-sharing agreements, collateral trust certificates, preorganization
certificates or subscriptions, transferable shares, investment contracts, voting
trust certificates, certificates of deposit for a security, fractional or
undivided interests in oil, gas or other mineral rights, or any certificates of
interest or participation in, temporary or interim certificates for, receipts
for, guarantees of, or warrants or rights to subscribe to or purchase any of the
foregoing, acceptances and other obligations and any evidence of any right or
interest in or to any cash, property or assets and any interest or instrument
commonly known as a security. In addition, for the purpose of this Custodian
Agreement, the word "securities" also shall include other instruments in which
the Corporation may invest including currency forward contracts and commodities
such as interest rate or index futures contracts, margin deposits on such
contracts or options on such contracts.

The words "custodian order" shall mean a request or direction, including a
computer printout, directed to the Custodian and signed in the name of the
Corporation by any two individuals designated in the current certified list
referred to in Section 2.

The word "facsimile" shall mean an exact copy or likeness which is
electronically transmitted for instant reproduction.

Section 2. Names, Titles and Signatures of Authorized Persons

The Corporation will certify to the Custodian the names and signatures of its
present officers and other designated persons authorized on behalf of the
Corporation to direct the Custodian by custodian order as herein before defined.
The Corporation agrees that whenever any change occurs in this list it will file
with the Custodian a copy of a resolution certified by the Secretary or an
Assistant Secretary of the Corporation as having been duly adopted by the Board
of Directors or the Executive Committee of the Board of Directors of the
Corporation designating those persons currently authorized on behalf of the
Corporation to direct the Custodian by custodian order, as herein before
defined, and upon such filing (to be accompanied by the filing of specimen
signatures of the designated persons) the persons so designated in said
resolution shall constitute the current certified list. The Custodian is
authorized to rely and act upon the names and signatures of the individuals as
they appear in the most recent certified list from the Corporation which has
been delivered to the Custodian as herein above provided.

<PAGE>

Section 3. Use of Subcustodians

The Custodian may make arrangements, where appropriate, with other banks having
not less than two million dollars aggregate capital, surplus and undivided
profits for the custody of securities. Any such bank selected by the Custodian
to act as subcustodian shall be deemed to be the agent of the Custodian.

The Custodian also may enter into arrangements for the custody of securities
entrusted to its care through foreign branches of United States banks; through
foreign banks, banking institutions or trust companies; through foreign
subsidiaries of United States banks or bank holding companies, or through
foreign securities depositories or clearing agencies (hereinafter also called,
collectively, the "Foreign Subcustodian" or indirectly through an agent,
established under the first paragraph of this section, if and to the extent
permitted by Section 17(f) of the Investment Company Act of 1940 and the rules
promulgated by the Securities and Exchange Commission thereunder, any order
issued by the Securities and Exchange Commission, or any "no-action" letter
received from the staff of the Securities and Exchange Commission. To the extent
the existing provisions of the Custodian Agreement are consistent with the
requirements of such Section, rules, order or no-action letter, they shall apply
to all such foreign custodianships. To the extent such provisions are
inconsistent with or additional requirements are established by such Section,
rules, order or no-action letter, the requirements of such Section, rules, order
or no-action letter will prevail and the parties will adhere to such
requirements; provided, however, in the absence of notification from the
Corporation of any changes or additions to such requirements, the Custodian
shall have no duty or responsibility to inquire as to any such changes or
additions.

Section 4. Receipt and Disbursement of Money

(1) The Custodian shall open and maintain a separate account or accounts in
the name of the Corporation or cause its agent to open and maintain
such account or accounts subject only to checks, drafts or directives
by the Custodian pursuant to the terms of this Agreement. The Custodian
or its agent shall hold in such account or accounts, subject to the
provisions hereof, all cash received by it from or for the account of
the Corporation. The Custodian or its agent shall make payments of cash
to or for the account of the Corporation from such cash only:

(a) for the purchase of securities for the portfolio of the
Corporation upon the receipt of such securities by the
Custodian or its agent unless otherwise instructed on behalf
of the Corporation;

(b) for the purchase or redemption of shares of capital stock of
the Corporation;

(c) for the payment of interest, dividends, taxes, management
fees, or operating expenses (including, without limitation
thereto, fees for legal, accounting and auditing services);

(d) for payment of distribution fees, commissions, or redemption
fees, if any;

(e) for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the
Corporation held by or to be delivered to the Custodian;

(f) for payments in connection with the return of securities
loaned by the Corporation upon receipt of such securities or
the reduction of collateral upon receipt of proper notice;

(g) for payments for other proper corporate purposes;

(h) or upon the termination of this Agreement.

Before making any such payment for the purposes permitted under the terms of
items (a), (b), (c), (d), (e), (f) or (g) of paragraph (1) of this section, the
Custodian shall receive and may rely upon a custodian order directing such
payment and stating that the payment is for such a purpose permitted under these
items (a), (b), (c), (d), (e), (f) or (g) or, where appropriate, a trade
affirmation report, and that in respect to item (g), a copy of a resolution of
the Board of Directors or of the Executive Committee of the Board of Directors
of the Corporation signed by an officer of the Corporation and certified by its
Secretary or an Assistant Secretary, specifying the amount of such payment,
setting forth the purpose to be a proper corporate purpose, and naming the
person or persons to whom such payment is made. Notwithstanding the above, for
the purposes permitted under items (a) or (f) of paragraph (1) of this section,
the Custodian may rely upon a facsimile order.

(2) The Custodian is hereby appointed the attorney-in-fact of the
Corporation to endorse and collect all checks, drafts or other orders
for the payment of money received by the Custodian for the account of
the Corporation and drawn on or to the order of the Corporation and to
deposit same to the account of the Corporation pursuant to this
Agreement.

Section 5. Receipt of Securities

Except as permitted by the second paragraph of this section, the Custodian or
its agent shall hold in a separate account or accounts, and physically
segregated at all times from those of any other persons, firms or corporations,
pursuant to the provisions hereof, all securities received by it for the account
of the Corporation. The Custodian shall record and maintain a record of all
certificate numbers. Securities so received shall be held in the name of the
Corporation, in the name of an exclusive nominee duly appointed by the Custodian
or in bearer form, as appropriate.

Subject to such rules, regulations or guidelines as the Securities and Exchange
Commission may adopt, the Custodian may deposit all or any part of the
securities owned by the Corporation in a securities depository which includes
any system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, or
such other person as may be permitted by the Commission, pursuant to which
system all securities of any particular class or series of any issuer deposited
within the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities.

All securities are to be held or disposed of by the Custodian for, and subject
at all times to the instructions of, the Corporation pursuant to the terms of
this Agreement. The Custodian shall have no power or authority to assign,
hypothecate, pledge or otherwise dispose of any such securities, except pursuant
to the directive of the Corporation and only for the account of the Corporation
as set forth in Section 6 of this Agreement.

Section 6. Transfer Exchange, Delivery, etc. of Securities

The Custodian shall have sole power to release or deliver any securities of the
Corporation held by it pursuant to this Agreement. The Custodian agrees to
transfer, exchange or deliver securities held by it or its agent hereunder only:

(a) for sales of such securities for the account of the Corporation, upon
receipt of payment therefor;

(b) when such securities are called, redeemed, retired or otherwise
become payable;

(c) for examination upon the sale of any such securities in accordance with
"street delivery" custom which would include delivery against interim
receipts or other proper delivery receipts;

(d) in exchange for or upon conversion into other securities alone or other
securities and cash whether pursuant to any plan of

(e) merger, consolidation, reorganization, recapitalization or
readjustment, or otherwise;

(f) for the purpose of exchanging interim receipts or temporary
certificates for permanent
certificates;

(g) upon conversion of such securities pursuant to their terms into other
securities;

(h) upon exercise of subscription, purchase or other similar rights
represented by such securities; for loans of such securities by the
Corporation upon receipt of collateral; or

(i) for other proper corporate purposes.

As to any deliveries made by the Custodian pursuant to items (a), (b), (c), (d),
(e), (f), (g) and (h), securities or cash received in exchange therefore shall
be delivered to the Custodian, its agent, or to a securities depository. Before
making any such transfer, exchange or delivery, the Custodian shall receive a
custodian order or a facsimile from the Corporation requesting such transfer,
exchange or delivery and stating that it is for a purpose permitted under
Section 6 or, where appropriate, a trade affirmation report, (whenever a
facsimile is utilized, the Corporation will also deliver an original signed
custodian order) and, in respect to item (i), a copy of a resolution of the
Board of Directors or of the Executive Committee of the Board of Directors of
the Corporation signed by an officer of the Corporation and certified by its
Secretary or an Assistant Secretary, specifying the securities, setting forth
the purpose for which such payment, transfer, exchange or delivery is to be
made, declaring such purpose to be a proper corporate purpose, and naming the
person or persons to whom such transfer, exchange or delivery of such securities
shall be made.

Section 7. Custodian's Acts Without Instructions

Unless and until the Custodian receives a contrary custodian order from the
Corporation, the Custodian shall or shall cause its agent to:

(a) present for payment all coupons and other income items held by the
Custodian or its agent for the account of the Corporation which call
for payment upon presentation and hold all cash received by it upon
such payment for the account of the Corporation;

(b) present for payment all securities held by it or its agent which mature
or when called, redeemed, retired or otherwise become payable;

(c) ascertain all stock dividends, rights and similar securities to be
issued with respect to any securities held by the Custodian or its
agent hereunder, and to collect and hold for the account of the
Corporation all such securities; and

(d) ascertain all interest and cash dividends to be paid to security
holders with respect to any securities held by the Custodian or its
agent, and to collect and hold such interest and cash dividends for the
account of the Corporation.

Section 8. Voting and Other Action

Neither the Custodian nor any nominee of the Custodian shall vote any of the
securities held hereunder by or for the account of the Corporation. The
Custodian shall promptly deliver to the Corporation all notices, proxies and
proxy soliciting materials with relation to such securities, such proxies to be
executed by the registered holder of such securities (if registered otherwise
than in the name of the Corporation), but without indicating the manner in which
such proxies are to be voted.

Custodian shall transmit promptly to the Corporation all written information
(including, without limitation, pendency of calls and maturities of securities
and expirations of rights in connection therewith) received by the Custodian
from issuers of the securities being held for the Corporation. With respect to
tender or exchange offers, the Custodian shall transmit promptly to the
Corporation all written information received by the Custodian from issuers of
the securities whose tender or exchange is sought and from the party (or his
agents) making the tender or exchange offer.

Section 9. Transfer Taxes

The Corporation shall pay or reimburse the Custodian for any transfer taxes
payable upon transfers of securities made hereunder, including transfers
resulting from the termination of this Agreement. The Custodian shall execute
such certificates in connection with securities delivered to it under this
Agreement as may be required, under any applicable law or regulation, to exempt
from taxation any transfers and/or deliveries of any such securities which may
be entitled to such exemption.

Section 10. Custodian's Reports

The Custodian shall furnish the Corporation as of the close of business each day
a statement showing all transactions and entries for the account of the
Corporation. The books and records of the Custodian pertaining to its actions as
Custodian under this Agreement and securities held hereunder by the Custodian
shall be open to inspection and audit by officers of the Corporation, internal
auditors employed by the Corporation's investment adviser, and independent
auditors employed by the Corporation. The Custodian shall furnish the
Corporation in such form as may reasonably be requested by the Corporation a
report, including a list of the securities held by it in custody for the account
of the Corporation, identification of any subcustodian, and identification of
such securities held by such subcustodian, as of the close of business of the
last business day of each month, which shall be certified by a duly authorized
officer of the Custodian. It is further understood that additional reports may
from time to time be requested by the Corporation. Should any report ever be
filed with any governmental authority pertaining to lost or stolen securities,
the Custodian will concurrently provide the Corporation with a copy of that
report.

The Custodian also shall furnish such reports on its systems of internal
accounting control as the Corporation may reasonably request from time to time.

Section 11. Concerning Custodian

For its services hereunder the Custodian shall be paid such compensation at such
times as may from time to time be agreed on in writing by the parties hereto in
a Custodian Fee Agreement.

The Custodian shall not be liable for any action taken in good faith upon any
custodian order or facsimile herein described, trade affirmation report, or
certified copy of any resolution of the Board of Directors or of the Executive
Committee of the Board of Directors of the Corporation, and may rely on the
genuineness of any such document which it may in good faith believe to have been
validly prepared or executed.

The Corporation agrees to indemnify and hold harmless Custodian and its nominee
from all taxes, charges, expenses, assessments, claims and liabilities
(including counsel fees) incurred or assessed against it or its nominee in
connection with the performance of this Agreement, except such as may arise from
the Custodian's or its nominee's own negligent action, negligent failure to act
or willful misconduct. Custodian is authorized to charge any account of the
Corporation for such items. In the event of any advance of cash for any purpose
made by Custodian resulting from orders or instructions of the Corporation, or
in the event that Custodian or its nominee shall incur or be assessed any taxes,
charges, expenses, assessments, claims or liabilities in connection with the
performance of this Agreement, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the Corporation shall be
security therefor.

The Custodian shall maintain a standard of care equivalent to that which would
be required of a bailee for hire and shall not be liable for any loss or damage
to the Corporation resulting from participation in a securities depository
unless such loss or damage arises by reason of any negligence, misfeasance, or
willful misconduct of officers or employees of the Custodian, or from its
failure to enforce effectively such rights as it may have against any securities
depository or from use of an agent, unless such loss or damage arises by reason
of any negligence, misfeasance, or willful misconduct of officers or employees
of the Custodian, or from its failure to enforce effectively such rights as it
may have against any agent.

Section 12. Termination and Amendment of Agreement

The Corporation and the Custodian mutually may agree from time to time in
writing to amend, to add to, or to delete from any provision of this Agreement.

The Custodian may terminate this Agreement by giving the Corporation ninety
days' written notice of such termination by registered mail addressed to the
Corporation at its principal place of business.

The Corporation may terminate this Agreement at any time by written notice
thereof delivered, together with a copy of the resolution of the Board of
Directors authorizing such termination and certified by the Secretary of the
Corporation, by registered mail to the Custodian.

Upon such termination of this Agreement, assets of the Corporation held by the
Custodian shall be delivered by the Custodian to a successor custodian, if one
has been appointed by the Corporation, upon receipt by the Custodian of a copy
of the resolution of the Board of Directors of the Corporation certified by the
Secretary, showing appointment of the successor custodian, and provided that
such successor custodian is a bank or trust company, organized under the laws of
the United States or of any State of the United States, having not less than two
million dollars aggregate capital, surplus and undivided profits. Upon the
termination of this Agreement as a part of the transfer of assets, either to a
successor custodian or otherwise, the Custodian will deliver securities held by
it hereunder, when so authorized and directed by resolution of the Board of
Directors of the Corporation, to a duly appointed agent of the successor
custodian or to the appropriate transfer agents for transfer of registration and
delivery as directed. Delivery of assets on termination of this Agreement shall
be effected in a reasonable, expeditious and orderly manner; and in order to
accomplish an orderly transition from the Custodian to the successor custodian,
the Custodian shall continue to act as such under this Agreement as to assets in
its possession or control. Termination as to each security shall become
effective upon delivery to the successor custodian, its agent, or to a transfer
agent for a specific security for the account of the successor custodian, and
such delivery shall constitute effective delivery by the Custodian to the
successor under this Agreement.

In addition to the means of termination herein before authorized, this Agreement
may be terminated at any time by the vote of a majority of the outstanding
shares of the Corporation and after written notice of such action to the
Custodian.

<PAGE>

Section 13. General

Nothing expressed or mentioned in or to be implied from any provision of this
Agreement is intended to, or shall be construed to give any person or
corporation other than the parties hereto, any legal or equitable right, remedy
or claim under or in respect of this Agreement, or any covenant, condition or
provision herein contained, this Agreement and all of the covenants, conditions
and provisions hereof being intended to be and being for the sole and exclusive
benefit of the parties hereto and their respective successors and assigns.

This Agreement shall be governed by the laws of the State of Minnesota.

AXP VARIABLE PORTFOLIO - INVESTMENT SERIES, INC.
AXP Variable Portfolio - Emerging Markets Fund
AXP Variable Portfolio - S&P 500 Index Fund

By:
Leslie L. Ogg
Vice President

AMERICAN EXPRESS TRUST COMPANY

By:
Chandrakant A. Patel
Vice President

February 11, 2000

AXP Variable Portfolio - Investment Series, Inc.
IDS Tower 10
Minneapolis, Minnesota 55440-0010

Gentlemen:

I have examined the Articles of Incorporation and the By-Laws of AXP Variable
Portfolio - Investment Series, Inc. (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 that the
shares sold in accordance with applicable federal and state securities laws will
be legally issued, fully paid, and nonassessable.

This opinion may be used in connection with the Post-Effective Amendment.

Sincerely,

/s/ Leslie L. Ogg
Leslie L. Ogg
Attorney at Law
901 S. Marquette Ave., Suite 2810
Minneapolis, Minnesota 55402-3268

Plan and Agreement of Distribution

This Plan and Agreement of Distribution ("Plan") is between AXP Variable
Portfolio - Investment Series, Inc. on behalf of its series of capital stock,
AXP Variable Portfolio - Emerging Markets Fund and AXP Variable Portfolio - S&P
500 Index Fund, a registered management investment company, ("the Portfolio")
and IDS Life Insurance Company ("IDS Life"). It is effective April __, 2000.

This Plan provides that:

1. IDS Life will purchase the Portfolio's shares on behalf of its separate
accounts and the separate accounts of its affiliated life insurance
companies established for the purpose of funding variable life
insurance, annuity contracts or both (collectively referred to as
"Variable Contracts"). Additionally, IDS Life may offer the Portfolio's
shares to one or more unaffiliated life insurance companies
("Unaffiliated Life Companies") for purchase on behalf on certain of
their separate accounts established for the purpose of funding Variable
Contracts.

2. The Portfolio will reimburse IDS Life up to 0.125% of its daily net
assets for various costs paid and accrued in connection with the
distribution of the Portfolio's shares and for services provided to
existing and prospective Variable Contract owners. Payments made under
the Plan are based on budgeted expenses and shall be made within five
(5) business days after each month. At the end of each calendar year,
IDS Life shall furnish a declaration setting out the actual expenses it
has paid and accrued. Any money that has been paid in excess of the
amount of these expenses shall be returned to the Portfolio.

3. IDS Life represents that the money paid by the Portfolio will benefit
the variable Contract owners and not the separate accounts that legally
own the shares and be for the following:

(a) printing and mailing prospectuses, Statements of Additional
Information, supplements, and reports to existing and
prospective Variable Contract owners;

(b) preparation and distribution of advertisement, sales
literature, brokers' materials and promotional materials
relating to the Portfolio;

(d) training sales personnel regarding the Portfolio;

(e) compensation of sales personnel for sale of the Portfolio's
shares;

(f) compensation of sales personnel for assisting Variable
Contract owners with respect to the Portfolio shares;

(g) overhead of IDS Life and its affiliates appropriately
allocated to the promotion of sale of the Portfolio's shares;
and

(h) any activity primarily intended to result in the sale of the
Portfolio's shares, including payments to Unaffiliated Life
Companies.

4. IDS Life shall provide all information relevant and necessary for the
Board to make informed determinations about whether the Plan should be
continued and shall:

(a) submit quarterly a report that sets out the expenses paid or
accrued by it, the names of the Unaffiliated Life Companies to
whom the Portfolio's shares are sold, and the payments made to
each Unaffiliated Life Company that has been reimbursed;

(b) monitor the level and quality of services provided by it and
all affiliated companies and will use its best efforts to
assure that in each case legitimate services are rendered in
return for the reimbursement pursuant to the Plan ;and

5. IDS Life represents that it and all affiliated insurance company
sponsors will provide full disclosure of the Portfolio's 12b-1 Plan in
the prospectus for any separate account investing in the Portfolio and
will clearly communicate the combined effect of all fees and costs,
including the reimbursement under the 12b-1 Plan, imposed by the
separate account and the Portfolio in accordance with applicable laws.

6. All payments by IDS Life to Unaffiliated Life Companies shall be made
pursuant to a written agreement (Related Agreement). All such written
agreements will be in a form approved by a majority of the Portfolio's
independent members of the board and the board as a whole before it
shall be used. The Related Agreement shall:

(a) require full disclosure of the combined effect of all fees and
charges in accordance with applicable laws;

(b) provide for the termination at any time without penalty as
required by Rule 12b-1; and

7. The Portfolio represents that the Plan has been approved as required by
Rule 12b-1 and may continue for more than one year so long as it is
continued as required by Rule 12b-1 and shall terminate automatically
in the event of an assignment.

8. The Plan may not be amended to materially increase the amount of the
payments without the approval of the outstanding voting securities.

AXP VARIABLE PORTFOLIO - INVESTMENT SERIES, INC.
AXP Variable Portfolio - Emerging Markets Fund
AXP Variable Portfolio - S&P 500 Index Fund

Leslie L. Ogg
Vice President

IDS LIFE INSURANCE COMPANY

Pamela J. Moret
Executive Vice President, Variable Assets

DIRECTORS' POWER OF ATTORNEY

City of Minneapolis

State of Minnesota

Each of the undersigned, as directors 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

AXP Variable Portfolio - Investment Series, Inc. 2-73115 811-3218
AXP Variable Portfolio - Managed Series, Inc. 2-96367 811-4252
AXP Variable Portfolio - Money Market Series, Inc. 2-72584 811-3190
AXP Variable Portfolio - Income Series, Inc. 2-73113 811-3219

hereby constitutes and appoints William R. Pearce, Arne H. Carlson 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.

Dated the 13th day of January, 2000.

/s/ H. Brewster Atwater, Jr. /s/ Anne P. Jones
H. Brewster Atwater, Jr. Anne P. Jones

/s/ Arne H. Carlson /s/ William R. Pearce
Arne H. Carlson William R. Pearce

/s/ Lynne V. Cheney /s/ Alan K. Simpson
Lynne V. Cheney Alan K. Simpson

/s/ David R. Hubers /s/ John R. Thomas
David R. Hubers John R. Thomas

/s/ Heinz F. Hutter /s/ C. Angus Wurtele
Heinz F. Hutter C. Angus Wurtele

Officers' Power of Attorney

City of Minneapolis

State of Minnesota

Each of the undersigned, as officers 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

AXP Bond Fund, Inc. 2-51586 811-2503
AXP California Tax-Exempt Trust 33-5103 811-4646
AXP Discovery Fund, Inc. 2-72174 811-3178
AXP Equity Select Fund, Inc. 2-13188 811-772
AXP Extra Income Fund, Inc. 2-86637 811-3848
AXP Federal Income Fund, Inc. 2-96512 811-4260
AXP Global Series, Inc. 33-25824 811-5696
AXP Growth Series, Inc. 2-38355 811-2111
AXP High Yield Tax-Exempt Fund, Inc. 2-63552 811-2901
AXP International Fund, Inc. 2-92309 811-4075
AXP Investment Series, Inc. 2-11328 811-54
AXP Variable Portfolio-Investment Series, Inc. 2-73115 811-3218
AXP Variable Portfolio-Managed Series, Inc. 2-96367 811-4252
AXP Variable Portfolio-Money Market Series, Inc. 2-72584 811-3190
AXP Variable Portfolio-Income Series, Inc. 2-73113 811-3219
AXP Managed Series, Inc. 2-93801 811-4133
AXP Market Advantage Series, Inc. 33-30770 811-5897
AXP Money Market Series, Inc. 2-54516 811-2591
AXP New Dimensions Fund, Inc. 2-28529 811-1629
AXP Precious Metals Fund, Inc. 2-93745 811-4132
AXP Progressive Fund, Inc. 2-30059 811-1714
AXP Selective Fund, Inc. 2-10700 811-499
AXP Special Tax-Exempt Series Trust 33-5102 811-4647
AXP Stock Fund, Inc. 2-11358 811-498
AXP Strategy Series, Inc. 2-89288 811-3956
AXP Tax-Exempt Series, Inc. 2-57328 811-2686
AXP Tax-Free Money Fund, Inc. 2-66868 811-3003
AXP Utilities Income Fund, Inc. 33-20872 811-5522

hereby constitutes and appoints the other as his attorney-in-fact and agent, to
sign for him in his name, place and stead any and all further amendments to said
registration statement 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.

Dated the 13th day of January, 2000.

/s/ Arne H. Carlson /s/ Leslie L. Ogg
Arne H. Carlson Leslie L. Ogg

/s/ John R. Thomas /s/ Peter J. Anderson
John R. Thomas Peter J. Anderson

/s/ Frederick C. Quirsfeld /s/ John M. Knight
Frederick C. Quirsfeld John M. Knight